Agent as Client vs Reliance on Others: How Your DFM Relationship Is Really Structured

Two firms, same DFM, very different liability

Two advice firms place clients into the same model portfolio at the same discretionary fund manager. The portfolios are identical. The outcomes are identical. Then a client complains that the mandate was mismanaged. At the first firm, the complaint lands on the DFM, because the client is the DFM’s retail client. At the second firm, it lands on the adviser, because in the eyes of the rules the DFM has never had a relationship with that investor at all.

The difference is not performance, price, or platform. It is the legal structure of the relationship: reliance on others at the first firm, agent as client at the second. A surprising number of advisers do not know which one governs their own DFM arrangements. Given what turns on it, that is a gap worth closing this week, not at the next due diligence cycle.

The two structures in COBS 2.4

Both models come from COBS 2.4 of the FCA Handbook, which is titled, helpfully, “Agent as client and reliance on others”.

Agent as client (COBS 2.4.3R). Where a firm knows that the person it is dealing with is acting as agent for someone else, the agent, not the underlying person, is its client. Applied to discretionary management: the adviser firm appoints the DFM as agent for the investor, and the adviser firm becomes the DFM’s client. The DFM typically categorises the adviser as a professional client. The underlying investor sits outside the relationship entirely.

Reliance on others (COBS 2.4.4R). Here the DFM contracts directly with each underlying investor and takes them on as its own retail client. The rule then permits the DFM to rely on information supplied by the adviser, most importantly the suitability information, rather than duplicating the fact-find. The adviser stays in control of the client relationship, and the DFM manages the money for a client it formally knows.

What actually changes between the two

The portfolio the client holds can be identical under either structure. Everything around it is not.

	Agent as client	Reliance on others
DFM’s client	The adviser firm	The underlying investor
Investor’s contract	With the adviser only	With both adviser and DFM
Client categorisation at the DFM	Adviser, usually professional	Investor, retail
Retail protections from the DFM	Do not flow to the investor	Apply directly
Investor’s FOS route against the DFM	Generally unavailable	Available
Where complaints about management land	The adviser firm	The DFM
Suitability of the mandate	Adviser	Adviser (DFM relies on adviser’s information)

The right-hand column is why reliance on others has become the dominant model for platform MPS and most adviser-facing bespoke services. The left-hand column is why agent as client deserves far more scrutiny than it usually gets.

The agent as client problem, stated plainly

Under agent as client, your firm stands in the investor’s shoes. Three consequences follow, and each one sits on your side of the table.

You need genuine authority. To appoint and instruct a DFM as agent, your client agreements must give you express authority to bind the client to the discretionary management agreement. A generic advisory engagement letter rarely does. If the authority is defective, the arrangement itself is on unstable ground.

Retail protections stop at your door. The DFM owes its duties to a professional client: your firm. The suitability standards, disclosure obligations, and complaint rights that a retail client would enjoy against the DFM do not reach the investor. Whatever protection the investor has, it has against you.

You absorb the complaint risk. If the mandate is run badly, the investor’s realistic route is a complaint against your firm, not the DFM. Your recourse against the DFM then depends on the contract you signed as a professional client, which is a commercial negotiation, not a regulatory backstop. Your PI insurer will take a keen interest in this chain, and some have started asking about it directly at renewal.

None of this makes agent as client improper. It is a lawful structure with legitimate uses, particularly where an adviser firm genuinely wants to control a single institutional relationship across its book. But it must be a deliberate choice, priced and documented as one, not a default discovered in the terms of business after something has gone wrong.

Consumer Duty ignores the label

Whichever structure applies, the FCA’s Consumer Duty guidance (FG22/5) applies a look-through: a firm in a retail distribution chain must consider outcomes for the end retail customer even where it has no direct relationship with them. A DFM running model portfolios under agent as client cannot argue the underlying investors are none of its business. It must still assess whether its service offers them fair value.

The FCA has been explicit that agent as client continues to operate for other purposes, for example whom the DFM treats as its client when assessing transactions. But the days of the structure functioning as a Consumer Duty shield are over, and the regulator’s ongoing review of model portfolio services keeps the whole area under active attention. The oversight framework in our guide to ongoing DFM oversight under Consumer Duty applies with extra force where agent as client is in play, because your firm carries more of the chain.

The FOS arithmetic

The complaint route is not a technicality. For complaints referred to the Financial Ombudsman Service on or after 1 April 2026 about acts or omissions from 1 April 2019 onwards, the FOS award limit is GBP 455,000. For the HNW portfolios where discretionary management earns its fee, a mismanagement claim can plausibly reach that ceiling.

Under reliance on others, a claim about poor portfolio management points at the DFM and its balance sheet. Under agent as client, a claim of that size points at your firm, your PI policy, and your excess. Two firms recommending the same mandate are carrying materially different exposures, and only one of them may have priced it.

Five questions to settle this week

1. Which structure governs each DFM on your panel? Read the intermediary terms and the investment management agreement. Who is the named client? Who signs?
2. If agent as client: where is your authority? Confirm your client agreements expressly permit you to appoint and instruct a DFM as agent. If they do not, speak to your compliance consultant before the next new mandate, not after.
3. What have clients been told? Under either structure, the client should understand who manages their money, who is responsible for what, and where to complain. Vague suitability report wording such as “we have appointed X to manage your portfolio” often obscures exactly the point that matters.
4. Does your PI cover match the structure? If your firm carries agent as client exposure, your insurer should know, and your cover and excess should reflect it.
5. Is the structure part of your due diligence file? The relationship structure belongs alongside performance, cost, and service in your due diligence when choosing a discretionary fund manager, and in the periodic review of incumbents. A provider that cannot explain its own structure crisply is telling you something.

Take the structural question seriously

Most adviser firms should default to reliance on others: the investor gets direct retail protections from the DFM, complaint risk sits with the firm doing the managing, and the adviser’s role stays clean, which is the shape assumed throughout our overview of what advisers need to know about discretionary fund management. Agent as client is defensible only where the firm has chosen it knowingly, holds proper authority, and has priced the liability it is absorbing.

The wider regulatory context, including permissions and how responsibility for suitability splits between adviser and manager, is covered in our guide to how discretionary investment management is regulated.

If you are reviewing your discretionary arrangements and want to see how a single institutional mandate with clean, documented lines of responsibility compares with your current panel, contact us to arrange a conversation.