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How does PROD differ from previous regulations and how ready are advisers for PROD?

How does PROD differ from previous regulations and how ready are advisers for PROD?

This blog is drawn from a white paper on PROD written by PortfolioMetrix, following a roundtable event with industry experts.

The critical difference is that PROD is a set of rules not guidance. Advisers must comply or risk facing onerous sanctions.

There are scare stories in the industry press saying only 1% of advisers are PROD compliant. We don’t think the reality is quite so dramatic but there is a wide range of readiness among advisers we talk to. Many are still at the beginning of the journey, they are aware of the need to get compliant but are looking for help to do so. This white paper is aimed at them.

Are there any positives about having to deal with another piece of regulation?

  • PROD makes the commercial arrangement with the end-client clearer from the outset. This means expectations are better managed on both sides
  • PROD should ensure that clients make better informed decisions and end up with an investment solution that is tailored to their individual needs
  • PROD offers a great chance for good advisers to differentiate themselves from their less prepared peers

What were the key recommendations of the regulatory consultants at the roundtable event?

  1. PROD is not a tick-box exercise. Your job is not done just because you have produced a PROD policy. You need to evidence that your firm is complying for each client on a daily basis
  2. Employing an external compliance consultant doesn’t protect an adviser from being on the hook
  3. One size does not fit all. You will definitely need more than one client segment
  4. You categorically can’t segment your clients based on how much money they have to invest
  5. For firms with more than one adviser ensuring consistency of approach across all your advisers will be critical. Post the arrival of the SMCR responsibility for complying with PROD will fall to the MD so they can no longer afford to let advisers ‘do their own thing’
  6. Documenting every step of your PROD approach is critical. You will need a full audit trail if the regulator ever comes calling
  7. Don’t create too complex a system. Simplicity is your friend

What were the most interesting comments from advisers?

  • If you don’t find common ground among your clients, you’re likely to end up with 100 segments for 100 clients because every client is unique
  • Some advisers are currently only offering a narrow section of the investment solutions that they could be proposing to their clients
  • It is important to create a register of clients that didn’t fit with your approach to evidence to the regulator that you have been selective about who you have taken on.

What differentiates PortfolioMetrix’s suggested approach to PROD?

  • We don’t start by assigning segments & sub-segments as the list can quickly get very long and unwieldy. Instead we suggest you start at the service level, then move to investment solutions required to cover all of your clients’ needs and finally find the platforms required to facilitate those investment solutions.
  • We think the average adviser will be able to group their existing client base into c12 segments (which is a lot more manageable than the 50+ segments others are talking about).
  • It may well require adding investment solution providers and platforms to your current offering. It also may mean cutting some of your existing providers. PROD is a great opportunity to “spring clean” your business.

How would you summarise this PROD white paper in 3 lines?

  • PROD is not optional and you can’t delegate responsibility
  • Using PROD as an acronym is a useful reminder that your approach should be Practical, Repeatable, Organisation-wide & Documented
  • PROD is a great opportunity to offer your clients a more customised service as well as to futureproof your business

PortfolioMetrix have also published a series of short videos on PROD, available here.

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