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PROD prompts surge in active client segmenting

26 July 2020

The number of advisers actively reviewing their client segments has jumped over the past year as firms tailor their advice services in line with PROD rules, new research from Nucleus has revealed.

According to the findings from Nucleus’ annual census, 27% of advisers now actively review client segments, compared to only 3% last year. The census also found that only 16% of users do not use segmentation at all, down from 29% in 2019.

Advisers said that the introduction of Mifid II has also contributed to increased awareness of costs and charges among clients. More than two fifths (44%) of advisers believe their clients now have a better understanding of charges, with nearly one in three (29%) firms admitting clients have challenged their advice fees, while 22% have challenged platform fees. However, 30% of advisers admitted that the Mifid II costs and charges statements have also confused clients about what they’re paying.

Nucleus said advisers are changing their charging models accordingly, with more adopting a combination of charges or fixed fees. Just under half (49%) of firms have adopted a percentage-based charging model, significantly below the 75% reported in 2018.

Barry Neilson, chief customer officer, Nucleus, said: “Our latest census has found a significant increase in the number of advisers reviewing their client segmentation. Within this, advisers are thinking more creatively about how they segment their clients. Increasingly, this is not just about the value of clients’ investments but what strategies would be most appropriate for the life stage their client is in.

“As a result of increased transparency following Mifid II, we have seen more scrutiny of fee structures for advice, platforms and asset management showing an increased understanding from advised clients. This can only be a good thing as it gives advisers an opportunity to open up the dialogue and demonstrate the value they provide.”

The findings also showed a drop in the number of advisers concerned about the impact of platform mergers and replatforming on the wider platform market. In 2018, almost half (47%) felt it would have a significant impact, but this number fell to 26% of firms this year, Nucleus said.

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