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
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's 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
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
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
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.