Written by Stephen Hunter, Head of Business Development, Momentum Global Investment Management
Many advisers will already be experiencing Consumer Duty fatigue with the plethora of media articles and guidance nudges this year, and with the hard implementation deadline fast approaching, there is no sign of this abating anytime soon.
So what is key?
From an investment approach, the key outcome points appear to be:
· Communications that equip consumers to make effective, timely, and informed decisions.
· Products and services that are specifically designed to meet the needs, characteristics and objectives of consumers, and distributed to those whose needs they meet.
· Customer service that meets the needs of consumers, enabling them to realise the benefits of products and services, and act in their interests without undue hindrance.
· The price of products and services represents fair value for consumers.
And don’t forget the three ‘cross-cutting rules’ of key behaviors which will require firms to:
1. Take all reasonable steps to avoid causing foreseeable harm to customers.
2. Take all reasonable steps to enable and support customers to pursue their financial objectives.
3. Act in good faith towards customers.
A quick sense check
It may be that many principals and advisers reading this feel they are in good shape, and indeed that may well be true, but key areas where many firms say they might have a shortfall is in the finer reporting details, process efficiency, and overall robustness of their approach in meeting these rules:
Can you articulate the investment journey for a client?
Is your investment process documented?
Are your client communications effective?- how would you evidence they are?
If the answer to any or all of the above is no, then there is still some work to do
So, what’s the answer?
One answer may be to consider model portfolios as an outsourced approach to your centralised investment proposition.
This could potentially deliver the investment journey, process, and communication approach in an efficient and effective way:
· Aligning with client outcomes
Client investment outcomes should act as a guide in determining the optimal strategic asset allocation in the context of their potential to deliver on the investment objective over the desired time horizon and the risk of short-term drawdowns, aiming to make the journey for the client as palatable as possible.
It is all about the probability of delivering the desired outcome:
– Maximising the probability of delivering on the outcome
– Minimising the risk of falling short
– Minimising the risk of negative returns in any 12-month period
– Minimising the risk of large drawdowns over any 12-month period
The philosophy will then allow investment managers to improve risk/return characteristics and expand the universe of available assets, harvesting diversification benefits in a truly multi-asset approach.
· Client communications and reporting
A model portfolio partner should be able to work with you to create regular communications and reporting aligned with you and your client’s needs, saving you both time and enhancing your client engagement without your feeling side-lined in the process.
· Efficiency and Robustness
Leaving you the time and opportunity to engage with your investment clients even more effectively, a model portfolio partner will see your client investments managed by a well-resourced team of professionals with a consistent process and a strong track record. A hand in hand approach with your business, providing regular insight into decisions and changes and regular reporting for your client engagement.
· Thinking commercially and delivering value
Delivering value for clients isn’t just about price; it is about the price being balanced against the service, experience, and ultimately the client’s outcome.
It remains incredibly difficult to achieve this without significant scale. This is where outsourcing to a partner with institutional pricing power, broader resources, and expertise where you can play a part alongside a well-resourced investment team fully focused on supporting you to deliver for clients, can be a strong consideration.
In summary
Model portfolios will not be the right solution for every advice firm, but they should be a key consideration as firms reflect on consumer duty and ultimately how they will shape their investment processes to deliver on outcomes and investor value.
