Product manufactures need to accept duty of care

A traditional view of an adviser would be to see them as gatekeepers, there to direct clients into suitable investments and act as a bridge into the financial world. However, with increasing access to financial information and advice through the internet, this concept is falling out of fashion.

“You can't call advisers gatekeepers. It's dead and buried,” Ben Walsh, principal research consultant at WealthVantage Partners, told the ifa Show podcast.

“There are so many incentivised people pushing other people into investment products outside of advice. Advisers are in a position where they may even have people come to them and say, ‘I was talking to Reg at the barbecue and Reg is doing really well with his private credit fund’.”

Despite this, the onus of product failures often falls on advisers when products fail, such as with the recent Shield and First Guardian debacle, which could have a steep cost for the profession. For Walsh, the onus of product failures needs to start being placed on the manufacturers themselves.

“I think if we have an abridged version of the UK model that forces product manufacturers to have a proper duty of care to clients, advisers’ jobs become much easier,” Walsh said.

“It doesn't matter if they're wholesale or retail, that duty of care doesn't need a 300-page PDF to back it. Duty of care comes with the concept of an honour ethic effectively.”

Walsh added that this means manufacturers need to start acting in the best interest of the client.

“Acting in the best interest of clients means when they create these products, they are provided to a client who it suits. It's about understanding client outcomes, which they should already understand,” he said.

Walsh further highlighted that understanding client outcomes should not be difficult for product manufacturers to track, as the majority of clients are now investing in separately managed accounts (roughly 70 per cent).

“I can't believe that more people aren't championing it. Because advisers look at things from a compliance perspective. The idea of some researcher raving about consumer duty is like me saying I want more burden on you,” he concluded.

You can catch the full ifa Show episode with Ben Walsh here.