Consumer duty does not trigger a sea change for firms in good shape. But it creates a huge change in how advisers evaluate and monitor how and what they offer their customers - and this will have knock-on effects for portfolio managers.
Portfolio managers need to be able to evidence how they are supporting good outcomes for end-clients across the four key outcomes of product and service, price and value, consumer understanding and consumer support.
As importantly they must show how they can identify, monitor, evidence and stand behind the outcomes their customers experience. Finally, how all employees of that firm are all staff understand their responsibilities under consumer duty.
We expect to see MPS providers starting to publish and share target market statements and assessment of value statements.
What should these look like? The same documents in the funds world could provide a clue, in our view.
Discretionary portfolio managers are “manufacturers” of the MPS proposition. Depending on respective roles and responsibilities advisers can be “distributors” or “co-manufacturers” of that MPS proposition.
If the adviser has no role in the design and management of the proposition – as is the case with most “off-the-shelf” solutions, the adviser is a “distributor”.
If they do have an involvement, then they may be deemed or designated a co-manufacturer. In this case, then the key obligation is to have a written agreement in place with the manufacturer specifying respective roles and responsibilities with respect to the service.
If an adviser is the decision-maker for, or has material influence over any or all of the above key essential features of a discretionary MPS service, they are likely to be deemed or designated a co-manufacturer. If they have an immaterial influence, and are not a decision-maker on these points they are not a co-manufacturer, and are simply a distributor.
Advisers acting as co-manufacturers in a MPS service should have a written agreement in place with the manufacturer outlining respective roles and responsibilities. This does not trigger a change in required regulatory permissions, and creates responsibilities on the adviser only to the extent that they are agreed and actioned.
The nature of the written agreement is not prescribed but could take the form, for example, of a management agreement, an investment mandate or memorandum or other written document setting out roles and responsibilities.
Where a proposition is co-branded or white-labelled, that does not necessarily mean the adviser is a co-manufacturer, but it does mean that the manager and the adviser should together ensure that it is clear to the consumer who is actually providing the service, and the respective roles and responsibilities of each firm. This should be stated clearly and categorically in relevant client-facing materials.
It’s worth noting that consumer duty is not about changing business models or changing regulated activities. It’s about demonstrating and evidencing compliance with the four key consumer duty outcomes.
The functions performed yesterday will still be performed today and tomorrow. The importance is to ensure that the use of a MPS proposition has clearly documented roles and responsibilities.
