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Attack from the mainland

In finishing off this short series on the value to be secured by having a

tax planning awareness in this world of diminishing charges, selective

disintermediation and an intensification of competition, I would like to

look at the importance of keeping an eye on what is going on in Europe.

It has been reported that moves are afoot that could lead to the end of

commission-led financial advice as part of a drive to enable IFAs to secure

a genuinely Europewide regulatory passport. This latest proposal comes in

the shape of a consultation document on proposed revisions to the

investment services directive.

In the executive summary of a substantial working document entitled,

Overview of proposed adjustments to the investment services directive, it

is stated that the object of the exercise is to make further progress


A single passport for investment firms, entitling them to provide a

specified range of investment services in other member states on the basis

of authorisation and supervision by the competent authorities in the

country of their establishment.

A high level of harmonisation of necessary licensing and investor

protection requirements needed to ensure the smooth operation of the single

passport for investment firms.

Right of access for authorised brokers and dealers to regulated markets of

other member states for the purpose of trading securities at the most

advantageous conditions.

A category of regulated markets characterised by safeguards regarding the

operation of the market and the instruments admitted to trading on the


Comments are sought from interested parties by October 30, 2001.

In section 2 of the document, there is a proposal to distinguish between

giving investment advice, which it is proposed to upgrade from a non-core

to a core service, and executing orders. Most important, in sub-section

2(b), there is a strong reference to the definition of independent advisers

being those whose services must be paid for by the client. Only these will

have the right to be called independent.

It is anticipated that these independent advisers would not execute

transactions on behalf of their clients nor would they receive delegation

from clients, in the form of a mandate, to perform transactions on a

discretionary and continuous basis.

The point is that the two services – giving advice and executing

transactions – are distinct and need to be identified as such. Despite

this, one would hope that an independent adviser could have a separate

business of executing transactions to complement or fulfil the advice given.

According to the document, if this proposal is carried, it will mean there

will be fewer independent advisers. Now there&#39s a surprise.

Comments are sought on the position or status of other advisers who are

not remunerated by the client but may be remunerated by other firms such as

product providers.

We must remember that these are only proposals but they now have some

official force and are not too dissimilar to the thoughts of some in the UK

on the whole debate on depolarisation and the status of the independent

adviser. We need to keep a close eye on these developments.

What is clear is that the drivers for a single regulatory passport are

extremely strong, given the great disparity in the ways advisers across

Europe are regulated. For example, it is understood that in Spain the

process of giving investment advice is not regulated. Somewhat different,

I think you would agree, from the position in this green and pleasant land.

It is not just regulation that we have to watch out for. As we move

towards and beyond the introduction of the euro in much of mainland Europe,

the prospect of European taxation to complete the vision becomes ever more

possible. We have already had statements from prominent European ministers

calling for a separate European tax to fund the necessary expenditure

across Europe.

The last outstanding item, from a financial standpoint at least, for

achieving the full financial aspirations of full-blooded EU proponents

would seem to be complete tax harmony. That is definitely a space to watch

carefully and, in my opinion, is an issue that cannot be ruled out. You

only have to consider the public outpourings of some of the more committed

Europeans to appreciate that this most definitely is not seen as a bridge

too far.

Even if we fall short of full tax harmonisation, there is most definitely

a kind of convergence of taxation with countries working so closely

together in an economic sense.

Tax advisers will need to keep a very close eye out for tax changes

implemented by other than the UK Government and have a view on what, if

anything, they mean to their clients. For those advisers who have clients

who are moving abroad, who work abroad or who travel frequently and secure

income and capital gains from different jurisdictions, a knowledge of the

wider tax world will be seen as extremely valuable.

This is not to say that one should try to become an international tax

expert, merely that one should have a broad awareness of the way in which

tax works in other countries around Europe so as to at least have a view

when this subject is raised. The importance of having this information is

probably increased in respect of any financial products your clients may


They may wish to know a product they buy from you now will be taxed if

they move abroad in the future. Having this information will be an

important factor in the buying decision of the client and, therefore, a

valued piece of information that can be provided by the adviser.


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