Guests from our recent Hot Topic eventtook this subject head on, starting with Rob Gleeson, head of FE Investments, who believes the Agent as Client rule – in part aimed at ensuring advisers are responsible for the suitability of recommending a portfolio management service – has unfairly picked up bad press.
“A lot of people are raising their eyebrows about what they are on the hook for in an Agent as Client agreement because they assumed it was more like discretionary management and not understood the peculiarities of a model portfolio solution,” he explained.
Subcontracting versus outsourcing
“As an adviser, MPS is not you outsourcing because you still retain the liability and responsibility for that solution. What you are doing is you are subcontracting the management of the portfolio to a professional services firm to do it, but it is via you as the agent.
Rob continued: “As an MPS provider I have no relationship with the end investor. I have a relationship with the adviser, and the adviser has a relationship with the end investor.
“That’s a good model because everybody does their bit at what they are good at: the adviser handles the client relationship and gets to know them and what’s suitable for them; us as the model portfolio provider run the model; and the platform takes care of the custody and transacting. You have to understand where the liability sits and unfortunately the adviser is the first link in that chain”.
From a discretionary management perspective, Simon James, CIO at Gore Browne Investment Management, stressed the importance of an inclusive view of Agent as Client.
“Our view is the agent and we are both looking after the client and I think that in all walks of life the successful delegation is something where everybody is collaborating for the same goal,” he said.
“We would therefore see that whether we have a more or less remote relationship with the underlying client that we are working in partnership. It’s not productive or constructive for anybody to think that any part of the relationship is somebody else’s responsibility. We’re in it together”.
A PROD in the right direction
Introduced in 2018, the FCA’s Product Intervention and Product Governance Sourcebook (PROD) have made clear the importance of ensuring any investments or products an adviser recommends deliver good outcomes and are suitable for the right clients.
Just as with Agent as Client, professionals must ensure they are on the right side of these rules when considering an investment proposition, including outsourcing.
Gillian Hepburn, UK intermediary solutions director at Schroders, touched upon this in the discussion with regards to her company’s MPS.
“PROD drives advisers to look at their client bank and ensure they are delivering the right products and services to those clients,” she summarised.
“The range of outsource investment solutions will vary dependent upon the different groups of clients and their requirements. It may or may not include MPS, but it’s all about understanding the needs and requirements of the segments.
“For example, take later life as a segment of clients; even within that there will be a range of investments solutions that could be suitable that might include a discretionary solution or MPS. Even clients in later life all have different requirements, some may or may not be in drawdown for example. There’s a lot to consider when making the right solutions available”.
Make sure you check out the whole discussion below, filmed as part of our Hot Topic virtual lunch series. We also discuss the pros and cons of the different options available, especially around investment selection and cost.
Please be aware there are some sound problems with Gillian’s contribution, and we apologise for this, but we’ll be interviewing her separately soon!
8 February 2021
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