In the third piece of this three-part series, Ben Peele explores the final part of a suggested PROD methodology and concludes why the regulation is so important for advisers to adhere to...
In the second piece of this series we looked at how clients can be split into sub-segments. Now, in this final piece, we look at completing the PROD process. Our suggested practical approach is iterative in nature and starts at the advice service level. It then loops through investment solutions and platforms. Each client's individual needs are considered continuously throughout the process.
At the outset we recommend that you include all the options, even the ones you have no intention of ever offering or even believe in. At a later stage, you can rule out any number of these options, which will provide valuable data for your PROD policy.
1. Start with the advice service level you already offer (for a lot of firms there is only one level of service offering). Now consider the different types of clients out there and assess if there are any other service levels you don't currently offer that a client could want?
2. Next move to all the different investment solutions you would be comfortable using with your clients. Now consider the different types of clients out there and assess if there are any other investment preferences you don't currently offer that a client could want?
3. Next move to all the different platforms you would be comfortable using with your clients. Now think about the different types of clients out there and assess if there are any other platform providers you don't currently offer that a client could want?
Go around the loop as many times as required to ensure you have sufficient service levels, investment solutions and platforms to cover the needs of any client you are likely to advise.
Next having drawn up this big grid of the various segments, put a cross through all the segments you don't want to cover. Then put a tick against the areas you might want to cover, even if you don't yet have a solution. Finally, (this is a good by-product of PROD) take the opportunity to have a ‘spring clean' of the investment solutions and platforms, where you have multiple options in the same segment.
Now you are in position to draw up your condensed PROD Map as well as noting any universal rules and exclusions.
The PortfolioMetrix paper, free to download from the PortfolioMetrix website, includes two detailed case studies and offer practical examples of how to consider service levels, investment solutions and platforms to deliver the best outcome for your client. It also shows how you can map all your clients into a workable number of segments. Using these case studies will help you get a better idea of how to approach the process.
So, to summarise, PROD does require time and effort to implement but hopefully the approach we've provided will help make the task slightly less daunting.
The key things to remember are:
• PROD is a set of rules and advisers cannot delegate responsibility
• Advisers who fail to implement PROD effectively face the prospect of being severely punished by the regulator
On a positive note:
• Implementing a successful PROD approach will aid expectation management between advisers and clients
• It provides an ideal opportunity for good advisers to differentiate themselves from the rest
Understanding how the different parts of your proposition (Service Level, Investments, Platforms) come together to provide the right solution for each segment of clients is paramount. This will help you to ‘spring-clean' your current platform and investment providers to ensure they are still fit for purpose.
PROD requires a well-documented process (including the areas that your service offering doesn't cover) so that you can evidence to the regulator that you have a consistent approach for every client that has come through the door.
Ultimately you still need to treat customers fairly and run a suitability process but having a well thought out PROD policy will allow you to arrive at the right conclusions quicker.
As we stated in the first article, while PROD isn't an acronym, your approach to it should be, in that whatever solution you choose to implement should be:
Read the first article of the series here: PROD and financial advice: Six insights to help advisers get it right
The second can be found here: PROD and financial advice: Making the methodology work for your clients
Ben Peele is managing director of PortfolioMetrix
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