Consumer Duty for MPS firms — the FCA's multi-firm review and what it means for IFAs

MPS sits in an awkward position in the Consumer Duty chain. The MPS provider is a manufacturer. The advising IFA firm is a distributor. The end consumer pays for both, plus the platform that runs the portfolios, plus the underlying funds. Each layer has its own Consumer Duty obligations. The point of the FCA's recent multi-firm review (published August 2024 under the working title Model portfolio services: how firms are meeting their Consumer Duty obligations) was to test whether the layers were holding together, or whether the consumer was paying for value that wasn't being delivered.

The headline answer was: mostly holding together. With three recurring gaps the regulator wants firms to close.

I've sat in five MPS-panel reviews this year, three of them with firms running £150m–£400m in MPS-backed assets, and the same gaps come up every time. So before the next quarterly board-pack lands, here's what's actually moving.

What the review looked at

The FCA reviewed a sample of MPS providers across the spectrum. Large vertically-integrated firms. Mid-sized discretionary managers running adviser-branded portfolios. Smaller specialist providers. The scope covered the four Consumer Duty outcomes as applied to the MPS context: portfolio products and services, price and value across the chain, communications to advising firms and (via them) to end clients, and the support both groups receive.

The review also tested how MPS providers were discharging the "distribution-chain" obligations. These are the rules requiring a manufacturer to give a distributor enough information to do its own Consumer Duty assessment, and to satisfy itself that distributors are using the product within its target market.

The three recurring gaps

1. Target-market drift

The most common finding. MPS providers had defined target markets at portfolio level, advising firms had recommended portfolios to clients, but the firms hadn't always reconciled the MPS target market with the firm's own client segmentation. The outcome was target-market drift. Clients sitting in portfolios designed for a different risk profile, time horizon or capacity for loss than the client actually had.

The FCA's expectation is straightforward. The advising firm checks the MPS target-market statement on each portfolio it uses. It identifies any mismatch between that target market and the client segments it places into the portfolio. It either changes the recommendation or evidences why the placement remains appropriate.

This is the gap I see most often. Honestly? Nine times out of ten the firm has both pieces of information sitting in different systems. Nobody's joined them up.

2. Fair value across the chain

The fair value picture for an MPS client looks like this. MPS fee (typically 0.15–0.35%) plus the advising firm's ongoing fee (typically 0.5–1.0%) plus the platform fee (0.15–0.30%) plus underlying fund OCFs (0.05–0.85% depending on active/passive mix) plus transaction costs. The all-in number for a £500,000 client is often 1.4–2.0% a year.

The review found that each layer had typically run its own fair value assessment on its own fee. And that no one had run the assessment across the chain to ask whether the total cost was reasonable for the total benefit the client received. Where the chain-wide total looked high, the question of which layer should absorb the value-versus-cost compression hadn't been resolved. It's a difficult question to answer because no single party in the chain has the levers to absorb the compression on their own.

For our fair value assessment template, the chain-wide view is the bit that consistently takes firms by surprise.

3. Distribution-chain information flow

The Consumer Duty's distribution-chain rules require manufacturers to share enough with distributors for the distributor to do its job. The review found patchy practice. Some MPS providers were sharing full target-market statements, outcome-monitoring summaries and updated fair-value assessments on a regular cadence. Others were not. The information IFAs needed to discharge their own Consumer Duty obligations as distributors was sometimes missing. The FCA's expectation is that the IFA chases for it. Doesn't recommend in its absence.

What an IFA using third-party MPS should do now

Three immediate actions. All defensible inside an annual board report cycle.

First, refresh the panel due diligence on every MPS provider the firm uses. The diligence is no longer just about returns, fees and operational stability. It includes the manufacturer's Consumer Duty disclosures (target-market statement, fair-value summary, outcome-monitoring evidence) and whether they've been provided in a usable form.

Second, reconcile the firm's own client-segmentation with each MPS provider's portfolio target markets. Where a portfolio target market doesn't match a client segment cleanly, the firm should document the reasoning that justifies the placement. Or move the client.

Third, run a chain-wide fair value picture on each segment. Add MPS fee, ongoing fee, platform fee and weighted-average fund OCFs. Compare to benchmarks for vertically-integrated alternatives (where the same client could be served by a single-fee proposition). If the chain-wide cost looks high, the firm needs an answer for what would change.

The vertically-integrated alternative question

One of the questions the FCA's review put indirectly on IFA boards is whether the chain itself remains the right structure. A vertically-integrated proposition (DFM running portfolios on its own platform under a single bundled fee) can sometimes deliver the same client outcome at a lower all-in cost.

The honest answer? Sometimes. There are clients for whom the third-party MPS structure is right because the IFA's independence on portfolio selection is the value being paid for. There are clients for whom vertical integration is right because the cost compression matters more than the structural independence. The framework I keep coming back to in client work is from our piece on in-house CIP versus outsourced DFM, which sets out the same trade-off in the firm-level decision.

The Consumer Duty doesn't tell firms which to use. It tells them to be able to defend their choice for each client segment.

What MPS providers are doing about it

From conversations across the provider side over the last six months, the strongest response has been around the distribution-chain information piece. Most large MPS providers now issue quarterly target-market refreshes, quarterly fair-value summaries and outcome-monitoring extracts on request. The advising firm's job is to read them. And to evidence that it has.

I asked one mid-sized provider's distribution lead last month what proportion of advising firms actually engage with the quarterly pack. Her answer: "Maybe a third read it carefully. Another third skim it. The rest open the email." That's the baseline the FCA is trying to move.

Where Wealth Analytica fits

The data problem at the IFA end is the same as in any Consumer Duty exercise. The MPS information sits in the provider's portal. The client segmentation sits in the CRM. The fees sit in the back-office system. The outcomes data sits somewhere between the CRM and the platform. Bringing the pieces together to run a chain-wide fair value picture is a week of work for most firms, every time. Wealth Analytica's portfolio analysis pulls fund-level look-through data alongside the firm's own fee and segmentation data, which collapses the chain-wide assessment into a query rather than a project.

For the wider Consumer Duty year-2 obligations, see our piece on outcomes monitoring for UK IFAs.