IFAs cheer end of 10% drop rule

IFAs cheer end of 10% drop rule
Chancellor of the exchequer Jeremy Hunt, whose Edinburgh Reforms repealed the 10% drop rule (REUTERS/Toby Melville)

IFAs have celebrated the end of the 10 per cent drop rule, describing it as a “pointless” regulation.

“Good riddance to an absolutely useless rule,” said Tom Ham, director at Calton Wealth Management & Gameplan Wealth.

“We’ve seen plenty of ludicrous regulations but this one beats all in my opinion,” said Ivor Harper, director at Park Financial.

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“Pointless rule,” added Ben Yearsley, director at Fairview Consulting.

Tim Williams, business development director at FinoComp, said the rules should be re-purposed to make sure clients and customers are better engaged with their portfolios.

"We want clients and customers to be better engaged (at the right times) with their portfolios so alerting with positive performance could build that trust and encourage them to invest more, especially as our data shows the concern over panic selling was unfounded," he said.

"With a more robust and automated process, and consistency with other performance reporting, this could be something of great benefit to wealth management firms and their clients."

The rule

The controversial 10 per cent drop rule was introduced by Mifid II in 2018 and required that clients were informed by the end of the working day if their portfolios dropped by 10 per cent or more in a certain period, which was at least quarterly.

Any further drops in value by more than 10 per cent were also required to be communicated to the client.

The regulation has been criticised due to the impact it could have on clients who become spooked by market volatility, and was suspended during the Covid-19 pandemic, which saw huge fluctuations in the value of portfolios.

The temporary suspension was extended until today, January 18, which is the day the rule is permanently scrapped according to a statutory instrument laid before parliament last year.

The change was part of the Edinburgh Reforms announced by chancellor Jeremy Hunt, which rolls back a number of rules created after the financial crash in 2008.

A HM Treasury spokesperson said: “The Edinburgh Reforms seize our Brexit freedoms to deliver a smarter and home-grown regulatory framework for the UK that is agile, proportionate and ensures appropriate levels of consumer protection.

“Our reforms to the operation of our wholesale markets will boost their competitiveness – while ensuring that retail investors do not unnecessarily consolidate losses, when in many cases investment portfolios may rebound.”

The Financial Conduct Authority declined to comment.