Advisers must improve portfolio monitoring, management: lawyer

Data from the Financial Ombudsman Service shows advisers are losing in complaints proceedings concerning underperforming client portfolios, signifying a need for better monitoring and management of investments, says Claire Wivell Plater, managing director of The Fold Legal.

Pressure from clients and regulators for advisers to deliver better portfolio management and monitoring is increasing, she said, adding that FOS data shows that clients are often successful in complaints brought to FOS concerning these areas.

“In the direct aftermath of the GFC, the public eye was on the appropriateness of financial products recommended by advisers. Now there are signs the spotlight has shifted to advisers’ ongoing service obligations for monitoring and managing investments,” she said.

“Ongoing monitoring of clients’ investments is likely to be the subject of increased scrutiny going forward – by both clients and corporate regulators.

“The Financial Ombudsman Service’s archives abound with successful complaints against advisers who failed to warn clients about underperformance in their portfolios," she said.

“These determinations make it clear that advisers who offer to provide an ongoing monitoring service will be liable if their client suffers a loss as a result of their failure to do so.”

To protect themselves, Ms Wivell Plater suggests advisers describe their monitoring services “very carefully” to clients.

“They may be contractually obliged to provide continuous monitoring unless their agreement specifically states otherwise, i.e. on a quarterly basis,” she said.

“Regardless of the wording of service agreements, it is not unreasonable for clients who pay an ongoing fee to expect their adviser will tell them if the market is dropping. Failure to do so could result in hefty compensation payments.”

Ms Wivell Plater added that there is technology available to help advisers with portfolio monitoring.

“Using these systems, financial advisers can quickly access portfolios to ensure they are within required asset allocations, and adjust if necessary,” she said.

“While specific technologies are unlikely to become mandatory, the standard expected of financial advisers is likely to reflect technological advancements. Advisers who are unable to demonstrate that they are proactively monitoring client portfolios could find it difficult to satisfy the regulator that they have appropriate systems in place.”

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