The value of investments can go down as well as up, and the investors could get back less than was paid in.

What is PROD?

PROD is essentially shorthand for the Product Intervention and Product Governance Sourcebook, which comes from the Financial Conduct Authority (FCA). The purpose of PROD is to make sure that investment products recommended to clients:

  1. fulfil the needs of one or more identified target markets 
  2. are distributed appropriately 
  3. deliver appropriate client outcomes

1. Dear CEO letter January 2020

In January 2020, the FCA published a Dear CEO letter to financial advisers setting out its approach to tackling key areas of concern and summarising the actions they expect financial advice firms to take in relation to:

  • assessing suitability of advice and disclosure
  • defined benefit pension transfer advice
  • pension and investment scams
  • adequate financial resources and professional indemnity insurance
  • speculative mini-bonds
  • senior managers and certification regime
  • EU withdrawal

The FCA expects firms to consider and discuss the Dear CEO letter at a board level and agree what further action they should take. The FCA also expects principal firms to share the letter with their appointed representatives.

Of particular importance is the top bullet, 'assessing suitability of advice and disclosure' and the fact that the FCA will be conducting a second 'Assessing Suitability Review'.

This will focus on initial and ongoing advice to people taking an income in retirement. Firms need to make sure that the advice they provide is suitable, the costs and charges are disclosed early and that they act in the best interests of their clients. Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed.

Following the PROD rules can help you meet these regulatory requirements.

2. Carrying out a target market assessment

Section 3.3 of the PROD Rules set out the obligations of advisory firms and states in one telling section:

3.3.15 (R)

(1) Distributors must have in place adequate product governance arrangements to ensure that:
(a) the financial instruments and investment services they intend to distribute are compatible with the needs, characteristics and objectives of the identified target market; and
(b) the intended distribution strategy is consistent with the identified target market.

(2) Distributors must appropriately identify and assess the circumstances and needs of the clients they intend to focus on to ensure that their clients' interests are not compromised as a result of commercial or funding pressures.

(3) Distributors must identify any groups of end clients for whose needs, characteristics and objectives the financial instrument or investment service is not compatible.

In other words, you will need to carry out a target market assessment on who you are distributing to. Then you need to align the investment solutions or services you offer to the right clients.

Segmentation is the most effective way of understanding how your clients can fit into a target market. While many firms have done this already, it has often been firm-centric, segmenting clients by wealth or the income they generate, rather than using a more client-centric approach.

Recognising the differences between these segments of clients, means you can understand their different needs and how you can best support them. This should be at the heart of your client segmentation process. The key elements of your proposition (investment solutions, advice and platform) will then need to be tailored according to these needs, not the other way round.

You might find the suggested structure below useful.

Segment Sub-segment Client needs and objectives Investment solution Platform need Service requirements
Saving for retirement      
Nearing retirement      
Enjoying retirement      

Find out more by reading our articles:

Why PROD rules make it important to segment your target markets

How to build a market segmentation matrix for PROD

3. Some key PROD considerations

  • Have you used a client-centric approach rather than firm-centric to segment your clients?
  • Have you recognised and understood the needs of different client groups?
  • Does your recommended platform, investment solution and service meet the needs of your client segment and align to the target market it is designed for?
  • Does the nature of the investment solutions offered meet your clients' needs and investment risk appetite?
  • Are there any sub-segments of clients for whom the preferred solution is not compatible?
  • What is the impact of charges on the client?
  • What service are you going to provide to different client groups?
  • What is the financial strength of the provider and how will they support your client?

PROD is not just for new clients.

The PROD Rules don't distinguish between existing and new clients, so it's important that you regularly review whether all your clients are still receiving the right service. If not, then you will need to take action to rectify this.

4. Creating a consistent approach

A consistent approach across all advisers is critical for any firm with more than one adviser. With the introduction of the Senior Managers & Certification Regime (SMCR), the responsibility for complying with the PROD Rules now falls to the aligned Senior Manager, so firms can no longer afford to let advisers do their own thing.

The key to creating consistency is to check that advisers are using the target market assessments to help recommend the best service to meet each client's needs. As well as making sure that the most suitable service is recommended to clients, as a distributor, you're also responsible for regularly reviewing whether the products and services held by your existing clients remain consistent with the needs of the target market (pre and post retirement).


Manufacturers target market assessment=Theoretical target marketDistributors target market assessment=Actual target marketRegular suitabilityassessmentHelpsinform


You need to understand the providers’ (manufacturers) descriptions of the investment solutions and match it (“distribute it”) to the right type of client. It is our responsibility (as a platform provider) to give advisory firms access to the target market data from fund managers to support you in monitoring sales and ensuring you are distributing investment solutions to compatible clients. This information can be found on our Wrap investments page.

To be clear, it’s not the target market of the platform that you as the adviser needs to assess, it is the investment solution target market information (as provided via the EMT) that you must use to assess whether your client’s individual needs are compatible.

5. Documenting your approach

While you may be doing much of what is needed to meet the standards required by PROD, having evidence that you are doing it to the FCA's satisfaction is now more important than ever. The regulator is challenging firms on how they are implementing the rules. They are taking a much closer interest in client segmentation.

The FCA could contact your firm and ask to see the process you went through to identify your target market and how you designed your advisory service to meet the needs of those clients. Failure to show evidence could result in a regulatory breach.

Make sure you have it all written down and that all your staff are trained on the target markets. The outcomes need to be monitored and reviewed on a regular basis.

Find out more by reading our article:

Tips to help your firm’s PROD reporting

6. Support from abrdn

Over the years, the move to greater centralisation has helped to create efficiencies and make sure clients are treated fairly and consistently. However, it has led to accusations of "shoehorning" where a "one size fits all" approach is applied to clients who have similar, but not identical, needs.

Our advanced platform technology can support your PROD requirements by helping you run your CIP or CRP in the most effective way. Innovative solutions such as Individually Managed Accounts on Wrap can help to create greater efficiencies and capacity, whilst providing individual client outcomes at scale.

Find out more about Wrap

Standard Life Elevate can make it easy for you to access and service solutions for different client segments.

Find out more about Elevate

7. Statement of Target Markets

Product Intervention and Product Governance Sourcebook (PROD) rules require advisory firms to show that the products recommended to customers:

  • Can deliver good outcomes
  • Meet the needs of an identifiable target market, and
  • Are being recommended to the right types of customer

To assist in this, platform providers are responsible for identifying:

  • Types of customers for whom a product or service might be suitable, based on the their needs, characteristics and objectives, and
  • Types of customers for whom a product or service is not suitable, based on their needs, characteristics and objectives

To help you with your suitability advice and compliance requirements we’ve created these Statements of Target Market which outline which customers might benefit from a product or service based on their needs, characteristics and objectives.

Wrap Stocks and Shares ISA

Wrap Personal Portfolio

Fundzone Stocks & Shares ISA

Fundzone Investment Funds

Elevate General Investment Account

Elevate Pension Investment Account

Elevate Stocks and Shares ISA

Onshore Bond for Wrap


Wrap Junior ISA

More resources for advisers