Mifid II's effect on platforms means advisers must evolve

Ben Hammond, principal consultant at Altus Consulting, said while the Markets in Financial Instruments Directive (Mifid II) has meant all investment platforms have had to make changes to remain in business, this did not mean advisers had no need to change.

He said: "The issue for advisers is they have not always taken the opportunity to innovate on top of essential compliance."

For Mr Hammond, advisers need to consider seriously the scope and structure of the platforms they use, and make the necessary switches for clients towards platforms which look to be more successful post-Mifid II.

He said: "How each platform is put together, or architected, is the most important factor when it comes to changing and improving the offering, with the more modern and ‘forward thinking’ platform firms more able to make a success of what could be seen as a regulatory thorn in the side.  

"Not being wed to using a single, unruly, core system is key to this success – keeping up with modern technology being something some of the legacy platforms can struggle with."

The lack of consistency across the industry in how this additional data is being provided will cause as many issues for IFA firms. Ross Denton

His colleague Ross Denton, consultant at Altus Consulting, said: "On the one hand, advisers are looking for their platforms to help with the new 'baseline' Mifid II requirements, such as ex-ante and ex-post reporting, and the 10 per cent portfolio depreciation.

"On the other, the Financial Conduct Authority (FCA) is tightening up on what it considers 'non essential' platform services, pushing some things back towards the IFA to save the providers from falling foul of the so-called 'non-monetary benefits' guidelines."

He explained this meant advisers might see an increase in costs to them from some providers. Mr Denton added: "If a platform offers services like ex-post reporting or a 10 per cent portfolio drop notification, will these be deemed under the proposed platform reforms as providing a benefit to the adviser (in that they don’t have to produce the output themselves) but not necessarily benefitting the clients directly?

"If so, will the platform have to charge the IFA for services rendered?"

Moreover, he said there is now such a ream of documentation, with similar but not identical information being offered by platforms to advisers and their clients, that this will lead to more work for advisers.

He said: "This causes work for adviser firms which use multiple platforms. For example, I am aware of a few large IFA firms that have had to adopt their own method of producing an ex-ante report, as the output provided by each platform on their panel is sufficiently different that any time saved by using the platform-produced figures is then outweighed by the time it takes to adapt the output to the firm’s own standardised report.

"The lack of consistency across the industry in how this additional data is being provided will cause as many issues for IFA firms as the actual requirement to disclose or method of disclosure."

Their comments came after remarks made by Lawrence Cook, director of marketing and business development for Thesis Asset Management, at an FTAdviser masterclass held in London last month.

He told delegates Mifid II was focusing advisers’ and providers’  minds on "whether we are delivering what clients value".

As a result, advisers, discretionary fund managers and platform providers needed to innovate and be flexible to ensure the client is getting the best possible service.

When it comes to innovation, Mr Hammond said rather than the expected contraction among platform providers that has often been predicted, what will happen post-Mifid II is a new wave of smaller, more technologically advanced platforms coming to the market. 

Mr Hammond said: "Longer term, the platform industry is going to see a number of new entrants, building their businesses using the latest technology and thinking. The recent launch of Seccl’s platform service and Hubwise as a new platform brand show that you don’t have to invest tens of millions to get into the market, and you don’t necessarily need to buy in large chunks of technology.  

"The concept of 'componentisation', or stitching together best of breed modules to create a platform business is the future, and will allow any new entrant the flexibility, efficiency and ability to scale that is essential to success.”

simoney.kyriakou@ft.com