A newly-launched firm in the UK has taken aim at how it claims the term "outsourcing" of investment functions is used.

A newly-launched UK business working in the financial advisory space has launched a broadside against how the term “outsourcing” is used to describe advisor firms using a discretionary investment management service, claiming the word is often misleading, or a piece of industry "folklore".

Diminimis, which is a research and due diligence service for advisor firms and sister business to Harrison Spence, an advisor to IFAs, says referral to a discretionary investment management service is rarely a case of genuine outsourcing, and is actually impossible unless the advisor has what are called managing investment permissions.

The unintended consequence of current practice is that many advisors think the DIM is responsible for far more than they actually are, creating a potential “suitability gap”. The situation is serious at a time when the Financial Conduct Authority, the UK regulator, is carrying out a thematic review of how advisors make due diligence checks on services and products, the firm said in a recent statement.   

“Referral to a discretionary investment management service is rarely ‘outsourcing’ - in fact it is impossible unless the advisor has ‘managing investment permissions’ and then the responsibility remains with the advisor,” David Gurr, founding director of Diminimis, said. “Outsourcing in this instance therefore means precisely the opposite of what many in the industry think,” he continued.

The firm said it provides “a new approach to assist advisors that want to either review existing DIM relationships or are considering working with DIMs for the first time.”

The firm said many advisors have a legacy book of discretionary investment management portfolio business created well before the industry was shaken up by the Retail Distribution Review reforms, and due diligence procedures may need to be reviewed.

“What makes Diminimis distinct is that it works with the advisor firm to help articulate their requirements before identifying those discretionary investment management services that are the closest fit for their firm and their clients,” Gurr said.

“To have a high degree of confidence in meeting client outcomes, due diligence needs to be central to advisor firms’ informed decision-making both at the start of the relationship, and on an ongoing basis. This is challenging – and costly – for individual firms to do alone,” he said.

Gurr is a financial services veteran with 35 years’ experience in the industry, of which 15 have been spent working with DIMs, most recently as managing director and head of financial intermediaries for Deutsche Bank Private Wealth Management.

The launch of the service, Gurr said, comes at a time when more than half of independent financial advisors are using DIMs to meet some or all of their clients’ investment needs.