Mifid II 

Mifid II heralds new era for adviser practices

  • To learn about the objectives of Mifid II
  • To understand the implications the new rules have for advisers
  • To grasp different ways of dealing with Mifid II requirements
CPD
Approx.30min
Mifid II heralds new era for adviser practices

After a year’s delay and endless debate over the finer details of the regulation, Mifid II rules finally come into force on 3 January 2018. They promise a sweeping overhaul to the way advisers engage with clients – but the uncertainty does not end there.

Several questions regarding exactly how intermediaries, providers and others can best comply with Mifid remain unanswered, even as the rules come into force. Some aspects will become clear as 2018 progresses, while the implications of other rules could mean changes to adviser business models that will only filter through more gradually.

Many years in the making, Mifid II has had a rocky gestation period. The regulation saw its original implementation date pushed back by a year because of concerns that the parties involved would not be ready in time.

Even after this reprieve was granted, some UK businesses have looked as if they would struggle to meet the requirements by the January deadline. Even those who do feel confident will find it essential to keep up to speed with interpretations of the rules as they develop, as well as how clients respond to changing practices.

Heading for a fall

One important debate of recent months has centred on the requirement that clients are informed every time their portfolio falls by 10 per cent or more in a quarterly reporting period.

While advisory portfolios are broadly exempt from such requirements, baskets of holdings run on a discretionary basis are not. Here, confusion initially arose over which party would inform the client of a 10 per cent fall – the adviser or the discretionary fund manager (DFM). The latter is responsible under the terms of Mifid II, but implementation issues have caused confusion. At the heart of the puzzle is exactly how clients are notified.

In cases where an end client is “introduced” to a DFM by an adviser, legal agreements between the adviser and the DFM may need to be revisited in order to clarify the situation.

As Phil Young, managing partner of consultancy Zero, states, the issue is further complicated by the existence of model portfolios.

Here, he notes, the DFM “has no idea who the client is, but remains lumbered with the regulatory responsibility for notifying”, even though the platform being used is the most reliable source for calculating a portfolio’s losses. 

Because the platform has no obligation to notify clients, Mr Young believes a revision of agreements could see advisers accept the liability for informing clients on behalf of the DFM, but rely on the platforms in practice. This will require intermediaries to decide a course of action, and check they have the adequate processes in place.

“If the platform is going to issue the notification for you, you will still keep the liability for it unless they provide you with an indemnity, which I imagine is unlikely,” he says. 

“Wouldn’t you want to see the list of people the notification is to be issued to for double checking?”

In cases where platforms plan to provide advisers with the information needed to notify clients, he again warns that preparation is necessary.

CPD
Approx.30min
  1. What could the Mifid-induced breakdown of costs result in, according to Mark Polson?

  2. What can fund providers not show under the new regulation, according to Fergus McCarthy?

  3. Apart from their advice, what does Mikkel Bates tell intermediaries they should be reviewing?

  4. When it comes to model portfolios, who does Phil Young believe is best placed to identify a 10 per cent loss?

  5. What does a flexible approach to complex/non-complex product labels mean for advisers, according to Liz Pemberton?

  6. In what cases will the FCA not immediately punish firms for not having met all Mifid II requirements?

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  • To learn about the objectives of Mifid II
  • To understand the implications the new rules have for advisers
  • To grasp different ways of dealing with Mifid II requirements

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