Indeed, it should be noted that where the agreement between a firm and a client for a portfolio management service authorises a leveraged portfolio, the periodic statement must be provided at least once a month.
Perhaps not the most taxing of changes, but an important one to remember.
It is important that quarterly statements should not be confused with the requirement to implement a periodic reassessment of suitability of personal recommendation. There is a hope that this may help to close the ‘suitability gap’ – the confusion that often arises over who is responsible for risk profiling when an adviser refers a client to a DFM.
Until now, it has been far too common for clients to be presented with a portfolio that is not appropriate to their risk profile.
A ‘balanced’ portfolio for a 50-year-old investor from one investment house may be based on 60 per cent equities and 40 per cent fixed income. A similar product from another house, for the same client, may well be very different.
Put very simply, off-the-shelf portfolios are not personalised enough.
From a regulatory point of view, the FCA is laser-focused on the proper assessment of a client’s needs and suitability for financial products. This is true both for the big players and smaller ones too.
However, by enshrining the need to keep suitability front and centre, it is hoped that the current situation will improve.
Naturally, Mifid II requires policies and training for employees to be updated.
Firms have a requirement to ensure their staff can understand the new rules and have the tools to show the new regulations are being followed, through an audit process.
Facing the challenge
Finally, there is a renewed focus on the way that advisers publish their content, through digital channels.
Anything released externally must be fair, clear and not misleading. Firms are urged to have technology in place to require anything that is published to have been vetted by compliance.
There is no question that Mifid II presents challenges to advisers and there may well be some teething problems when it comes to adjusting to the new rules.
That said, the industry has had time to adapt and we should finally see advisers and DFMs working together to improve the client’s experience.
In short, it is time to face this challenge head on.
Ola Abdul is chief executive of investment platform Fundment
