The “incredibly opaque” Mifid II requirements around costs and fees disclosure are an “absolute nightmare” for advisers and will need to be reviewed by the Financial Conduct Authority in the years ahead, according to director of regulation at the Personal Investment Management and Financial Advice Association (Pimfa).
Speaking at the EIS Conference in London last week, Ian Cornwall said the problem for advisers centres on the requirement under the Mifid regulations that financial advisers must show the total cost of of making and owning an investment to the client, and how this will impact on the returns available from each investment.
Mr Cornwall said an adviser wanting to comply with those rules “is required to make certain assumptions about the future, but it is not always easy to get those assumptions right".
"It is total nightmare for advisers. The calculations an adviser will need to make to do this are exceedingly complicated in a lot of cases.”
Mr Cornwall said he “couldn’t foresee a situation where the FCA don’t review the costs and charges requirements within a few years".
He said the obligation is on the adviser to have the correct figures, so lack of knowledge or cooperation from the platform the adviser uses will not be accepted by regulators as an excuse.
A problem may arise if an adviser has clients in an asset, such as a US mutual, where the platform may not be aware of all the charges, and the obligation is on the adviser to find out what the charges are, Mr Cornwall said.
“If I were an adviser now, the first thing I would be doing is checking all of my client portfolios to see if there are any investments that the platform I use might not know the full charges for, bearing in mind that such an investment could be in a jurisdiction outside of the European Union and so not obliged to comply with the regulations.
"That would make it complicated for the adviser, so they should be looking into this now.”
Mr Cornwall’s comments came at the same time as Pimfa released a statement calling for a review of the Packaged Retail and Insurance Based Investment Products (Priips) rules around key investor documents.
As FTAdviser reported, there has been severe industry disquiet about the requirements for investment firms to put forward projections of performance into the documents, with Simon Fraser, chairman of the Foreign and Colonial investment trust, warning the regulations as initially imposed by the FCA risked a mis-selling scandal.
Hours after FTAdviser published its analysis, the Financial Conduct Authority issued a statement saying it would allow greater flexibility.
Liz Field, chief executive of Pimfa said: “The fundamental purpose of the Priips regime is undermined if KIDs fail to provide accurate, timely and clear information to investors.
In instances where KIDs provide misleading information - regardless of product providers' compliance with detailed KID content requirements - advisers and distributors should not be expected to "paper over the cracks" by providing "additional explanation" to investors.
"The ad hoc correction of documents that are a matter of regulatory requirement should not be undertaken lightly - as well as creating further inconsistencies in the way individual products are presented to investors, such an approach may result in wholly unreasonable liabilities for advisers and distributors."
David.Thorpe@ft.com
