As a provider of a model portfolio service (MPS), we have seen a continual rise in adviser demand for white labelling.
This can present some challenges and the new Consumer Duty regulations raise additional questions about what the future holds for co-manufacturing model portfolios, in particular.
My new best friend ChatGPT defines white labelling as: “The business practice where a company produces a product or service and allows another company to rebrand and sell that product as it were their own”. Easy when it’s baked beans but what does this mean in the MPS market?
White labelling typically involves replicating the asset allocation and underlying investments of a provider’s ‘standard’ model portfolios in full and building a further set of models on an advised platform under a name chosen by the adviser. Schroder Active Model could become Hepburn IFA Active Model, for example.
I’m happy to talk about co-branding or white labelling but co-manufacturing is off our radar
Factsheets and reporting carry the name and usually logo of the adviser business. Sometimes the provider’s colour palette and imagery will also be changed. Other client facing material might also be white labelled under the adviser’s name.
Co-branding is a variation of this. Here, the provider’s models are used under their original name but client facing materials such as factsheets and reports show both the adviser’s and the provider’s logos.
Co-manufacturing takes things further, where the provider creates tailored or bespoke model portfolios to meet an adviser’s specific requirements.
The adviser may also wish to sit on the investment committee and have some influence on the investment mandate and the underlying investments on an ongoing basis.
Does the provider add a charge for white labelling? What value does this provide to the investor?
At the surface level, white labelling has potential attractions for an adviser, enabling them to deliver high quality investment solutions badged under their own name.
So, what are the challenges? There are a number of issues for an adviser to consider, the first of which takes us back to the ChatGPT response.
1. ‘As if it were their own’: Do they really want this? Advisers who take part in our annual survey tell us the key reasons they outsource to an investment partner are ‘to access investment expertise’ and for ‘effective volatility management’. Why would they want to hide that expertise from their clients, particularly given recent market events?
Surely the key service (and benefit) an adviser delivers to the client is financial planning? And indeed the survey supports this, as a further reason given for seeking an investment partner is to ‘spend more time with clients’.
2. Service: Does the provider have an industrial and predominantly digital process to deliver white labelled factsheets and reporting which is timely and of the appropriate quality – particularly if they have a significant number of white labelled partners?
3. Commercials: Does the provider add an additional charge for white labelling and, with Consumer Duty in mind, what additional value does this provide to the investor?
4. Rebalancing: If the models are being managed to a different investment mandate from the standard provider models, are they rebalanced at the same time? What’s the priority for the operations team likely to be when rebalancing a significant number of models across multiple platforms?
It’s usually three days of full-time effort for us, from the portfolio management team to portfolio implementation team.
For an adviser considering a co-manufacture solution, there is an additional issue to consider.
5. Investment committee: Are roles and responsibilities clearly documented, particularly if an adviser is a participant? Where does liability sit and is there an impact on professional indemnity cover?
This last point on responsibilities leads me nicely back to Consumer Duty. As a manufacturer of model portfolios, a significant amount of time has been spent over many months producing our fair value assessments.
It needs to be very clear to the client who the investment manager is and who is managing their money
Hours have been spent reviewing and comparing performance and costs. Services have come under the microscope. What are they? What are the KPIs? How do we assess against them? Where can we improve? Are we considering vulnerable clients? Is our target market document up to scratch?
A document of over 100 pages landed on my desk recently covering the process for reviewing all our client facing communication to support the consumer understanding outcome. This process has started and all documents are prioritised with some already reviewed and updated.
An excellent document recently produced by Threesixty, discretionary fund manager Connect and Pimfa is extremely helpful.
It covers the responsibilities of manufacturers, distributors and co-manufacturers in the context of Consumer Duty. The regulator is clear that if the adviser is involved in designing a bespoke portfolio and playing a role on the investment committee, this is a ‘co-manufacturing’ situation.
To quote: “A firm would be considered a co-manufacturer where they can determine or materially influence the manufacture of a product or service.”
As I have often said, Consumer Duty should not be a tick box exercise and this is not a one off exercise.
Where does liability sit and is there an impact on professional indemnity cover?
Advisers in a co-manufacturing position will need to consider all the requirements for Consumer Duty and should have delivered these by the end of April (and continue to do so on an ongoing basis). Incidentally, the same applies to anyone running advisory models. They are deemed a ‘manufacturer’, and we have met a number of advisers unaware of this.
Consideration will also need to be taken of the consumer understanding outcome. The guide states:
“If the marketing and branding is such that the consumer believes the adviser firm is in some way ‘manufacturing’ the product/service, this will be a relevant factor to consider from a co-manufacturing perspective.
“If an adviser firm has no material influence over the proposition, it may need to think carefully about the branding of the proposition and holding itself out at being the manufacturer of the solution, particularly if things go wrong.
“It may have no ability to mitigate consumer harms, for example. The positioning of the arrangement also needs to be considered under the clear, fair and not misleading requirement.’
So, it needs to be very clear to the client who the investment manager is and who is managing their money.
I still have some questions about why an adviser might want to white label but Consumer Duty now gives advisers further considerations around how their white labelled solution is being positioned with the client, potentially documenting the investment committee, thinking about fulfilling other requirements and agreeing who is responsible for target market, data requirements, value assessments, etc, and then factoring all this into their overall assessment of value including their advice proposition.
I’m always happy to have a conversation about our ability to deliver co-branding or white labelling but co-manufacturing is definitely off our radar.
Gillian Hepburn is head of UK intermediary solutions at Schroders
