Choosing a Model Portfolio Service used to be a fairly straightforward exercise: compare the few providers there were on cost and performance, pick the one that looks the best, and then move on. But that approach won't hold up for much longer; the FCA is looking more closely at how Consumer Duty is being applied across the MPS distribution chain.
So, does your current approach to due diligence incorporate Consumer Duty considerations?
As always, we’ve got your back.
Based on the whitepaper I recently co-wrote with Nick Hopcroft at Aberdeen, here are five questions every firm should be able to answer before you decide on an MPS.
Start with your clients (not the provider). Which segments of your client bank is the service designed for, and which is it not? If you can't clearly describe the target market, and who sits outside it, you'll struggle to show that the service delivers good outcomes for the people you're putting into it. This is a specific requirement of the Consumer Duty outcome ‘Products and services’.
An MPS should slot into your centralised investment proposition, not sit alongside it like a separate decision. Be clear on where it fits, what it replaces, and why it's a better route for those clients than the alternatives you offer.
The ‘Price and value’ outcome asks us to determine whether something is value for money. You should be considering the cost of the MPS (that is the running charge, fund costs and transaction costs) but you should also consider the value aspect which might incorporate performance, risk and whether it meets the aims it sets out to meet.
Is the provider acting on an agent-as-client or reliance-on-others basis? What information are they sharing with you, and what are you sharing back? Responsibilities across the distribution chain need to be clearly understood and documented, because "we assumed they were doing that" isn't a decent defence. Elements from here, particularly around support and complaints, will also help you evidence meeting the ‘Consumer support’ outcome.
Due diligence doesn't stop at selection. You need a clear process for reviewing performance against objectives, watching for risk drift and checking the service is still right for your clients, with a paper trail that shows you've done it.
These five questions are the starting point of some deeper thinking for decision makers at advice firms.
Our new whitepaper with Aberdeen, MPS: Regulation and Opportunity, sets out a complete framework for selecting, monitoring and reviewing an MPS, bringing together advice, compliance and investment expertise from me and our Head of Compliance Maddie Delboy, and Aberdeen's Mark Hopcroft.
Download the whitepaper for free. And don’t forget, if you have any questions, do get in touch to have a chat with the team.
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Grant is a financial planning specialist at Verve, with broad experience offering technical support and creative solutions to improve advice firms' operations.
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