• recording communications and product governance and distribution.
Some may seem directed towards institutional firms only, such as client order handling, trade transparency and transaction reporting, covering trading platforms. But potentially this could impact adviser platforms, for example, in terms of when fund trades are executed and also agency/client reporting.
Some provider firms, funds and discretionaries have started their impact analyses. The message is clear that advisers should do the same. Those that have lived through RDR implementation appreciate that it is better to start sooner rather than later.
On which areas should advisers focus?
Corporate governance is a key area for the directive. It impacts advisers and the providers of the solutions they recommend to their clients, and deals with senior managements’ understanding, oversight and influence over what goes on at the client contact point.
Senior management scrutiny will increase and the regulator may well have the power to change or remove senior people.
Product governance is part of the overall oversight obligation is the specific requirement for product governance to ensure there is effective consumer protection.
It is safe to assume that product here covers funds, life pension and collectives, and discretionary service propositions.
In short, providers’ product design and manufacturers’ processes are to be overseen by senior management – most firms already do this, but surprisingly not all.
The product must be designed for a specific client segment with information provided on suitability and importantly, for those client types that it wasn’t designed for.
Provider firm representatives must be trained on the characteristics, benefits and risks applicable to the product. (Should there be technical exams for sales people?)
Scenario analyses on potential outcomes associated with the product should be provided.
Manufacturers will be expected to know how their products are being distributed and how they are used and by which customers and, importantly, understand if market changes negatively affect those customers.
For advisers, it is more than just assessing suitability.
It is now about research and due diligence.
Senior management should satisfy itself that the process of assessing a suitable range of products for each client or client segment is robust, repeatable and client-centric, and, if ongoing client contact is part of the service offered, that recommended solutions continue to be appropriate.
Advice firms will need to evidence things such as due diligence policies, selection and monitoring procedures on top of current requirement for suitability ‘paperwork’.
Depending on their business mix, for some, this means setting up a separate expert investment committee in order to execute corporate policy on due diligence and suitable solutions and report back to senior management.
The firm will have to be not only aware of the benefits that products are expected to deliver but the various dangers inherent and those that could occur due to market events.
