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Confusion reigns over new suitability standards

The majority of advisers are unaware that new rules have been introduced forcing them to evidence the suitability of investments by client segment, new research shows.

Product governance rules, governed by the FCA’s Prod handbook, were introduced alongside Mifid II in January, are require advisers to make sure they understand the investments they are recommending and make them appropriate for the particular target client.

However, nearly 60 per cent of advisers aren’t aware of Prod at this stage, and only 5 per cent know what their obligations are under the rules, according to polling by technology provider Iress.

70 per cent are unsure if they can evidence the suitability of products and services by client segment, and 80 per cent are not familiar with what enforcement actions the FCA might take over rule breaches.

Can platforms keep up with product governance rules?

Iress executive general manager for wealth Mark Loosmore says: “The new rules in Prod have caught many people in the industry unaware. There seems to be widespread confusion and concern around the steps advisers should be taking to ensure client suitability processes are evidenced appropriately.

“There is no doubt that advisers need to take notice of Prod. It’s no longer guidance, it’s rules based now.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Nicholas Pleasure 30th August 2018 at 9:46 am

    Can anyone explain to me what benefit to clients this particular FCA diktat has?

    We treat clients as individuals, not as segments. Is that no longer allowed.

    I am of the opinion that it is now impossible to follow all of the FCA rules and therefore I don’t worry anymore. I just do a sound ethical job for my clients and hope that will keep me out of trouble.

    • Very brave of you to make that posting Nicholas. I will publicly say the same. All my cliensta re individual, I don’t think I have ONE client whoI could say is in the same segment. Clients are like a series of ven diagrams with similar groupinsg, but that is all.
      We treat clients as individuals (we haev udner 100 client couples) and as such my only focus can be on the needs of my clients and my evidenccing of suitability isn’t based on an afetr the event backside covering excercise of a suitability report, it is based on the demonstration of the thought process and intent of both parties as evidenced by the sound recordings of our meetings which can be over a series of years.
      The rules have actually been impossible to follow since before 1993 as I evidenced when I volunteered to be videod undertaking NatWest’s sales process which involved keying data to the clients fact find DURING the meeting. The trainers soon got fed up with how long the meeting was taking as they forget we have to treat the consuemr as a human, not a robot so a meeting can go off course/subect for 5 minutes or more whilst establishing common ground/relationships. They thought a Fact Finding meeting could be undertaken in 40 minutes with a 2nd “sales meeting to follow up. TOTALLY impossible. Invariably 3 meetings and 1 1/2 hours would be a quick meeting. Better the consumer understands at point of action ratehr than drafting a report which is never expalined nor read and then having the FOS say that too!

      • Nicholas Pleasure 30th August 2018 at 1:38 pm

        When did regulation cease to be about protecting the public and instead became about the micro-management of our businesses?

        Clearly, actually policing wrongdoing is too tricky.

    • Nicholas

      Quite right. This is getting out of hand. They are behaving like traffic wardens, while the really big things take them 10 years to discover before they act.

      You do the best for your clients, you make them money, they are happy. You are honest, transparent and ethical – one wonders why that isn’t sufficient.

    • I agree, totally, with you Nicholas.

  2. Seriously? Prod is not about suitability, it’s about target market. Whilst it is something that needs to be taken into account, suitability is a higher standard so the chances of falling foul of Prod as an adviser if suitability is satisfied is negligible.

    These scare stories without context diminish the credibility of both authors and publisher.

  3. Evidently, most of us need to polish up our Compliance & Regulatory Action Plan.

  4. You are probably doing it without realising. If you use a compliance outsourcer, they will have updated your paperwork to capture the information.

    1. Risk of Loss – capital guarantees / loss greater than capital
    2. Return profile – preservation / growth / income
    3. Time horizon
    4. Client’s knowledge & experience – Basic / informed / advanced

  5. FcA have lost the plot to their own rule book. Seems they are removing the cost of development for technology by instead turning human advisers into robo advisers. Moronic regulations developed by well meaning cretins

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