The Consumer Duty rules set the benchmark for excellence in delivering good outcomes for retail customers. The DFM market sits in the middle of the wealth management supply chain with a core focus on justifying “fair value” from within any model portfolio service offering.
To evidence fair value, the DFM industry is having to take a step back and justify its charging structure against an ever-diverse style of model portfolios. In this respect, the new Consumer Duty mandate is forcing the DFM industry to appraise its own efforts and either justify their current model or change it to bring it in line with the fair value assessment. This is a challenge to some of the more archaic charging structures for strategies focusing overly on passive investing or low touch active management. Whilst the change might bring some disruption to the industry there can be little argument as the changes seek to make the MPS market more appealing to the end investor and helps to solidify the long-term role of the MPS model in the UK market.
TAM’s status as a “boutique” DFM demands a greater focus on delivering “unique selling points” including a greater emphasis on tactical portfolio management with a more diverse range of funds and investment strategies to deliver the holy grail of investing of alpha generation and capital preservation. Larger institutions often fall back on their established brand and their sizable asset pool for continued distribution. In this respect boutiques can struggle to compete which requires a more entrepreneurial and nimble approach to distribution. This boutique approach we feel lends itself to the spirit of the Consumer Duty mandate which at its core focuses on how the industry is enriching the service delivered to the end investor. Bigger isn’t always better.
TAM’s unfettered access to the entire collective market allowing portfolio construction to be tilted exclusively to “best in breed” strategies as opposed to “in house” solutions or fettered “buy lists” managed by independent analyst teams. Affording clients access to decision makers on their portfolios is also key to our offering. If clients feel they can speak to those in the driving seat it helps encourage active engagement of a client’s assets as opposed to simply waiting for a quarterly webinar or mass-produced investment circular to find out what is happening with their assets.
This flexibility, the in-person communication and fleet of foot active management hones our credentials as an active DFM whilst our continual drive to deliver this service at the lowest feasible charge covers off the cost angle. The zenith of these efforts on service and cost we think overlays on the essence of “fair value” to our end investor which the Consumer Duty mandate places much of its focus on.
Our society expects enhancements. If Apple said they would no longer release new versions of their market-leading iPhone because the current model was “fit for service”, or BMW said their current 3 Series was good enough not to make any more models, there would be uproar.
In truth, the essence of Consumer Duty is to draw attention to the notion that we as an industry need to constantly deliver improvements or enhancements to the service we provide to our end investor.
As a boutique DFM, we have always sought to deliver these enhancements as a reason to invest with us over a larger entity. In that light, the Consumer Duty mandate is as much about documenting our journey to where we are today as it is about appraising our current offering, which has always considered value for money as a core pillar. Looking forward, the key to retaining relevance is to embrace change and positively handle disruption to remain relevant. In that respect, the Consumer Duty standard is more of a reminder to TAM that constant evaluation of your investment proposition is critical to a DFM’s place in the industry and its appropriateness to the end investor who wishes to use it.
If you would like to speak with us about Consumer Duty, or to discuss our discretionary investment management services in general, please get in touch with our UK business development manager David Terry today.