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.
All this underlines the importance of creating a regulatory approach that increases access to advice, rather than waiting for unnecessary bureaucracy to reduce access to advice.Keith RichardsPaul 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.
"I am pleased to say that adviser didn't abandon their established clients but new clients were a different matter for many firms.
"There are thousands of advisers who will deal with consumers with relatively low asset value who need advice but this is a personal choice rather than driven by commercial reality or objective.
"All this underlines the importance of creating a regulatory approach that increases access to advice, rather than waiting for unnecessary bureaucracy to reduce access to advice."
The Financial Conduct Authority (FCA) declined to comment on whether the annual review requirement of Mifid II had further restricted access to advice.
But Financial Adviser understands the regulator takes the view that advisers have always had a requirement to act in the best interests of a client, and should not have simply bought products and then ignored how those products have performed.
It is understood the regulator takes the view that Mifid II's annual review requirement was viewed by the Financial Conduct Authority as just formalising something it believed advisers should have been doing anyway.
Rory Percival, a financial services consultant and former technical specialist at the FCA, said: "There is inevitably a figure below which it is not profitable to deal with a client if charging on a percentage basis. However, many firms have a minimum fee which deals with much of this.
"That said, there comes a point when this doesn't work for the client - there is no point spending £1,000 advice fee on a £10,000 investment."
david.thorpe@ft.com
