Quality research and due diligence helps firms meet the new consumer principle ‘A firm must act to deliver good outcomes for retail customers’ which is now Principle 12 of the FCA Principles for Businesses Sourcebook (PRIN).
Research and due diligence helps a firm evidence that they are avoiding causing foreseeable harm to retail customers, and to satisfy two of the four consumer duty outcomes; ‘products and services’ where all products and services are fit for purpose and ‘price and value’, all products and services meet client needs and represent fair value.
Manufacturer target market statements
Manufacturers (products, investments and platform providers) are required to produce a target market statement explaining the type of clients they believe their products are suitable and unsuitable for. Target market statements have been produced across all adviser products that cater to retail customers.
There is no prescribed format for these statements, but they typically contain:
- The manufacturer’s identified target market for the product or service
- The product or service’s characteristics, such as its charges, key features, benefits, risks, and limitations
- Any specific implications of the product or service for clients with characteristics of vulnerability
- The provider’s intended distribution strategy, for example whether the product should be sold only with advice, or by distributors with specific knowledge, expertise, and competence to understand the features of the product
- Other information about the provider’s product approval process, as appropriate
Product information
This information is shared on threesixty’s Pension & retirement, Investment product and Protection research within the research comparison spreadsheet for each product type. A consolidated list of available target market statements can also be found within the Research / Consumer Duty section of the client portal.
DD|hub support
Target market statements for adviser platforms, model portfolio services, IHT BR portfolios, and multi-asset funds can be found on DD|hub.
Fund research
threesixty’s fund research continues to provide product governance information within the ‘EMT’ tab of the UT & OEIC fund research. This information categorises investor type, knowledge, ability to bear loss, risk tolerance, client objectives and distribution strategy.
Fair value assessments
Adviser firms must undertake regular fair value reviews under the Consumer Duty. The FCA states that ‘firms must undertake fair value assessments as a way of demonstrating if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive’.
Product Fair Value considerations
Fair value assessments have been produced by manufacturers to help distributors (advisers) establish that the products, platforms, or services they are advising on provide fair value. Guidance on how to interpret these statements from the perspective of a distributor is available on our client portal.
The quality of assessments can vary subject to the provider and product type. It’s important adviser firms review and understand the assessments, and are satisfied that the products they recommend are fit for purpose. Where the information provided is insufficient, where appropriate, they should challenge the manufacturer.
Workplace pension scheme challenges
Workplace pension schemes provide such an example. They fall under the watchful eye of The Pension Regulator, but are not subject to the Consumer Duty requirements. Despite this, advisers have an obligation to gather and assess these products. Not all workplace pension schemes have fair value assessment information available, so firms have no option but to engage with providers to assess that the product offers good value to the client.
There is no prescribed format for fair value assessments, but they typically contain:
- An assessment of charges and costs
- Features and benefits
- Eligibility criteria
- Assessment against Consumer Duty four outcomes
- Distribution strategy
- Target market information
DD|hub Consumer Duty support
Links to assessments are available within the pension and retirement, investment product, and protection research comparison tables. Further assessments for adviser platforms, model portfolio services, IHT BR portfolios and multi asset funds are available on DD|hub.
Fund research ongoing monitoring
Within our fund research, we have added the asset manager’s assessment of value reports within the ‘EMT’ tab of the UT & OEIC fund research. Each has a link to the latest annual report and the date information was released. This information is available for firms to include as part of their fund selection considerations. An asset manager assessment typically utilises a traffic light system – green, amber and red and assessed on seven aspects:
- Quality of service
- Fund performance
- Fund manager costs
- Economies of scale
- Comparable market rates
- Comparable services
- Classes of units
As this information has not been updated in conjunction with the Consumer Duty 31 July deadline, and some funds could represent good or poor value to clients at different points in the year, we recommend firms add a review of this information to their investment committee agenda, making this an ongoing obligation. This is likely to require several checks throughout the year to ensure the funds selected on a panel are appropriate and demonstrate fair value. If funds don’t meet this threshold, these funds should be placed under review, and a discussion had as to whether the fund remains appropriate for use within portfolios.
threesixty investment solutions – Target market supporting information
Under the Consumer Duty, threesixty firms are manufacturers of their advice proposition, including any centralised investment propositions or advisory model portfolios. Firms that subscribe to our investment solutions service are also categorised as a manufacturer for this service and therefore have the same target market and fair value assessment obligations. Our range of investment solutions can also be used as a reference point for a firm’s own solutions – asset allocation, risk profiling and performance information can provide a firm with context and help to demonstrate value against an appropriate benchmark.
To support firms with meeting their obligations each model portfolio solution (Strategic Growth, Tactical Growth and Outcome Focused) has a target market spreadsheet that provides the following information:
- A template of what a portfolio mandate could look like
- An indicative portfolio OCF, distributing yields and information on risk return characteristics of the latest asset allocations.
- A detailed European MiFID Template (EMT) data on the funds selected in each model portfolio and information on ESG characteristics
If you would like more information about our investment solutions service, please contact our research team.
Investment committee attendance
The Consumer Duty has reignited the need to demonstrate quality research and due diligence, and put further onus on formalising the advice process. The use of client segmentation, a centralised investment proposition, and an investment committee to document the advice process should all be considered.
From a practical standpoint, advice firms will be revisiting their proposition and the investment committee is an ideal forum to review, maintain and inform stakeholders about their advice proposition.
In respect of Consumer Duty, an investment committee can help an advice firm evidence that the products and services the firm offers its clients are fit for purpose.
A qualified member of our research team can attend a firm’s investment committee meetings, to provide input, challenge a firm’s investment process, suggest research and due diligence improvements, and provide appropriate regulatory updates and insight which may impact your investment processes. If you would like to know more about this service, please get in touch.
