The one main piece of regulatory change to impact DFMs that was brought on by the RDR covers the use of referral payments.

Referral payments were payments given from the discretionary manager to a financial adviser for recommending that the client use the DFM. Having taken a number of years to sort out its treatment of these payments, earlier this year the FCA finalised its guidance on their use.

The regulator has confirmed its original ruling that there should not be any referral payments allowed in the future. But existing referral payment arrangements between a DFM and an adviser will be allowed to continue as long as the adviser does not make any more recommendations to the client.

This is actually the only main regulatory change to have affected DFMs in recent years. The industry was concerned last year that its transaction fees may be subject to a VAT charge, following a ruling in Europe that Deutsche Bank’s services should be subject to VAT.

However, in 2013 HMRC ruled that discretionary management firms in the UK operated differently from Deutsche Bank and DFM firms escaped the extra tax on their transactions.

That said, the industry does face possible changes from regulations currently being discussed in Europe. The two laws that could affect DFMs are the new packaged retail investment products (Prips) regulations and the latest Mifid rules.

Prips, which is currently being debated in the EU between the European Parliament and the European Council, has a small chance of having a devastating impact on the discretionary management industry. The Wealth Management Association (WMA) has warned that if the Prips rules are written without including an exemption for discretionary managers, it could severely hamper the industry.

Without an exemption it would mean that a discretionary manager would need to send a document called the key information document (Kid) to their client before making any sort of trade, removing their ability to manage money in a discretionary way.

John Barrass, the deputy chief executive of the WMA, said that the FCA had to get special dispensation from the European Council to allow its members to act without getting the end client to sign a key investor information document (Kiid) – something advisers must do when recommending Ucits funds.

But he hopes to get an exemption written into the Prips law rather than seek a dispensation subsequent to the rules being set.

The Mifid rules, meanwhile, are more likely to have an impact on discretionary managers through one regulatory change in particular.

Mr Barrass explains that the rules as they currently stand mean that DFMs will no longer be able to take trail commission. They are still able to do so now as DFMs have not been covered in any trail discussions around the RDR because they do not give advice.

Most DFMs do not invest in trail-bearing share classes but there are still some who do and the Mifid rules may end this practice.

These laws are still very much in the early stages so it is not particularly clear yet exactly what the affect will be on DFMs, but it is likely that the industry will go through some regulatory adjustments in the coming years.

However, there is nothing in the pipeline that will cause a significant upheaval in the industry, given that even if an exemption for DFMs is not written into Prips law, it is likely the FCA will once again secure an exemption for discretionary management in the UK.

Matthew Jeynes is senior reporter at Investment Adviser