The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - today published its first monitoring report of the Discretionary Investment Management Services (DIMS) sector. The report found that while DIMS providers strive for positive investor outcomes, there is room for improvement in their processes and controls.
DIMS is a large part of the wealth management sector in New Zealand. It involves investors giving their provider authority to use their discretion about buying and selling financial products on their behalf.
There are 49 active licensed DIMS providers in New Zealand. They collectively manage more than 47,000 retail accounts with funds under management of $48 billion. The average DIMS investor portfolio value as of June 2024 was approximately $1 million.
In 2022, the FMA surveyed DIMS providers to find out how their governance, policies, processes, systems, and controls were used to meet compliance obligations and mitigate the risk of investor harm. Following the survey, the FMA monitored nine licensed DIMS providers. Taking a risk-based approach, the monitoring reviews focused on five key areas, being:
- Conflicts of interest
- Investment management
- Investment strategy
- Investment performance monitoring
- Fee disclosure and transparency.
The report discusses the inherent risks in each of these areas, the good practice the FMA observed, and recommendations on where improvements can be made.
FMA Director of Markets, Investors and Reporting, John Horner, said: "We were generally pleased with what we observed. Where a client allows another person to exercise discretion over investment decisions, it demands a high degree of trust and confidence, both in the people involved, and the processes and controls used.
"While we did identify some potential breaches, we are confident that, following engagement with the FMA, providers have taken appropriate action. Our future monitoring will build on what we have learned and focus on the areas of improvement identified in this report."
