The Insurance Distribution Directive, General Data Protection Regulation and Mifid II all impact how firms interact with clients, leading to necessary changes to client agreements.
Here we consider the main alterations that will need to have been made to comply with Mifid II.
It has always been necessary to describe the service to be received in exchange for fair consideration, but in the face of Mifid II and the IDD this needs to be clearer than ever. Specifically, it is now a requirement to outline any product range limitations to an otherwise independent service.
There is also aggregated costs disclosure to consider. Any good contract sets out how much money will change hands, as this is the most likely element to be disputed. But Mifid II again requires a clarity not legislated before. Inclusion of this information in a client agreement is not mandatory if it is covered elsewhere, but it does provide a mechanism if it fits.
The agreement should set out the firm’s approach to conflicts of interest and Mifid II introduces a higher standard of “prevent or manage”, meaning firms must do more to protect the interests of their clients.
Clients must also be informed of the purpose of the suitability assessment that a firm will have to carry out periodically where providing an ongoing service. This will need to explain that its purpose is to allow the firm to act in the client’s best interests.
There are more changes due as IDD and GDPR become law and we will aim to cover these in the coming months.
Russell Facer is managing director at Threesixty
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