| Summary: | <p>The thesis reviews the diminishing role of fiduciary law in discretionary portfolio management. Protection for investors against manager misconduct is provided principally by the Financial Conduct Authority (the ‘FCA’) as regulator of the conduct of investment management; and the Financial Ombudsman Scheme (the ‘FOS’) as the provider of compensation for retail investors. The Courts have only a peripheral role, primarily as the ultimate appeal against the reasonableness of a FCA regulatory enforcement decision or a FOS decision.</p>
<p>This is the result of a process that began with the introduction of the regulation of financial services in 1988. Regulations that modify the common law fiduciary prohibitions are incorporated into contract terms that provide for a ‘reasonable’ standard for manager conduct that encompasses regulatory compliance. Conflicts of interest are permitted provided the manager identifies them, decides on management measures that are fair to the investors affected or only proceeds if a proposed solution has received their fully informed consent. Regulations also reduce the scope for a claim for unauthorised profits which are permitted provided there is no risk of loss to an investor and so permits profits that could not have accrued to the portfolio.</p>
<p>Market and technology developments have reduced the scope of the manager’s investment mandate and increased the potential for close and timely supervision of portfolio content. Discretion and thus fiduciary status nevertheless remain in all manager appointments, even if the modified conflicts regime bears little resemblance to the common law prohibitions. A breach of the regime by the manager will therefore still provide portfolio owner(s) with access to equitable remedies. These could provide some additional benefit to compensatory damages for breach of contract but only in such exceptional circumstances that this calls into question whether, in practice if not in theory, fiduciary duty plays any meaningful role.</p>
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