“Most advisers that we speak to are able to confidently articulate their centralised investment process, but fall short of Prod adherence by not having their investment process written down,” agrees Mr Lester.
“An appropriate forum to ensure this is done regularly would be in the adviser’s investment committee minutes. Every adviser should have an investment committee – although this can take a multitude of forms – as part of its ongoing suitability review of new and existing product providers. Many advisers were already doing this in practice, but admit that they needed to sharpen up on the documentation of these practices.”
He adds this has driven some advisers to resort to ‘off the shelf risk-targeted, or risk-profiled’ solutions from investment groups and discretionary fund managers, while others prefer a customised advisory or discretionary investment service.
More recently, another catalyst has emerged in the shape of the most high-profile personal finance news to break this year. In early June Neil Woodford suspended trading on his Woodford Equity Income Fund after proving unable to meet all redemption requests.
More questions have since been posed about the manager’s due diligence and investment processes, particularly in relation to the unlisted stocks that Mr Woodford has been fighting to ensure stay below the regulatory limit of 10 per cent of his portfolio. It marks the latest in a series of high-profile suspensions of open-ended funds, following the property funds that gated in the aftermath of the 2016 EU referendum, and Gam’s decision to suspend – and ultimately liquidate – its absolute return bond fund earlier this year.
Patrick Ingram, head of strategic partnerships at Parmenion, says the Woodford fiasco should ram home the message to smaller advice businesses about the need to embrace Prod rules.
“As yet Prod is not integrated into the workday of smaller advice firms, which [equates to] most advisers, but the messages are getting through. We see a catalyst to this in the news – there can be no doubt that the drama around the Woodford Equity Income fund will make fund pickers reconsider their processes, and zero in on their need for adequate due diligence prior to recommendation, on post-sale reviews, and appropriate action when outcomes are challenged.”
Fair and square
Prod should be considered in the context of the FCA’s longstanding treating customers fairly requirements, which similarly aim to put the best interests of consumers at the heart of advisers’ business practices.
Some have argued Prod adds little to the existing TCF regime, and subsequently questioned the necessity of the new sourcebook. Mr Bamford supports its implementation, but has concerns over how the resulting cost will impact different parts of the advice chain.
