Consumer duty is a big challenge that wealth management and wealth advice firms have got to get to grips with, but the Prod rules may be the answer, Ben Goss has claimed.
The chief executive and founder of Dynamic Planner said although consumer duty would be a significant regulatory obligation for companies in financial services, the Prod rules concerning segmentation would help deliver consumer duty "effectively".
He told FTAdviser: "While the regulator has posed the challenge of consumer duty, it has also provided the answer - Prod regulation and understanding how to target markets."
The Product Intervention and Product Governance source book (Prod) rules, which came into force in 2018 alongside other European Union-led Mifid II directives, means that companies now have to ensure that any investment products recommended to clients do the following:
- Fulfil the needs of one or more identified target markets
- That they are distributed appropriately
- That the products deliver appropriate client outcomes.
According to Goss: "This required firms to segment their clients and be clear about the outcomes the target market is looking for, and the value proposition that those clients are looking for.
"As consumer duty really beds in, those target markets and the service provider's understanding of them will come to the fore, as these are the mechanism by which an adviser company can align its propositions, whether an adviser is a sole practitioner or part of a large company."
There will probably be aspects of Mifid that should remain.Liz Field, PimfaHe explained that the target markets created under Prod gives advisers the ability to understand what the various clients in those segments are looking for, as well as the appropriate propositions.
"This is a powerful way of delivering that personalisation and service needed under consumer duty, and a powerful way of demonstrating the value of that advice and service to the client."
Post-Brexit Prod
But with chancellor Jeremy Hunt having unveiled his 30-point Edinburgh Reforms, many of which centre around decoupling UK regulation from EU regulation post-Brexit, will Prod rules remain in force?
Indeed, as Liz Field, chief executive of adviser trade body PIMFA told FTAdviser yesterday (February 15), one cannot "throw the baby out with the bathwater" when it comes to unravelling EU legislation.
She stated: "Mifid II, for example, was adopted relatively recently at great financial cost to our members. There will probably be aspects of Mifid that should remain, so we need to beware of throwing the baby out with the bathwater."
As reported by FTAdviser in 2020, the EU undertook a sweeping review of Mifid II and the effectiveness of the 2018 product governance rules, in a 94-page consultation document.
Even as Britain left the EU, commentators at the time warned the FCA might crack down on Prod rules, possibly gold-plating them.
But in 2020, the FCA reported that the rule changes had saved investors at least £70mn in the first half of 2019, and Goss does not believe the FCA will untangle Prod regulations, Brexit notwithstanding.
He added: "The FCA is still requiring the use of Prod governance and target markets, and clearly sees this as a mechanism for delivering the consumer duty efficiently.
"As an aside, I think it would be very strange if, in this work the government is doing on unwinding some EU legislation, it were to reduce consumer protection regulation. I have not heard anyone suggest that is what will happen.
"The focus must always be on the client and delivering the best client outcome - and being able to demonstrate that.
"How this outcome is delivered to the client is key. And certainly, all the advisers that Dynamic Planner is speaking to are saying the consumer duty is the biggest thing on their plates right now."
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How is consumer duty affecting you and your business? Email the editor: simoney.kyriakou@ft.com
