Robert Vaudry, Copia Capital Management

With the 31 July deadline now a distant memory, you should by now have a firm grip on how the new Consumer Duty regulations impact your business. But one question that I find keeps cropping up from advisers is ‘What are the rules around co-manufacturing?’.

The FCA have established three key roles under Consumer Duty:

  • Distributors: firms that offer, sell, recommend, advise on, propose or provide a product or service would be regarded as distributors.
  • Manufacturers: firms that create, develop, design, issue, operate or underwrite a product or service would be regarded as a product manufacturer.
  • Co-manufacturers: firms that determine or materially influence the manufacture of a product or service.

It’s important that firms understand the roles they are undertaking to ensure they are compliant with the new rules. The FCA has said that several different firms are involved in the manufacture and distribution of an investment product and can determine or materially influence customer outcomes, including a discretionary fund manager, a platform provider, and a financial adviser.

Each firm has responsibilities in line with its role in the distribution chain and all firms must act to deliver good outcomes to customers and comply with the cross-cutting rules. This includes helping to avoid causing foreseeable harm and ensure that the final product and associated support will help the customer realise their financial objectives, as well as acting in good faith in the design and operation of relevant products and services and in any interactions with the customer.

To determine whether your firm is a distributor, manufacturer or co-manufacturer, and remember it could undertake one, two or all three of these roles, you need to establish if you are involved in the manufacture and distribution of a product or service and can determine or materially influence customer outcomes.

If we look specifically at outsourced investment services:

  • If you are recommending off-the-shelf investment products, where you have no influence on investment construction, even if it’s white labelled, that’s a non-manufactured process, so you are the distributor (however, remember that you may be considered a manufacturer under PRIN rules for your own services).
  • If you are offering a tailored solution where you input into the design of the investment, you will be classed as a co-manufacturer as well as the distributor of the investment services.

At Copia, advice firms using our MPS Custom service, which offers bespoke portfolios designed to satisfy the specific requirements of the firm’s client base, are classed as a co-manufacturer and a distributor. As a result, we’ve updated our Terms of Business and clarified the roles and responsibilities of each party under Consumer Duty.

It’s important to remember that the Consumer Duty requirements are ongoing. Delivering good outcomes for retail customers means continuous improvement, and on a more practical level, constant monitoring and reporting to ensure the intended outcomes are being achieved.

As part of this ongoing monitoring, distributors are required to help manufacturers complete their own regular reviews. PRIN 2a.3.18 states that: “To support product reviews carried out by manufacturers, a distributor must, upon request, provide manufacturers with relevant information including, where appropriate, sales information and information on the regular reviews of the product distribution arrangements.”

A typical advice firm will be using multiple providers, platforms, DFMs and asset managers alike, who will all be carrying out their own product reviews under Consumer Duty. Firms with a transactional, hands-off relationship with their chosen providers won’t have a clear process to help facilitate this information exchange, and this potentially big gap could create a lot of extra work for advisers.

Advice firms that are co-manufacturers, however, are likely to be better equipped to comply with this rule, with existing processes in place to exchange relevant information with the manufacturer. The clarification of the role and responsibilities of the adviser as a co-manufacturer within the investment process under Consumer Duty is also helpful to firms as it offers additional evidence of the value for money the advice firm is providing to clients.

Regardless of whether a firm is a distributor, manufacturer or co-manufacturer – or all three – they all have a role to play in ensuring good customer outcomes are achieved. Each party has their own rules to follow, but it’s important to also establish shared responsibilities as well.