The Mifid II rule requiring advisers to perform annual reviews of investment portfolios is forcing intermediaries to turn away clients.
The rule requires that advisers spend hours reviewing the investments, whether the client specifically requested it or not, and this is making advisers turn away clients with more modest portfolios as they are no longer profitable.
Financial Adviser spoke to an adviser based in London, one in the Midlands, and one in the north of England, and each agreed the Mifid rule is causing them to turn clients away.
Minesh Patel, an adviser at EA Solutions in Finchley, London, said: “To do the annual review properly and thoroughly is eight to 10 hours work.
"You can probably do it quicker than that, but to do it thoroughly you need to take that amount of time.
"And a client with assets of less than £500,000 is not profitable when you have to do the annual review."
He said this has prompted him to stop accepting new clients with assets of less than half a million pounds.
Paul Stocks, financial services director at Dobson & Hodge in Doncaster, said the Mifid rule means his fee scale prohibits some clients from accessing advice.
He said: "Mifid II has indeed focussed our attention on this given that it requires advice to be revisited annually even if the client doesn't necessarily require it.
"I feel that this is potentially an unintended consequence of Mifid II as it means that, for some clients, annual reviews will not be cost effective even if they feel they wish to have them."
Jenny Griffiths, an adviser at CP Griffiths & Co in Stourbidge in the Midlands, said the additional administration caused by Mifid II inevitably led to an increase in the minimum portfolio value required for her business to take on a new client.
Keith Richards, chief executive of the Personal Finance Society (PFS), said "there is no doubt" the annual review requirement in Mifid II exacerbates the advice gap.
He said Mifid II went against the aim of the Financial Conduct Authority's Financial Advice Market Review, which was tasked with looking at ways to boost access to advice.
He said each of the 5,500 smaller advice firms in the country each have slightly different business models and priorities.
As a result, Mr Richards said the levels below which they cannot accept clients will vary.
Mr Richards said: "In terms of getting the best outcomes for clients, areas that we should consider are whether firms are over-complying with the Mifid rules and we are creating a dialogue between advisers and the FCA to make sure this doesn't happen.
"The debate regarding economic client asset value has been in play for many years with pre-Retail Distribution Review surveys suggesting £150,000 as the minimum and a prediction that thousands of clients with assets of £30,000 or less would be made orphaned.