Consumer Duty – It’s a question of leadership

Mar 23rd '23

The media is awash with pundits reporting on the Financial Conduct Authority (FCA) and their poor definitions of Consumer Duty. The main issue appears to be that some firms want someone else to give them a set of rules which they can then prepare a document to address these things without actually doing anything.


In a speech by Sheldon Mills, Executive Director, Consumers and Competition, on 22nd February, he stated “An industry leader recently admitted to me that although on the face of it, the Duty was a pain as it required work and resources, her directors were reporting that actually, it was proving to be a useful exercise.


They were uncovering customers they had not engaged with for some time. They were hammering out plans for new products and services ahead of schedule. They started looking at potential problems far earlier – and importantly, identifying new opportunities earlier too.


In all, it forced them to think differently. And what sparks innovation if not thinking differently?


The benefits to industry and organisations are that the exercise itself will refine systems and ideas.


Thinking differently and exposing yourself to meaningful change is at the heart of innovation.


One particular area we hear them banging on about is the ambiguity for advisers relating to those firms that do not have discretionary permissions but, use a common set of models for example, a collective set of funds for their clients to invest in. Is this operating a ‘model portfolio service’ (MPS)? If you, as an adviser, have created a portfolio of investments for your clients to invest in, using a preformatted spread as your Centralised Investment Model (CIP), is that not a Model Portfolio Service?


Model Portfolios are a cost-effective way of accessing a diversified and actively managed portfolio of investments. They are designed to make it easier for you to help your clients achieve their investment objectives, taking into consideration their risk profile.


As a financial adviser, surely you need to take the lead and read the PS and FG properly, as all this is covered in them quite clearly. The problem is not that the issues are not clear, but that the advisers don’t fully understand the interpretation or the regulators words, and dive into ‘victim mode’ expecting everyone else to provide the answers. If you do not have an experienced and qualified compliance advisory service, don’t rely on one of the Directors who has always done compliance for you. You are sucking on your own exhaust!


If you are operating a MPS, you are a co- manufacturer at least. There is no reference to a ‘pseudo-manufacturer’, reported by some.


Firms are manufacturers if they create, develop, design, issue, manage, operate, carry out, or (for insurance or credit purposes) underwrite a product or service. Very clear – read the Finalised Guidance FG22/5. If you use a CIP, you can easily fall under this definition, very clearly found in the finalised guidance.


The originator of the Model Portfolios should have set criteria for the ‘model’ and this is what the firm used to identify suitability for their target models. If the Model Portfolio is an active manager, there should be a written agreement outlining their respective roles and responsibilities. This agreement should help clarify which firm is responsible for deciding a particular issue.


Where there is a complete lack of information and no ability to find it, manufacturers may not need to take any further action. Distributor firms are required to share information to support manufacturers.


Where the firms involved are co-manufacturers of a product or service, they must have a written agreement outlining their respective roles and responsibilities. This agreement should help clarify which firm is responsible for deciding a particular issue.


It may be that you are copying or mimicking the fund range and selecting the elements for your own CIP for the various target customers you have defined. That’s fine and obviously unlikely to be any back and forth of data to the originating creator and therefore you have to assume the responsibility of being the only manufacturer of your CIP.


Firms working together to manufacture a product or service can involve multiple manufacturers for a single product or service. For example, an intermediary might design an investment fund and work with a fund manager to launch it. Both are considered co-manufacturers.


A firm would be considered a co-manufacturer where they can determine or materially influence the manufacture of a product or service. Very clear, and again found in the finalised guidance. This would include a firm that can determine the essential features and main elements of a product or service, including its target market, as typically used to determine a CIP.


A firm that is considered a manufacturer must do a number of things to show they’re fulfilling their obligations. For firms that use third parties to manage model portfolios, the third party could likely take on the role of manufacturer as part of their responsibilities under discretionary permissions as long as there is no change made at the retail sales distribution. This can involve:


  • Firms must identify a group or groups of customers sharing common features whose characteristics, needs and objectives the product is or will be designed to meet. These customers are the end-users of the product or service, not other firms in the distribution chain. They are the target market of the product or service.
  • The rules require firms to identify the target market at a sufficiently granular level, considering the characteristics, risk profile, complexity and nature of the product or service. This can be done by the manufacturer or retail distributor, sharing the information with the manufacturer.
  • Setting specific target markets for the models or, “products”, ensuring they meet the needs of the target market. This would need to be reviewed regularly to show that it’s an ongoing process aligned to their target objectives.
  • Ensuring models provide fair value to retail customers, taking into account the benefits provided and communicating clearly to advisers (in their role as distributor)


Evidencing operational reliance so firms can show the outsourced aspect of their offering still meets the standards of the Duty.


Between now and the deadline, no matter a firm’s position as manufacturer or distributor, there is a lot to be made ready and a lot of work in making sure you have covered all the angles.


Firms which concentrate on finalising their arrangements and evidencing their approach to meeting the Duty’s requirements should ensure they have read and understood all of the FCA’s information. As Compliance Consultants, we play daily in the FCA’s Handbook like it was our back yard. We understand the terms, nuances and inferences from over 20 years doing the job.


Don’t listen to those who guess what things mean, speak to those who know. 




Contact us today on 020 8087 2377 or email us


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