DFM proposes using a professional fund for a retail client - issues and thoughts?

Benc4032Benc4032 Member
edited November 2023 in Technical stuff

Dear All,

I find myself navigating a rather unique scenario and am reaching out in the hope that someone among you may have encountered a similar situation before.

I am currently working with an UHNW client, who, despite significant wealth, cannot be described as being a professional or sophisticated investor.

The client is interested in making a substantial seven-figure investment for the long term. We have received a proposal from a well-known DFM suggesting the inclusion of a Luxembourg SICAV SIF within the client's portfolio. It's worth noting that this SICAV is non-promotable in the UK and is specifically designed for professional investors. The DFM contends that, although the SICAV structure may not be promotable in the UK, the underlying investment strategy and asset allocation mirror their UK-based Unit Trust. Additionally, the SICAV boasts significantly lower ongoing charges, making it an attractive option.

My dilemma centres around the following question: If we recommend the client to engage with this DFM, knowing that they intend to utilise a fund intended for professional investors rather than retail clients, could we potentially be implicated in any wrongdoing? To clarify, we have categorised the client as 'retail,' and this classification is unlikely to change.

My general thought is that if the fund is non-promotable to UK investors and intended for professionals, there is probably a good reason for this, so using a DFM as essentially a back door into said fund may not entirely be in the spirit of the regulations, but I would be keen to hear what others think. Am I being overly cautious here?

Thank you in advance for your assistance!

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