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.