This list should focus on elements that will help advisers show how they fulfil their obligations when overseeing their client’s investment needs. This is because fulfilling the demands of regulations can no longer be treated as a tick-box exercise. Increasingly, regulators are looking for firms to show their working and clearly identify how they make the operational decisions that impact their clients. Unless advisers receive the right information from their partners, they run the risk of taking decisions that aren’t right for their clients’ needs. It could also mean they don’t have the right information to share with regulators when the time comes to report, warns the leading DFM.
Commenting on how advisers’ relationships with their providers directly impact their regulatory compliance, Kate Rainbow Head of Key Accounts, Hymans Robertson Investment Services (HRIS) says: “Advisers should not be afraid of looking outward to any partners they choose to work with to ensure they have all their bases covered for compliance. Despite the first anniversary of Consumer Duty being near firms are still adjusting to the regulation and working out how it impacts their operations. There’s the chance for some that it could change their operations significantly. But it’s not just these firms that the regulator will scrutinise. They’ll want all IFAs to show their working and be able to fully evidence and explain why they have taken the investment decisions they have for their clients.
“IFAs should look for third parties that have rigour as a golden thread, running throughout their service. The Duty is clear that advisers should be undertaking and documenting appropriate due diligence of their MPS providers. Good providers will encourage and support this due diligence process, through openly sharing data and answering all questions as appropriate.
This will help them create a working relationship that truly meets their needs and in turn enables them to deliver the best service possible and remain compliant.”
Top on the wish list should be things that can help advisers’ to better plan outcomes or understand risk. They should ask their providers to share:
Evidence of scenario testing which looks at how portfolios could perform in a range of economic environments. This will help advisers to show that they are working to avoid foreseeable harm.
Results from their ongoing assessments against their value for money framework score cards. This will give IFAs insights to check that deliverables such as performance and cost are being met. It will also help them show that clients’ needs are being met by wider benefits they provide such as communications, annual reports and risk-based data.
Evidence that their providers test client communications an element that many feel adds value and builds on peace of mind investors seek from their advisers*
Documented CIP roles and responsibilities so that advisers outsourcing to single solutions such as model portfolios service (MPS). This will support operational efficiency and help avoid being mislabelled as a manufacturer by the regulator which comes with additional governance and operational responsibilities.
Documentation demonstrating how asset allocation was arrived at. Asset allocation is the single largest driver of investment risk and return, advisers will benefit from asking their providers to show that they test and refine their process and link it to fund implementation.
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