The majority of UK financial advisers are calling for industry-wide standards to improve due diligence on managed portfolio service (MPS) providers, according to research from fund management and financial planning business Quilter Cheviot and consultancy NextWealth.
MPS is a pre-constructed, professionally managed investment portfolio designed to align with specific risk profiles and financial goals. The study, based on a poll of 200 financial advice professionals, found that 76% believe consistent due diligence standards are needed when assessing outsourced investment providers. 71% of advisers said that unified standards should govern the management of outsourced model portfolios to help ensure better outcomes for clients.
While 72% acknowledged the importance of regulation in MPS assessment, only 57% felt they fully understood current regulatory requirements. About 9% said they were confident in recognising what constitutes “good due diligence”.
The findings were launched ahead of a planned review by the Financial Conduct Authority (FCA), the UK’s financial regulator, which will evaluate the MPS sector through the “Consumer Duty lense”.
Simon Doherty, head of managed portfolio services at Quilter Cheviot, said: “The Consumer Duty has now had the time to be fully embedded into the culture and process of firms. It has ultimately been a force for good, and it has certainly helped refocus minds onto what good customer outcomes look like. The significance of that has not been lost.
However, there clearly remains uncertainty amongst financial advisers about what exactly is expected of them when they look to outsource the investment management of their clients’ portfolios. There are a number of participants in that process, including asset managers, data providers and so on. As a result, it perhaps isn’t entirely surprising if advisers are unsure of best practice when making this decision.
Managed portfolio services have boomed over the past half decade or so, giving advisers choice and flexibility when it comes to their clients’ investments. But with outsourcing comes the need for a more clearly defined framework for financial advisers, both in how they communicate with their client and with the investment manager. It is important investment providers work closely with advisers to help close that gap in regulatory understanding and ensure the market works as well for the end client as it possibly can.”
Julie Best, insight director at NextWealth, added: “We are delighted to work with Quilter Cheviot on this guide, designed to help advice firms better meet their increasingly detailed obligations around MPS due diligence. These findings underline a real appetite for clarity among advisers. They aren’t resisting due diligence — they’re asking for a shared understanding of what ‘good’ looks like. There’s a clear need for industry-wide standards to support confident, consistent decision-making and to help firms meet their Consumer Duty obligations.”
