Close to two thirds (59 per cent) of advisers say Prod and Mifid II regulations have impacted their investment advice, according to Aegon’s 2021 adviser attitudes report.
The research found these two pieces of legislation, introduced in 2018, have forced the industry to be more transparent about the benefits, risks and charges associated with investment products and how they meet customer needs.
Aegon surveyed 251 advisers and found the biggest change they had made was an increase in the use of multi-asset funds, which, it said, suggested a move away from in-house models towards outsourcing.
Around 22 per cent said they increased their use of multi-asset funds, which now make up 32.6 per cent of adviser assets under management, up from 26 per cent in 2019.
Aegon explained that multi-asset funds tended to have clearly defined target markets which help with meeting Prod requirements, and in-built governance and reporting processes in line with Mifid II requirements.
Moreover, the FCA stresses the importance of customers being able to understand how their savings are invested.
About a quarter (26 per cent) of advisers said “ease of understanding” was a reason for recommending multi-asset funds.
Tim Morris, IFA at Russell & Co Financial Advisers, said he has used multi-asset funds for over a decade but the rules made him switch to cheaper forms of investment.
“For me, [multi asset investments] have a place for clients who are less engaged in the investment part of their financial planning and for those with less complex affairs.
“What has changed is a shift from active to passive. The increased focus on costs has led to an increased offering in this area."
About a fifth (18 per cent) of advisers surveyed said they increased their overall use of lower-cost solutions, and 11 per cent reduced use of higher-cost funds as a result of Mifid II and Prod legislation, while 14 per cent said Mifid II and Prod had increased the cost of managing certain investment strategies.
Tom Kean, director at Thameside Financial Planning, also said: “We certainly feel funds are generally too expensive, and have slightly increased our use of trackers as a result.”
Morris said there was another factor at play, however: “This has changed back over the last 18 months due to the increased interest in ESG and desire to invest more responsibly and sustainably.”
“This is possible with passives, yet currently fits better with an actively managed investment approach.
“Stock picking comes back into the equation as the fund manager may choose to exclude some of the companies in any given index.”
Additionally, 16 per cent of advisers said they had amended the way they segment their clients as a result of Prod, 14 per cent said they’d changed suitability assessment processes, and 12 per cent said they’d introduced different investment strategies for different client segments.
Aegon said this focus on segmentation processes, which came with the Prod requirements, could explain the turn to ready-made multi-asset solutions that are risk-managed and aimed at particular client segments.
Tim Orton, managing director of investment solutions at Aegon UK, said: “There’s clear evidence that Prod and Mifid regulations are prompting the changes the regulator was hoping for, and some advisers are taking a fresh look at how investments are selected and clients are segmented.
“And whilst there are other factors influencing the trend towards simpler, cheaper investment strategies, our findings highlight a good degree of change since the new rules were introduced.”
He added: “Looking forward, we expect to see the FCA’s focus on the consumer investments market accelerate the trend towards straightforward investment solutions, and new ESG-focused regulations such as the Sustainable Finance Disclosure Regulation (SFDR), will help join the dots between sustainability and suitability, and bring investment propositions more into line with the government’s climate action plan.”
sonia.rach@ft.com
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