Consumer Duty classifications could see advisers using CIP or MPS business models classified as manufacturers rather than distributors, warns Hymans Robertson Investment Services.
According to the investment provider, some firms may get caught out if they are unaware of how their operations are viewed by the regulator.
To support advisers, HRIS has created a guide ‘Consumer Duty and Centralised Investment Propositions’ outlining the five key areas that will help advisers 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, which means that being classified in the wrong category could have significant implications for firms.
William Marshall, CIO of Hymans Robertson Investment Services, said: “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.”
Marshall said that to help avoid issues, if advisers are outsourcing to single solutions such as a model portfolio service, 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 the role of manufacturer.
Marshall continued: “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.”
HRIS said the guide highlights the importance of evidencing scenario testing to understand how portfolios may perform in a range of economic environments, most notably when it comes to avoiding foreseeable harm.
Marshall added: “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.”
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