Financial advisers are calling for industry-wide standards to be introduced for due diligence on outsourced investment providers, according to research from Quilter Cheviot and NextWealth.

The firms polled 200 financial advice professionals to better understand their views on managed portfolio service (MPS) due diligence.

More than three quarters (76 per cent) of advisers said they saw the need for consistent standards when reviewing MPS providers.

Additionally, 71 per cent believed that industry-wide standards were needed to govern the management of outsourced model portfolios to support better client outcomes.

Quilter Cheviot and NextWealth said the findings highlighted a clear gap in financial advisers’ understanding of current regulations regarding outsourced investment providers.

While 72 per cent said they recognised the importance of regulation in assessing providers, only 57 per cent fully understood the regulatory expectations, and just 9 per cent strongly agreed that they knew what ‘good’ looked like.

The findings come following the announcement by the Financial Conduct Authority that it will soon launch a probe into MPS’s, using the Consumer Duty as a lens through which to assess the market.

The data is used to underpin a guide by Quilter Cheviot and NextWealth, which aims to help advice firms meet their obligations relating to MPS due diligence.

“The Consumer Duty has now had the time to be fully embedded into the culture and process of firms,” commented Quilter Cheviot head of MPS’s, Simon Doherty.

“It has ultimately been a force for good, and it has certainly helped refocus minds onto what good customer outcomes look like. The significance of that has not been lost.

“However, there clearly remains uncertainty amongst financial advisers about what exactly is expected of them when they look to outsource the investment management of their clients’ portfolios.

“There are a number of participants in that process, including asset managers, data providers and so on. As a result, it perhaps isn’t entirely surprising if advisers are unsure of best practice when making this decision.

“MPS’s have boomed over the past half decade or so, giving advisers choice and flexibility when it comes to their clients’ investments. But with outsourcing comes the need for a more clearly defined framework for financial advisers, both in how they communicate with their client and with the investment manager.

“It is important investment providers work closely with advisers to help close that gap in regulatory understanding and ensure the market works as well for the end client as it possibly can.”

NextWealth insight director, Julie Best, added: “We are delighted to work with Quilter Cheviot on this guide, designed to help advice firms better meet their increasingly detailed obligations around MPS due diligence. These findings underline a real appetite for clarity among advisers.

“They aren’t resisting due diligence — they’re asking for a shared understanding of what ‘good’ looks like. There’s a clear need for industry-wide standards to support confident, consistent decision-making and to help firms meet their Consumer Duty obligations.”

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