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Aifa warning of Mifid chaos

The European Union’s controversial markets in financial instruments directive could cause major confusion in the investment advice market and bog IFAs down in yet more costly regulation, warns Aifa deputy director general Fay Goddard.Aifa says IFAs holding client money, up to 10 per cent of IFAs, are expected to be hit by major changes when Mifid comes into force in 2007, including a potentially crippling 50 per cent increase in professional indemnity insurance requirements.Minimum PI cover could rise from 1.1m to 1.6m, a figure which Goddard says is “barking mad”.Goddard says these IFAs will have to comply with much tougher rules, requiring them to assess suitability and appropriateness of advice gauging investors’ education, qualifications and investment experience.Mifid, which replaces the Investment Services Directive, was originally expected to affect the vast majority of IFAs but those not holding client money have been given an exemption. Any firm that wants to trade cross-border will have to request to opt in to Mifid.But even if the exemption is applied, Goddard says all IFAs may ultimately be forced to adjust the way they do business to avoid the inevitable confusion created by having two sets of conduct of business rules for investment advice. She says the directive’s wider definition of investment advice could also scupper the basic advice regime used to sell stakeholder products.The FSA has already made it clear that some aspects of Mifid may be imposed on the wider IFA market when the directive is incorporated into its newly simplified conduct of business handbook. It is planning to consult on the implementation in November and will conduct a cost-benefit analysis of any changes to its rules.Goddard says: “The market is desperate for stability. IFAs need as little change as possible to the conduct of business rules.”

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