Every month we ask our member firms to give us their feedback on a hot industry topic - and, most recently, we focused upon the effects of the second Markets in Financial Instruments Directive (MiFID II), which came into force on 3 January this year.
The legislation is vast and complex and may take a long time to be fully understood and embedded into the industry. MiFID II aims to provide greater protection for investors, raise transparency standards within financial advice, reduce risk of market abuse and make markets more efficient.
The greatest impact advisers and asset managers have seen is the need to provide a lot more information to both the regulator and their customers. As always with financial advice legislation, these rules and requirements are open to interpretation and therefore may lead to inconsistency.
The new requirement for annual suitability reviews has created a time-based impact on financial advice firms. Since the Retail Distribution Review, all advisers must provide an ongoing service to those clients whom they charge an ongoing advice fee.
MiFID II has introduced a requirement to provide an annual suitability review for every client; including updating a client's circumstances, reassessing attitude to risk and capacity for loss, and providing a report to each client demonstrating their products are still suitable for meeting their objectives.
The question we posed to advisers to gauge their feelings around this area was: "Has MiFID II made the advice process longer?" To this, we received a total of 159 responses, with 92% of respondents saying MiFID 2 had indeed lengthened the advice process.
Time and capacity
Although responses varied in detail, there was a consensus it could be estimated advisers are spending approximately two hours more per client. A|s a result of the increased time requirement, one respondent commented they were turning down new clients and sending them elsewhere, as they simply do not have time to provide them with services. Time and capacity were common themes throughout the comments we received.
Another respondent commented that now, following MiFID II, their clients who were "reviewed either every 18 or 24 months have been removed from the agency, resulting in 409 clients being left in limbo".
Many commented they were unsure of the value this added to their clients, as they did not see the benefit of providing them with additional paperwork. One said they would be surprised if clients kept the additional paperwork they now received while the additional paperwork had "no material advantage to the client other than reiterating the obvious".
Of the 13 respondents who believed the advice process had not been lengthened, six said they were already following similar, or the same, processes in line with the new regulation. One said they believed MiFID II had improved the process as it hads "given the client time to consider the recommendations made and to prepare any questions about the products being recommended to them".
Tom Hegarty is managing director of New Model Business Academy
* "MiFID II added several hours to a review. While total cost transparency is to be applauded, working out the investment growth a client could have had with no charges (impossible to deliver, even with trackers) is a waste of time, especially in volatile markets."
* "Of course the process is longer! There is a requirement to confirm in writing that the client's products remain suitable and provide aggregated costs and charges. It takes time to drill down on each and every plan to establish exactly what the charges have been, and are likely to be. I have estimated I spend about two hours more per client - I was already very busy!"
* "A good adviser would have a similar advice process in line before MiFID II imposed it on them."
* "Too much paperwork, and information of no interest to clients."
* "The intentions are laudable I am sure, but clients are confused enough with paperwork, and will this unread paper actually provide them with more protection?"
* "‘The road to hell is paved with good intentions' is the most apt thing I can say about MIFID II. In the 32 years since the first Financial Services Act, billions must have been spent on ‘regulation' but, really, how much better off is the average consumer? I bet a cost/benefit analysis would show the average consumer is worse off."
Click here to read the full article in Proffesional Adviser