Manufacturers identify the target market for a product and adviser firms should identify client segments as part of their investment process. The step that is less well defined is how a particular client is assessed as fitting the attributes of the manufacturer’s target market or the firm’s client segments.
Life was much simpler pre-RDR, and even in the period from RDR up to MiFIDII – client segments in many firms were largely dictated by the amount of money the client could invest. In practice, that was never quite adequate. In today’s PROD world, it falls way short of what is required, which is to incorporate the target market concept within the investment process to ensure that clients are recommended products that are suitable.
We believe that the firm’s investment process should form the bridge between the product focused EMT target market criteria and the firm’s defined client segments and how each individual client is assessed and documented as sitting within a particular segment.
So, it makes sense to consider the EMT criteria but it is essential not to confuse these as being directly interchangeable with the firm’s criteria, not least in relation to ATR or CFL.
Action required by you
- Consider whether your investment process reflects the points raised here;
- Review and update as appropriate;
- Contact your ATEB Consultant for further guidance on the investment process and meeting PROD requirements;
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