Discretionary fund managers believe advisers offering tailored or co-branded MPS are deemed co-manufacturers under new Consumer Duty rules, according to the latest NextWealth report.
The MPS Proposition Comparison Report, which includes data from 40 DFMs, found 71% consider a tailored model to be co-manufacturing, where the advice firm and the DFM sit on a joint investment committee but the DFM has a majority vote and runs the MPS.
More than two fifths (62%) cited co-branded, where the DFM manages the MPS but includes the advice firms’ branding, as co-manufacturing while 46% agreed a sub-advised model is co-manufacturing.
Heather Hopkins, managing director of NextWealth, said: “Financial advisers are manufacturers of an advice service under Consumer Duty rules but there is a lot of confusion about who is a co-manufacturer of the investment proposition. Most DFMs surveyed think that even with the lightest touch customisation – applying the adviser’s branding alongside the DFMs – constitutes co-manufacturing.”
The report also found that 36% of DFMs have enhanced their due diligence process conducted on advice firms as a result of Consumer Duty, while 93% have completed a fair value assessment in the last 12 months.
Hopkins continued: “Advisers and planners are at the sharp end of Consumer Duty but all providers have to get their own houses in order to ensure the end investor is getting a good deal. Part of this is price.”
NextWealth’s data shows that the on-going average total cost of ownership for advised clients is 1.64% for platform, funds, portfolio management and advice. However, the firm expects this figure to fall to 1.20% in the next 3-5 years.
Hopkins added: “DFMs offering a higher cost offering will need to fight harder to justify their higher fees with strong performance.”
The report showed that the total level of assets in discretionary MPS grew 11% between Q1 2022 and Q1 2023.
