Consumer Duty could have an impact on IFAs’ business models, warns Hymans Robertson Investment Services (HRIS). The regulation provides clarity on what it expects from MPS manufacturers and distributors, but some firms may get caught out if they are unaware of how their operations are viewed by the regulator, warns the leading DFM.

To support advisers, HRIS has created a 5-point guide, Consumer Duty and Centralised Investment Propositions. The guide outlines the five key areas that will help IFAs be Consumer Duty ready and understand how they can clearly define and document their role. The guide points out that being a manufacturer comes with specific responsibilities in terms of governance and operational responsibility. This means that being classified in the wrong category could have significant implications for firms.

Commenting on why advisers should assess how Consumer Duty could impact their business model, William Marshall, CIO of Hymans Robertson Investment Services (HRIS) says:

“The FCA has provided clarity on what is expected from product manufacturers and distributors. Advisers who use providers to manage their model portfolios, will be classed as distributors and it will be the provider that will be in the role of manufacturer under their discretionary permissions.

“However, 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.”

The guide also looks at what advisers should be expecting from their product providers in terms of evidencing value for money, scenario testing (how this can support avoiding foreseeable harm) and client communications.

Commenting on the final steps advisers should take to ensure they’re Consumer Duty ready, William Marshall, CIO of Hymans Robertson Investment Services (HRIS) says:

“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.

“Our guide aims to support firms in getting the clarity they need from their investment partners. In particular, the regulator has highlighted the industry’s over-reliance on averages, our guide highlights the importance of evidencing scenario testing to understand how portfolios may perform in a range of economic environments, all of which will help Advisers, most notably when it comes to avoiding foreseeable harm. Consumer Duty has so many moving parts and it will take a while for the industry to get used to it but, with the right plans, processes and partners in place, most firms shouldn’t come unstuck.”