The cost of complying with burdensome financial rules from the second iteration of the Markets in Financial Instruments Directive (Mifid II) is forcing smaller IFA firms to revise their charging models.
That’s the warning from IFA research group Platforum in a new report called Adviser Market: Charging Models, released on Friday, 10 August.
Platforum’s researchers Joshua Taylor and Mariam Pourshoushtari said Mifid II had pushed advisers to reassess their economic models, with appointed representatives “under pressure” from their compliance teams to review charging models.
The report said: “Mifid ll is leading advisers to take a closer look at the basic economics of their businesses. When advisers analyse how much time they spend on individual clients and what they need to charge to cover their costs, it often turns out that they are making losses on lower value investors,” they said in a statement accompanying the report.
“Over half the advisers we surveyed increased their charges, either for all their clients or at least for their lower value clients, who tend to be less profitable.”
Some suppliers in the market have acknowledged that Mifid II has increased regulatory expectations, but say that it doesn’t necessarily have to substantially increase costs.
Equiniti, which offers Mifid II reporting services to clients who purchase shares through intermediaries, said the enhanced requirements, such as mandatory quarterly reporting, were simply a reflection of the changing expectations of financial clients.
Mark Bullen, managing director of share registration services at Equiniti, said: “We see Mifid II regulations as an opportunity – rather than a burden – to improve the service we offer investors by providing innovative and secure solutions in a digital world that increasingly demands 24-hour, online access.
“Despite the administrative challenges it poses, we welcome the move to quarterly statements. It will increase shareholder engagement with their holdings and hopefully encourage a new generation of participants who view digital access as a pre-requisite when making financial decisions.”