Both the Association of Investment Companies and the Wealth Management Association are continuing to lobby in Europe to prevent investments trusts being deemed ‘complex’ in the run-up to the final Mifid II rules.
Investment trusts are currently under the scope of products which could be treated as complex under the European Markets in Financial Instruments Directive, due to come into force on the 3 January 2017.
The regulator currently wants to hear feedback as to whether it should extend Mifid’s complex definition to include personal and occupational defined contribution pensions and UK-listed investment trusts, meaning they can only be sold via an advised sale or through a sale following an ‘appropriateness test’.
Liz Field, chief executive of the Wealth Management Association, told FTAdviser: “It’s going to send confusing signals to the market [if investment trusts fall under complex] and we think it is going to lead to greater consumer detriment due to insufficient discrimination between products.”
Ms Field referred to some figures from the Association of Investment Companies published on 2 June this year.
“If you look at some figures, investment trust company purchases on platforms by advisers and wealth managers reached a record of £125.3m in the first quarter this year. Now that’s 14 per cent higher than purchases in Q1 2014, so they are very popular - extremely popular.”
She added that the WMA believes that the complex label will deter retail investors and also firms as they will have to complete an appropriateness test every time a client wishes to purchase one on a non-advised basis.
Ms Field said: “Firms will have to complete an appropriateness test every time a client wishes to invest in the asset on a non-advised basis so that’s yet another layer, another burden for firms. At the end of the day the client is not benefitting from this so we are actively lobbying still in Europe about this.
“We are still actively lobbying in Europe, to say actually we think you’ve got this wrong.”
However, it is not only investment trusts which fall under this ‘complex’ category.
Ian Sayers, AIC director general, noted that the range of funds that will be brought under this definition is greater than often acknowledged.
He added to the list exchange-traded funds which aren’t Ucits, UK Reits, other Ucits products and some other open-ended retail schemes.
“We are still lobbying in Europe to say what shouldn’t be classified as complex. There are some real problems with some of the rules and loopholes which have been created.”
Mr Sayers also warned that the impact on financial advisers should be “zero” because these rules do not apply to financial advisers.
“Financial advisers don’t do an appropriateness test, they do a suitability test. One of the fears is that they [Europe] are trying to get platforms to do what financial advisers do.”
However, he added that appropriateness tests and suitability tests were very different, and that the new rules would undermine what execution only is altogether.
The FCA will formally consult on the rules within the next few months, with final policy expected at the end of this year.
ruth.gillbe@ft.com
