Consumer duty regulation could impact the business models of financial advisers, it has been warned.
William Marshall, CIO of Hymans Robertson Investment Services, said although the consumer duty has set out what it expects from MPS manufacturers and distributors, some firms may get caught out if they are unaware of how their operations are viewed by the regulator.
He warned some firms risk being caught out if they use a provider to manage their model portfolios as they could end up being classified in the wrong category.
Marshall said it is vital for advisers to understand how their operations are viewed by the regulator.
He said: “Advisers without discretionary permissions that adopt advisory models for their CIP or, for example, blend multiple outsourced solutions for their clients, could potentially find themselves defined as a manufacturer.
“To help avoid any issues, if advisers are outsourcing to single solutions such as model portfolios service (MPS), they should ask their provider to supply them with documentation that clearly outlines roles and responsibilities. This will demonstrate and document that the adviser is fulfilling the role of distributor, and the MPS provider has the role of manufacturer.”
HRIS has outlined five key areas that will help advisers clearly define and document their role.
These include:
- A value for money (VfM) framework and assessment
- Evidence of target market documentation AND robust future scenario testing, to avoid ‘foreseeable harm’
- Communications – what, when and have they been tested?
- Documented CIP roles and responsibilities – who is the manufacturer?
- Due diligence – ask for the ‘how’ as well as the ‘what’
It also looks at what advisers should expect from their product providers from terms of evidencing value for money to scenario testing and client communications.
Marshall added: “Being consumer duty ready isn’t just about the July deadline. After that point it will largely be about firms putting their best foot forward, and under consumer duty a significant part of that now includes advisers looking outward to any partners they may be working with, to make sure they also have all their bases covered.”
tara.o'connor@ft.com
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