- Costs which are clearly defined for the service provided and structured in relation to the service delivered.
- Services and their costs shown in a way that is clear, fair and not misleading.
- That clients have a clear understanding of the level of charges and the nature of services on offer.
- The FCA does not prescribe the basis on which a service is charged but expects a firm to set and operate charging structures responsibly.
- The firm obtaining all relevant information in order to understand each client individually so that specific transactions meet investment objectives.
- The FCA does not prescribe how firms assess customer risk, however firms need to ensure they have a clear and robust process that is fit for purpose.
Analysing your advice process is important for several reasons. It sets out a high-level framework on how you will deal with your clients and places emphasis on key business and compliance areas such as:
- Know your client (factfinding).
- Ensuring your charging structure is clear, fair and not misleading for both initial advice and ongoing services.
- Ensuring clients understand your advice processes and recommendations.
- Managing the risk the client is willing and able to take, and accurately assessing their capacity for loss.
- Managing the risk of your recommended solutions effectively.
PROD is one of the first areas to consider in regard to suitability. PROD is not about determining the suitability of an individual investment/product that will be targeted to (potential) clients of the firm, nor is it about identifying a specific investment/product for a specific client - that process remains within FCA’s ‘suitability’ rules.
Instead, PROD is about firms understanding the customers they deal with, or target, and having knowledge of the different types of investments/products that may be appropriate for them.
In ensuring this, the firm demonstrates that it understands the investments/products they distribute and the nature of their risks. This is a high-level overview that is conducted before any assessment of individual suitability.
The key focus of PROD is to ensure investments/products are designed for the general needs of the consumer.
Vulnerable persons
Another area to consider regarding suitability is vulnerable persons, as all firms have a responsibility to set out an approach to dealing with vulnerable persons, which should be accounted for in its vulnerable persons policy.
It is important as part of that policy to understand the responsibilities the firm has under its authorisation by the FCA, and to ensure vulnerability is considered when acting on behalf of a client.
There is a danger of a customer falling victim to pressure selling or to be provided with inappropriate products when the firm does not understand the circumstances of the customer.
