Consumer Duty: I just called to say…check your status

I’m pretty sure that Stevie Wonder has yet to publicly comment on the Consumer Duty. If he was, I’m fairly confident that he wouldn’t want to declare his love for the FCA, but I’m sure he’d want to have a probing conversation with advice firms about their status.

By ‘status’, I’m of course referring to whether you’re a product manufacturer, distributor or a bit of both, because whichever one you are will ultimately lead to a different set of requirements under the Consumer Duty.

Confused? Well, rightly so. This is one of the many implications that needs to be considered within the price and value outcome. But let’s take a few steps back and consider the different classifications and some of the pertinent implications.

Manufacturers

Under the Consumer Duty, all advice firms are classified as manufacturers because the definition captures the advice service that you provide to your clients so in effect, you’re all manufacturers of the services your firm provides. But on top of that, advice firms can also be categorised as product manufacturers.

An advice firm can become a product manufacturer where it’s creating its own investment solutions or providing in-house DFM services for example. Firms who self-create their own investment propositions will need to carry out value assessments on both the product they’re creating as well as the advice service they’re providing to their clients. Value assessments must assess whether the overall charge the client’s paying is reasonable in respect of the overall benefits they’re receiving, and provide evidence as to why this is the case.

Co-manufacturers

We then have this grey area where some advice firms will be categorised as co-manufacturers. This can occur where firms are materially influencing the manufacturer of a product.

This could capture those advice firms who are working with a product manufacturer to offer a bespoke investment solution tailored more specifically to the needs of their clients. It could also capture those firms who provide white-labelled variations of products. The key is where there’s material influence from the advice firm.

In this instance, co-manufacturers face the same requirements as product manufacturers.

In the case of an advice firm being a co-manufacturer, it’s hugely important that firms discuss the implications with other interested parties in the distribution chain and have a written agreement in place setting out the respective roles and responsibilities and putting the necessary processes and procedures in place.

Distributors

We then have the more clear-cut categorisation of distributors. I’m not a fan of the word ‘distributor’. If I think about the advice firms I’ve spoken to and know, it feels very derogatory referring to them as distributors. But in FCA language, this simply captures those firms recommending products fully manufactured by another party or parties.