The Mifid depreciation rule, which requires discretionary fund managers (DFM) to report when a client’s portfolio has dropped by more than 10 per cent, has forced Kevin Silvester to work on Christmas day.
Mr Silvester, who is head of strategic partnerships at Brewin Dolphin, said he was abroad last Christmas when world markets fell over concerns of a partial US government shutdown.
Stocks fell on Christmas Eve but the time difference meant Mr Silvester was not informed about clients' portfolio depreciations until Christmas Day, meaning he spent the holiday sending letters to clients only for portfolios to rebound shortly after.
The controversial Mifid depreciation rule requires those with discretionary permissions to write to every client by the end of the following business day whose portfolio has dropped by 10 per cent or more from the beginning of the last reporting period.
Mr Silvester said: “The markets fell sharply last Christmas Eve, and the notifications came through to us on Christmas morning, so I spent that time, I was abroad, writing the formal letter to the clients.
"The methodology you have to use is very formal. And then, just after Christmas, we had clients calling us up asking us what they should do, because their portfolios had fallen so much.
"But by the time they were contacting us, the market was up about 12 per cent, so they didn’t need to do anything. As a firm we disclose everything, and that is definitely a positive for the end client.”
His experience echoes that of Philip Milton, an adviser with discretionary permissions, based in Devon. He spent Christmas Eve writing to clients to disclose the 10 per cent drop in portfolio values.
Mifid II, which was introduced in January 2018, also created an obligation upon firms to disclose to clients all the costs and charges incurred on their investment, including transaction costs.
Mr Silvester said: “About 100 of the clients we sent the letters to thought it was an invoice and sent us cheques to settle the bill.
"And some of them were large sums of money. I think advisers generally do a great job of clearing the murkiness around these rules.”
Brewin’s discretionary fund management business manages £12.5bn for advised clients, while the model portfolio service runs £3.5bn for advised clients. There is also a private client business.
Mr Silvester said a feature of the discretionary fund management market he has noticed in recent years is that clients who want to take income from their portfolios are particularly keen to have their money managed on a discretionary basis.
He said typically a client went into a DFM product if they had a portfolio of £500,000 or higher, with those with lower pots of assets using a model portfolio service.
But he said more recently clients with smaller pots were seeking to have the capital managed on a discretionary basis, as they believe it's difficult to obtain a steady income stream from a model portfolio.