Mifid II sticking points

Just a few weeks into implementation, it is clear Mifid II will continue to challenge the industry for some time to come

The pursuit of greater transparency for consumers should of course be welcomed. However, the UK financial services sector was always going to encounter some unique challenges in trying to implement the new Mifid II regime, given its scope and complexity, with rules designed for the European Union market.Investment platforms, fund managers, advisers and other key parties all have responsibilities for implementing changes, which in many cases are inter-connected.

So what have been the stand out issues we have seen so far?

Product governance

The product governance requirements apply to both Mifid and non-Mifid investment firms. They cover advised sales, non-advised sales and undertaking discretionary investment management. The rules also apply to distributors and manufacturers, albeit to differing degrees.

Fund managers’ fees outed as Mifid II disclosure rules take effect

It appears the industry has struggled to understand the scope of products affected and how to approach the assessment needed to be carried out. This currently covers financial instruments – including funds – but when the Insurance Distribution Directive comes into force it will broaden to cover a wider range of insurance-based products.

Product governance assessments can look daunting at first but it is simply about examining the products and funds you are looking to recommend. Further simplification can be obtained by grouping these funds into different categories as part of the research process.

To comply with the product governance requirements, advisers need to consider which target market it is likely to be suitable for. Ensure the distribution meets that target market’s needs. Regularly reviewing products will help to ensure they remain consistent with the target market’s needs and, if necessary, will enable changes to be made to the distribution strategy if any problems are identified.

‘Bizarre at best’: Industry offers mixed reaction as Mifid II comes into force

The key for advisers is to choose the appropriate distribution strategy so the client’s best interests are taken into account based on the product and its composition.

Aggregated costs and charges

Mifid requires firms to aggregate costs and charges information and disclose this to their clients, as the aim is to provide additional transparency. But it also imposes a range of obligations, including:

  • Aggregated total costs and charges associated with the financial instrument (e.g. collective investment, shares, etc), investment services and any ancillary services.
  • The disclosure needs to be given as a percentage and a cash amount.
  • The information needs to be given pre-sale (ex-ante) and, where the firm has an ongoing relationship with the client, on a post-sale basis (ex-post). Furthermore, any ex-post disclosures must be given at least annually.The problem from the outset has been a lack of detailed practical guidance as to how to meet the new disclosures.

This has meant that firms have been left to derive their own solutions, with a number of different approaches emerging across the market.

Data gathering is required to perform the necessary calculations that feed into the disclosures. This involves input from various third parties, including platforms and fund managers, creating an industry-wide challenge.

Advisers should be giving clients an indication of the impact on their investment of the overall charges, but compiling all these different pieces of information in order to calculate such a figure is quite a challenge.

Graham Bentley: Why all advisers must adopt Mifid II 10 per cent warning rule

While some platforms have produced calculators, it only relates to them and it is based on their interpretation of the rules.

In addition, some fund managers have not been ready for Mifid and have not been in a position to provide the full charging information, which means advisers have been left unable to produce a clear and comprehensive best-fit calculation. The responsibility to disclose ultimately belongs to the advising firm.

Firms need a uniformed approach, which delivers a consistent, robust and repeatable process. Expect to see further support and new initiatives emerging to help.

Firms will also need to challenge and test the changes they have made to ensure they can withstand regulatory scrutiny further down the line, when the inevitable implementation reviews take place.

Mifid II has set the tone for the year ahead. It will soon be followed by more regulatory changes that will exert further pressure on advice firms to manage their risks, while remaining efficient and profitable. Another year of challenge and opportunity awaits.

Julie Sadler is managing director at Bankhall



Dynamic Planner adapts risk tools to meet Mifid II demands

Risk profiling and financial planning tool Dynamic Planner has redesigned its risk assessment questionnaire to better meet Mifid II requirements around suitability. The process, which was launched at the firm’s annual conference on Wednesday (31 January), will now include 15 psychometric attitude to risk questions and will focus less on people’s general understanding of finance. […]


Fool’s gold: How Mifid II has revealed the true cost of funds

Mifid II reveals true cost of ‘cheap’ funds Investors may have been paying a third more in transaction costs than previously thought as new European regulation sheds a fresh light on the lack of transparency in fund fees. Advisers and platforms are quizzing fund groups on the nature of their transaction cost calculations as many […]

Tapering of annual allowance – adjusted and threshold income

The definitions of adjusted income and threshold income used to determine whether, and to what extent, someone’s annual allowance will be reduced can be confusing.  Here we try to make sense of it all. The annual allowance will be reduced for high income individuals from 6 April 2016.  Our previous article Tapering of annual allowance […]

Certification guide

Guide: how to… certify your pension scheme

Certification is highly complex and surrounded by a minefield of information and auto-enrolment jargon, which can make it very difficult to understand. However, for many employers it is a necessary process that must be executed successfully.


News and expert analysis straight to your inbox

Sign up


There are 6 comments at the moment, we would love to hear your opinion too.


  2. Nicholas Pleasure 6th February 2018 at 5:18 pm

    We’ll be putting up our ongoing fees to cover this additional and extremely time consuming work. The clients don’t really want it and they definitely don’t want an annual suitability report.

  3. How do you identify cost of advice when the product may or may not be dependent on the cost i.e. fixed initial fee of £2,000 and the outcome could be £200,000 invested, £100,000 invested or £0. MiFID II is a load of rubbish for adviser firms and completely misleads clients if implemented as most seem to think it should be. Useless FCA should have insisted that those idiots in power introduce factory gate pricing or such like to disassociate the cost of advice and the cost of the product. Ongoing charges (not initial charges)can then be factored into the product and the effect of ongoing charges shown!

  4. Our experience is that the fund managers and platforms were not ready. When I get two platforms offering the same fund and have three different level of charges (yes Cofunds had different charges for the same fund), there must be something seriously wrong.

    No doubt the burden of getting this all right will fall upon the advisers rather than the Fund Managers and Platforms who have caused it.

  5. This is exactly what you get when rules and regulation are devised & decided by committee, in the boardroom…..

    The train to the final destination is, I fear, as slow as their brains

  6. Mifid is confused and so full of grey areas it is as clear as mud

    Just who is responsible if a portfolio drops 10% in a day ??

    In my view even the FCA have no idea what Mifid really is otherwise they would have templates to give the industry some indication what is expected from us

    It reminds me when the Financial services Act came into force

    We had to “know our clients ” and give “best Advice” I was a tied agent then and the company asked the FSA what did those terms mean

    Answer came back it’s up to you

    the FSA then visited firms and asked them what know your client and best advice was

    2 years later the FCA took all the best answers and hey presto they had their blueprint/template

    `they then looked at what companies were doing compared it to their blueprint and when they saw it didn’t they started to fine us all

    I can see the same thing happening in 2 years time FCA fines will be on their agenda

Leave a comment