He says: “Like most new regulation, these rules shouldn’t be needed, but sadly they probably are. Regulators always need to take into account the lowest common denominator, targeting rules primarily for the benefit of their clients. [But] there’s a danger that small and medium advisory firms become overloaded with regulatory compliance, reducing their capacity to serve clients, which would be a very poor outcome for all concerned.”
As it stands, there is conflicting information on whether advisers believe themselves to be complying with the new rules.
Nucleus recently asked its advisers what changes they have made to segmentation practices following the introduction of the Prod rules, and the results were relatively positive.
The vast majority of firms said they had a clear idea of the segmentation requirements, with only 8 per cent suggesting otherwise. In total, 60 per cent of advisers said they had either already updated their segments or not needed to. The remaining 32 per cent either did not use segments (29 per cent) or were in the process of reviewing them (3 per cent).
However, a survey conducted by Iress last summer found that more than half of the advisers it surveyed were not even aware of Prod, with only 5 per cent saying they were aware of necessary obligations. Perhaps even more worryingly, 70 per cent were unsure if they would be able to show the suitability of products and services by client segment. There has either been a sharp turnaround in practices, or Nucleus users differ notably from the wider adviser market.
Mr Bamford says his company is confident that its current approach meets the requirements.
“Our previous interpretation of the existing TCF requirements, which we have embraced since their original introduction all those years ago, means Prod was already covered within the firm. I suggest that most financial planning firms are a long way evolved from having ‘bronze, silver or gold’ client tiers, instead designing propositions that are well suited to one or more niche audiences,” he says.
Step in the right direction
All this suggests that Prod could remain a bugbear for some advice firms, in the short term at least. But the regulation is not without its positives. Although regimes such as TCF should mean Prod is implemented in the UK on top of already solid foundations, the UK’s neighbours will find greater benefit.
“In a European context, where an independent advisory profession is not ubiquitous, Prod is an undoubted step forward. In the UK, where every personal recommendation is judged suitable for each individual on a careful consideration of their needs, objectives and attitude to risk, it seems more like reinforcement of existing regulation, such as the TCF regime,” says Mr Ingram.
