Advisers aware of but not complying with PROD - the lang cat

The consultancy found four-fifths (80%) of the advisers it surveyed were aware of PROD yet some 62% cannot evidence suitability of products and services by client segment in compliance with the regulations introduced in January. This compares with fewer than three-fifths (58%) of advisers saying they were aware of PROD earlier in the year.

'PROD' - the short-hand term for product intervention and product governance - was introduced alongside the second iteration of the Markets in Financial Instruments Directive (MiFID II) in January by the Financial Conduct Authority (FCA).

The firm said the study revealed "widespread confusion and concern" around what advisers needed to do to evidence the suitability of investments by client segment. 

The lang cat worked with Premier Asset Management to produce the paper ‘Adviser investment strategies: the how, not the what' to try and help advisers understand the rules and give them an action plan to reach compliance. In a PROD-focused feature published by PA over the summer, former FCA man and regulation guru Rory Percival also explained - albeit briefly - how advisers could comply with PROD.

Premier's sales director Mike Hammond said his firm believed advisers' centralised investment propositions should be reviewed in light of PROD and MiFID II.

He added: "MiFID II introduced new standards on audit trail and disclosure requirements, such as personalised cost disclosure prior to any fund switch, requirements around suitability, monitoring for any potential 10% drop in value during a quarterly reporting period in certain investment solutions, and improved adviser product oversight and governance processes under PROD."

'Significantly raised bar'

The lang cat consultancy director Mike Barrett said MiFID II "significantly raised the bar" with regard to suitability and disclosure requirements for investments, while PROD had brought rules into play that set out "exactly" how advisers must construct their investment propositions.

He continued: "With advisers increasingly using a centralised investment proposition, as opposed to picking funds for every client, it is hugely important for both the client and business outcomes that the investment solutions are both suitable and delivered efficiently.

"Many advisers we speak with are confused about these rules, and what they need to do, so we are delighted to have worked with Premier Asset Management to produce a paper looking at how advisers can construct their investment proposition in a manner that is compliant, operationally efficient, and most importantly, suitable for the client."

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• Topics
• Regulation
• PROD
• the lang cat
• FCA
• Mifid II