Advisers have been warned the client segmentation they carried out after the Retail Distribution Review will not be sufficient for Mifid II rules.
Jamie Farquhar, business development director at Square Mile, said the product governance rules of Mifid II meant advisers needed to go beyond the client segmentation they carried out to comply with the RDR.
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.
But there is concern that advisers are not complying with the regime, with some estimates suggesting only one in 10 advice firms is meeting the rules.
Mr Farquhar said: "That process of segmentation for Mifid II cannot possibly be the same one that was used to define your fee structure post-RDR. That's something we are concerned advisers might do."
He said that since RDR many advisers had divided their clients into three or four levels, providing more services and charging more to some, but charging less and providing fewer services to others.
Mr Farquhar said: "That was segmentation for RDR but I don't think using the same segmentation process is pertinent for what Mifid II is getting at.
"What it wants is an outcome focused segmentation: what are the best products to meet a client's needs. That's not about fee structures."
Mr Farquhar said many advisers would already go through this process, but Mifid II meant there was a greater need to examine this and document it.
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.
damian.fantato@ft.com
