In the week that Donald Trump is due to arrive in the UK (Friday 13th!), my thoughts naturally turn to America.
The phrase; “the buck stops here” was popularised by US President Harry S. Truman, who kept a sign on his desk in the Oval Office. The phrase refers to the notion that the President must make the decisions and accept the ultimate responsibility for those decisions.
Financial advisers would be well advised themselves to consider this in every aspect of the advice process. Ultimately, responsibility for the advice you provide falls on you and your business.
The new Product Governance and distributor governance rules introduced in MIFIDII now give regulators “teeth” to ensure that advisers are paying more than just lip-service to this process.
Advisers need to be doing all of the following in order to comply with their obligations:
before distributing a product, firms should consider for which target market it is likely to be suitable
the distribution should meet the needs of the target market
products should be reviewed regularly to confirm they remain consistent with the target market’s needs and make changes to the distribution strategy or other process if they identify problems
firms should provide product manufacturers with information on sales and, where appropriate, regular reviews
the firm’s compliance function should monitor product governance
Boards should have effective control and oversight over the process
firms working together to distribute a single product should share information with other firms in the chain
As these regulatory changes begin to take effect, we believe that outsourcing aspects of your business to a carefully selected CIP (Centralised Investment Proposition) substantially reduces both the operational risk and the time taken to identify suitable investment funds for client portfolios, leaving advisers free to focus on the value that they can bring to their clients through financial planning.
Perhaps a sensible place to start is the requirement to conduct a Target Market Assessment.
In Ireland, the 2017 Addendum to the consumer protection code 2012 states:
“14.4 Where a regulated entity offers, recommends, arranges or provides an investment product, it shall have in place adequate arrangements:
a) to obtain all appropriate information on the investment product and the investment product approval process, including the identified target market of the investment product, and
b) to understand the characteristics and identified target market of each investment product”
This places an obligation on both the adviser and the product producers to have a formal process for identifying the characteristics of investors and mapping these to the features and benefits of various products.
Given the proliferation of product offerings available, it may be necessary for firms to filter the market and consideration should be given to adopting a CIP such as that offered by PortfolioMetrix in order to simplify this process.