From the big decumulation debate through to the art of building a strong adviser business, there was much to discuss at the Professional Adviser 360 North conference in October.
I enjoyed hearing fresh perspectives on the key issues that are facing adviser businesses today, as well as catching up with acquaintances across the industry. They included Bruce Ely-Johnston, who joined PortfolioMetrix in February. Some of you may know him from his previous roles at Thomas Miller Investments, Sanlam and London & Capital.
When I asked Bruce which conference session stood out the most, he highlighted a presentation by Rory Percival, the former Financial Conduct Authority executive turned consultant, who focused on PROD (the Product Intervention and Product Governance Sourcebook). Here’s what Bruce had to say:
“Rory’s presentation was engaging and may have caused alarm bells to ring for advisers who are not fully conversant with the rules. Judging by the response he got when he asked the question ‘have you heard of PROD?’, there would have been quite a few advisers wishing there was a sofa to hide behind. Only five hands went up!”
For those of you who are wondering what PROD is, here’s a brief explanation:
The rules, which came into force with MiFID II in January 2018, require advisers to evaluate each component in the value chain to ensure the cost and service is appropriate for the intended client segment. The product or proposition that is recommended to each client segment must deliver appropriate outcomes. Meanwhile, each decision that is taken on behalf of a client must be clearly documented to provide evidence that the work has been completed.
Bruce went on to explain why the PROD rules are significant for advisers:
“The reason the FCA is so keen on these new rules is, as Mr Percival spelled out, so they can have something tangible with which to fine firms. It’s not that they are on a witch hunt specifically, but more that when they’ve investigated firms who they believe are not treating their customers as well as they might, they have found it difficult to pin something specific on them. Not to put too finer point on it, PROD appears to be their stick to beat advisers with!”
“As if that wasn’t enough to create concerns amongst advisers, Mr Percival claims the FCA will next year say that the market isn’t competitive, so will increase regulation! He predicts that they will use PROD to force change. By this he is referring to tough intervention, probably hefty fines (and not just on the big firms).”
So, how should advisers digest PROD?
“Rory’s main advice – aside from getting familiar with the PROD rules – was to identify clients and map them to a Central Investment Proposition (CIP).
“Advisers who adopt a CIP, segment sensibly (not just by wealth), treat each customer fairly in terms of cost and make good records of their processes and justifications have little to fear. The rest may need a big sofa to hide behind!”
The final word
I would agree that Rory’s presentation provided food for thought. PROD sets out specific steps which place the client at the heart of the decision-making process. Advisers must have a process in place to consider their client bank and segment this where appropriate. It could then be a case of designing a CIP to demonstrate that these services work for their client segments. It’s worth getting up to date with the rules…before it is too late.