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Client segmentation debate thrown open by Prod rules

Choosing the key to successThe reaction of one adviser to hearing about the FCA’s new Product Intervention and Product Governance Sourcebook, commonly known as Prod, sums up how many are feeling I imagine: “One more thing to worry about, excellent!”

Essentially, Prod means advisers will need some form of process in place to make sure the right target markets are identified for the particular products they recommend, and check that the target market is still right on a regular basis.

Anecdotally, the rules, introduced with Mifid II in January, seem to have gone unnoticed by many advisers. A survey this morning by technology provider Iress seems to vindicate this.

There is still a debate to be had about what real impact the new regime will have – the FCA’s general suitability standards do appear to overlap with or go further with some of Prod’s requirements, and we have yet to hear from the FCA on how keen it is to police the rules.

But a more important discussion is on the importance of client segmentation, and whether Prod should prompt advisers to take a more rigorous approach to splitting their banks.

Regulation is one of the hot topics to hit the Money Marketing Interactive confernce in Harrogate on September 13. Advisers and paraplanners can secure free places here.

Iress asked advisers open ended questions on how they segment their client bank as part of its Prod survey. A deeper look into the full answers reveals a number of common ways of segmenting clients that will not be a surprise to anyone: age, assets under management, fees paid, life stage and service level required, for example.

However, it is clear that there is no consistent approach to segmentation from advisers. Some advisers employ external consultancies and research agencies to help segment, but such processes were referenced by very few respondents.

A number of advisers said they split by metrics such as “sophistication”, which, on the face of it, seems difficult to pin down, or occupation, which can obviously include a wide range of individuals.

Only around a third of advisers are currently using a back-office system to help with their segmentation, suggesting at least some improvements could be made on incorporating hard data and historical evidence into the segmentation process.

When asked how they were segmenting clients, answers also included “struggling”, “will need to review”, and “no idea”.

Of course, advisers who are very particular in the clients they take on in the first place have every right not to segment. They might not need to. And there is no need to be scared by Prod in any way.

But if it provides a good excuse for firms to tidy up their client banks, making themselves more profitable in the process, it will hardly be a bad thing.

Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1



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