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Mifid leak suggests commission could stay for non-independents

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A leaked draft of Mifid II suggests that restricted advisers may be allowed to receive commission whilst execution-only sales will be allowed to continue under the directive.

The leaked draft, seen by Money Marketing, says when investment advice is provided on an independent basis, the firm must “assess a sufficiently large number of financial instruments available on the market” and must “not accept or receive fees, commissions or any monetary benefits paid or provided by any third party”.

However, there is no mention of a commission ban for any other type of advice. The FSA would need to secure an exemption from Mifid to gold-plate the commission ban so it can extend to all advisers.

This raises concerns that UK firms choosing to offer a restricted service post-RDR may be implementing adviser charging models unnecessarily, unless the exemption is granted, as the Mifid rules will override the RDR.

In December, the European Commission published a Mifid consultation paper which said it was considering banning execution-only sales altogether.

However, according to the draft, investment firms will be allowed to offer execution-only services under the directive and will not be required to obtain client information or determine suitability.

The December consultation paper also suggested that when advice is given on an investment product, advisers should have an ongoing responsibility to ensure the product remains suitable for the client.

However the draft suggests that advisers can agree with the client what level of ongoing service they will provide.

It says: “When investment advice is provided, information shall specify whether the advice is provided on an independent basis and whether it is based on a broad or on a more restricted analysis of the market and shall indicate whether the investment firm will provide the client with the on-going assessment of the suitability of the financial instruments recommended to clients.”

The draft suggests that national regulators will retain the article three exemption, which allows firms that do not hold client money and do not passport into other jurisdictions to opt out of Mifid, however it is unclear whether these firms will also avoid the capital adequacy directive.

The European Parliament is due to publish the directive next month.

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Readers' comments (23)

  • Another own goal.... making the keystone cops look like a genius at work... what on earth are they playing at! If the markets don't lose money for clients, it seems that the bureacrats will ensure that they do.

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  • The TSC suggested to Sants that an RDR delay until all was clear within Europe would be a good idea.

    So, if this is correct and I think of the TSC responsibility issues raised by Tyrie about an FSA employee doing something really stupid, knowing it was really stupid, what next?

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  • Piss up and brewery come to mind. And they doubt our intellegence and integrety.

    What a complete waste of time and resorse they are.

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  • Those who thought the FSA was trying to do away with independent advice may have been looking at the wrong enemy. The continued availability of the MIFID optout is now essential if IFAs are not to be at a serious disadvantage.

    What about those of us who can't opt out because we advise clients in other countries as well as in the UK? It seems anti-competitive.

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  • Eu intervention has always been on the cards - this "leak" merely confirms what we already knew.

    If the FSA presses ahead and bans commission for IFA's only it will prove what many have long suspected: namely that the FSA is trying to drive us all out of business.

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  • What a joke, sound like the FSA is in the pocket of the Banks to me


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  • If the article 3 exemption remains then EU over-ride will not apply to most IFAs, in which case those IFAs that hold client money - mostly stockbrokers and bank types, will be able to continue to take commission as long as they restrict the advice in some way - which of course they already do.

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  • Not sure what all the fuss is about here. If an adviser wants to trade as a professional then I would have thought that charging fees ( not the CAR nonsense currently proposed) and being qualified to at least level 6 was a minimum requirement ?

    The market segment that needs complex Independent financial advice and can afford to pay for it is really very small and hardly overlaps with the majority who would be happy to pay commission to sales people who are far less qaulified.

    I would have thought that the suggestion here was an opportunity rather than a threat.

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  • What a bleedin' mess !

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  • Unbelievable!

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