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Advising across Europe is easier than you think

Contrary to some of the scare stories that have done the rounds relating to European bureaucracy, regulators, trade bodies and financial advisers generally report few difficulties maintaining business with clients retiring to other parts of Europe.

Mifid permissions

While many were worried about the impact of the Markets in Financial Instruments Directive, which has been burdensome in terms of the reporting requirements for asset managers, there are a few exemptions for adviser firms.

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Adviser firms may be exempt under article 3 of Mifid if it does not hold clients’ funds or securities, and if it does not provide any investment service other than ‘reception and transmission of orders’ or investment advice in relation to transferable securities and collective investments.

But it is this exemption that would prevent a firm ‘passporting’ to offer investment or pensions advice or arrange policies on the continent. Such permissions are afforded under the collective European directive under which the activity falls - in the case of retail investment advice, Mifid.

Should an exempt firm wish to passport under Mifid, it would be required to apply for a variation of permission.

The Financial Conduct Authority’s stance is that whether or not a firm needs to exercise passport rights before carrying on a particular activity in another European state depends on the type of activity itself, and crucially where it officially occurs.

‘Arranging’ and ‘advising’ are usually considered to take place in the location where the arranging/advising occurs; ‘dealing’ is generally considered to take place where the acceptance takes place, which in turn depends on the method of communication used.

Adviser experiences

Linda Smith, senior technical analyst at the Association of Professional Financial Advisers, said that while the majority of advisers do have passports for Europe, of those that have applied, few have reported any problems.

Ms Smith confirmed, however, that there can be additional reporting requirements - and even enhancement capital adequacy requirements if the firm is not exempt from the Capital Adequacy Directive. Charges apply in some cases but not others and can vary significantly.

“People began by blanket applying to lots of European countries, which wasn’t a good idea, as they received lots of correspondence back in languages they didn’t understand. We suggest being selective.

“Some countries do charge, but we’ve had no negative feedback, so it doesn’t appear to be too onerous. When the changes first came in back in the early 2000s people didn’t know what to do, but now things have calmed down.”

Leslie Sharpe, managing director at Clairville York Financial Services, explained that in applying for passports into France, Italy, Spain, Germany and Poland, his firm opted to passport under Mifid using a variation of permission and received a capital adequacy exemption.

Under the FCA’s Gabriel reporting rules, the firm is required to submit quarterly and annual reports on these activities.