There is "widespread confusion" about compliance with Mifid II's product governance rules, with half of advisers not able to evidence suitability, according to research by consultancy firm the Lang Cat.
The product governance element of Mifid II is aimed at making sure advisers are offering their clients suitable solutions by requiring product manufacturers and distributors such as advisers to identify target markets.
The Lang Cat research found that while the majority (80 per cent) of the 220 advisers surveyed were aware of the rules, 62 per cent were unable to evidence the suitability of products and services by client segment to the standard they required.
Mike Barrett, consulting director at the Lang Cat, said: "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.
"Mifid II significantly raised the bar with regards to suitability and disclosure requirements for all investment solutions, and [product governance] introduced rules to set out exactly how advisers need to construct their investment propositions."
Earlier this year FTAdviser reported the product governance rules could give the FCA new powers to act on areas it could not previously address, such as value for money and advisers who only use one platform.
The FCA had product governance requirements before the introduction of Mifid II in January, but they were narrower than the new rules in terms of the financial instruments they covered.
Under the new rules, manufacturers - such as fund managers - must define a target market for each of their products.
Advisers will need to be aware of these and consider this when giving advice, which is what prompts the need for client segmentation.
They must also report any sales outside the target market back to the manufacturer - though there are no rules to say selling a product outside its target market is necessarily wrong.