What are the most recent regulatory reforms?

Richard Nuttall, head of compliance policy at SimplyBiz Group, says: “I think many advisers were pleased to see more clarity, and a relaxation of the rules, around the definition of independence.

"Whilst I think this will make very little difference to the advice actually delivered by advisers, I believe it will make some elements of the advice process much more efficient.”

Mifid II's new Prod rules apply to both manufacturers and distributors.

Generally, manufacturers are required to assess their target markets, to ensure board-level accountability for the process, and to monitor existing products to check they function as expected.

Advisers (as distributors) will need to consider, among other things, the rules around information sharing between distributors and manufacturers.

An example from the FCA is that, advisers will need to gather information from manufacturers on the products on which they intend to advise; and they should consider how best to feed information back to manufacturers on how the product is meeting the needs of the target market in order to help with the manufacturer’s regular product reviews.

Describing advice services

Firms that describe their advice as independent must also assess a range of relevant products that are sufficiently diverse in terms of type and issuer, to ensure that the client’s investment objectives can be suitably met.

For firms providing investment advice to retail clients in the UK, this will generally mean being in a position to advise on all types of financial instruments, structured deposits and other retail investment products.

Suitability

One of the changes to the suitability rules is a clarification that a recommendation to hold a Mifid financial instrument is subject to the suitability rules and will require a suitability report.

Another change is that where firms are offering a periodic assessment of the suitability of their advice, this assessment must be carried out at least annually.

Firms must also ensure they assess whether equivalent investments or services, including those that are less complex and those with lower costs, can meet their client needs.

Recording conversations

Under Mifid firms must record all telephone, and keep a copy of electronic, conversations with a client that relate to the reception, transmission or execution of an order, including those that are intended to result in transactions.

Article 3 retail financial advisers have the option of either recording the telephone conversation or making a contemporaneous note.

Inducements

Mifid II also introduced new inducement bans for firms providing independent investment advice and portfolio management services.

This means, for example, that for firms providing advice to retail clients in the UK, the new ban applies to the provision of independent and non-independent (restricted) advice and in such a way as to prevent rebating.

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