Following the rules is part of life for a financial adviser, and no less when it comes to the consumer duty.
These rules obligate advisers to review existing centralised investment propositions to ensure they are aligned to their client’s needs, objectives and target markets, while ultimately delivering value.
But Ross Easton, head of platform propositions at Scottish Widows, warns that these rules by the Financial Conduct Authority are increasing pressure on firms offering CIPs with ongoing advice fees.
These firms now need to demonstrate how their CIP segments clients to meet their individual needs and ensure they receive ongoing services.
He says: “The consumer duty is and will be an ongoing catalyst for change. We expect to see more advised model portfolios move to an outsourced basis given the increased responsibility on advised models.
"The FCA’s focus on value for money is also likely to mean changes at the margins in terms of client investment holdings, but our initial analysis shows the majority of clients are holding investments that are intended for, and represent fair value to, them.”
Complying with consumer duty is placing new and increased responsibilities on advisers.
However, CIPs can play an important role in promoting compliance to the rules.
Scott Gallacher, chartered financial planner and director at Rowley Turton, says: “CIPs can help advisers ensure compliance with consumer duty by standardising investment processes and focusing on clients' best interests.
"They provide a structured approach to investment management, ensuring consistent and high-quality service that meets regulatory standards.
“By adopting a standardised proposition, firms can more easily provide evidence that their investment strategies consistently deliver good outcomes for clients. This consistency is challenging to achieve and demonstrate with bespoke recommendations tailored by individual advisers.”
Gallacher says CIPs actually make it easier to address target markets effectively.
He adds: “By aligning products and services with the specific needs of defined client segments, firms can ensure they provide fair value relative to the benefits offered. The FCA particularly highlights the benefit of moving some investment clients from more expensive bespoke models to simpler model portfolios, where these are better suited to the size of the customer's investment.
"This approach enhances compliance and aligns with the FCA's emphasis on cost-effectiveness and value for money in investment services."
A study by RSMR highlighted the importance of using CIPs. Of more than 100 advisers surveyed last year, 58 per cent said it would be more difficult to meet and prove they have met consumer duty requirements for investments managed outside of CIPs.
Promoting transparency
These days platforms offer a range of additional information to aid compliance with consumer duty, including risk management tools to assess and monitor a clients' risk tolerance.
Allocation reports can give breakdowns of clients’ allocations by wrapper, asset type, sectors and geographical regions.
