Speaking at the Intelliflo Change the Game conference yesterday (June 18), Robert Hardy, head of intermediary sales at Seven Investment Management, said for advisers who manage their own portfolios, getting hold of clients to secure their permission to rebalance a portfolio was the key pinch point of the new rules.
Under Mifid II rules, which took effect in January 2018 with the intention to increase transparency of costs charged to clients and to strengthen investor protection, financial service firms are subject to a list of requirements when making trades.
This includes using the whole of market, keeping records that display full evidence and disclosure of trades and noting a target market.
According to Mr Hardy, plenty of firms manage to hit these requirements successfully.
But getting client permission for trades, another requirement of Mifid II, seemed to thwart an otherwise "fairly easy" system, he said.
He said: "Client outcomes have been good. But the positive affirmation required every time a trade needs to be made puts this at risk.
"Most clients are aware of the need to confirm these deals and are aware of the time sensitive nature, however there will always be clients who do not respond and as a result, they do not get balanced and can end up in different portfolios."
Mr Hardy told FTAdviser that he thought about 20 per cent of clients were not responding to these requests that advisers had to process at least twice a year.
He said: "So what happens is that the majority of clients in the portfolio get rebalanced but then you get a divergence of these clients who are not responding.
"And the problem only gets bigger every time a new client is pulled."
Mr Hardy went on to say that Mifid II had created a "fork in the road" for advisers and had made many advice firms really think about the future.
Many firms decided to outsource solutions while others looked at discretionary permissions to relieve the admin burden that had made the investment process cumbersome, he said.
Just yesterday, the head of financial planning at the CISI, Jacqueline Lockie, said financial planners found Mifid II was adding at least 20 minutes of administrative time to each client meeting.
Seven Investment Management offers a service to advisers where the portfolio is run under discretion but through the advice firm’s name and branding so the client experience remains the same.