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Mifid leak suggests commission could stay for non-independents

A leaked draft of Mifid II suggests that restricted advisers may be allowed to receive commission whilst execution-only sales will be allowed to continue under the directive.

The leaked draft, seen by Money Marketing, says when investment advice is provided on an independent basis, the firm must “assess a sufficiently large number of financial instruments available on the market” and must “not accept or receive fees, commissions or any monetary benefits paid or provided by any third party”.

However, there is no mention of a commission ban for any other type of advice. The FSA would need to secure an exemption from Mifid to gold-plate the commission ban so it can extend to all advisers.

This raises concerns that UK firms choosing to offer a restricted service post-RDR may be implementing adviser charging models unnecessarily, unless the exemption is granted, as the Mifid rules will override the RDR.

In December, the European Commission published a Mifid consultation paper which said it was considering banning execution-only sales altogether.

However, according to the draft, investment firms will be allowed to offer execution-only services under the directive and will not be required to obtain client information or determine suitability.

The December consultation paper also suggested that when advice is given on an investment product, advisers should have an ongoing responsibility to ensure the product remains suitable for the client.

However the draft suggests that advisers can agree with the client what level of ongoing service they will provide.

It says: “When investment advice is provided, information shall specify whether the advice is provided on an independent basis and whether it is based on a broad or on a more restricted analysis of the market and shall indicate whether the investment firm will provide the client with the on-going assessment of the suitability of the financial instruments recommended to clients.”

The draft suggests that national regulators will retain the article three exemption, which allows firms that do not hold client money and do not passport into other jurisdictions to opt out of Mifid, however it is unclear whether these firms will also avoid the capital adequacy directive.

The European Parliament is due to publish the directive next month.


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. Another own goal…. making the keystone cops look like a genius at work… what on earth are they playing at! If the markets don’t lose money for clients, it seems that the bureacrats will ensure that they do.

  2. The TSC suggested to Sants that an RDR delay until all was clear within Europe would be a good idea.

    So, if this is correct and I think of the TSC responsibility issues raised by Tyrie about an FSA employee doing something really stupid, knowing it was really stupid, what next?

  3. Terence P O'Halloran 29th September 2011 at 5:54 pm

    Piss up and brewery come to mind. And they doubt our intellegence and integrety.

    What a complete waste of time and resorse they are.

  4. Those who thought the FSA was trying to do away with independent advice may have been looking at the wrong enemy. The continued availability of the MIFID optout is now essential if IFAs are not to be at a serious disadvantage.

    What about those of us who can’t opt out because we advise clients in other countries as well as in the UK? It seems anti-competitive.

  5. Eu intervention has always been on the cards – this “leak” merely confirms what we already knew.

    If the FSA presses ahead and bans commission for IFA’s only it will prove what many have long suspected: namely that the FSA is trying to drive us all out of business.

  6. What a joke, sound like the FSA is in the pocket of the Banks to me


  7. If the article 3 exemption remains then EU over-ride will not apply to most IFAs, in which case those IFAs that hold client money – mostly stockbrokers and bank types, will be able to continue to take commission as long as they restrict the advice in some way – which of course they already do.

  8. Not sure what all the fuss is about here. If an adviser wants to trade as a professional then I would have thought that charging fees ( not the CAR nonsense currently proposed) and being qualified to at least level 6 was a minimum requirement ?

    The market segment that needs complex Independent financial advice and can afford to pay for it is really very small and hardly overlaps with the majority who would be happy to pay commission to sales people who are far less qaulified.

    I would have thought that the suggestion here was an opportunity rather than a threat.

  9. What a bleedin’ mess !

  10. eter Herd

    Yes Peter. Do you remember that, a few years back, there was a lot of talk from the FSA about grandfathering IFAs over. Then when it all hit the fan, with the banks in financial doo doo, they suddenly came out with no grandfathering being aloud. What a coincidence.

    John Blackmore, I agree that IFAs should be well qualified but a lot of old geezers like me already are through experience and day to day studying that we don’t log. We should be grandfathered like moany people in the city were in the 1980’s (I know this from speaking to MP Tim Loughton, who worked in thye city himself. We are being treated differently to other occupations, that is plain to see and it is not right. Surely you can see that.
    I think I would have had some complaint, by now, if I was mis-selling all over the place and I can’t see where I can get the time to fit in the studying, unless I do it on holiday, which I shouldn’t have to do. I have taken a couple of mock exams already (without studying) and done pretty well but I would need quite a few hours to make sure I get the stupid questions right (regulatory ones that don’t matter, as far as advising clients goes; you all know the ones I am reffering to).
    As for commission there is nothing wrong with the way things work now. A crooked IFA will find a way to cheat people whatever system of payment we have and the current rules system just needs serious punishment for people caught abusing it and life companies have to make sure they number every page ( 4 out of 5) so that the odd dodgy IFA can’t leave the commission page off.
    This is all going to end up being a horribly expensive mess

  11. i don't beleive it 30th September 2011 at 9:10 am

    …”a leak indictaes this”….”some report or other eludes to the possibility of.that”.. “a letter suggests this or that may happen…”

    FFS, we are dealing with people’s livelihood’s here, and the clock is ticking !!.

    Why, oh why, is it all such a unorganised mess ?

    May as well start another rumour – the need to obtain a level 4 qualification by end of 2012 is to be put back until the end of 2014, something to do with human rights etc..only a rumour…, probably won’t turn out to be true…

  12. The TSC specifically asked the FSA why they were plowing ahead with the RDR when European Rules would overide anything forced through by the FSA now, i.e. the RDR. It was pointed out this could mean having to change again AFTER RDR and now a report has been leaked to that affect. IF it can be proven that Sheila Nicholls and Hector Sants knew or suspected this would happen at that time, then that is surely malfeasance in public office and is about the only thing that both the FSA and it’s Directors can be held personally and corporately liable for under the terrible drafting of FSMA 2000 by NuLibour
    The video of exactly what the TSC asked Hector and Sheila was still available for ALL to see on the Parliament website last time I looked.

  13. @ Peter Schan – I agree completely about grandfathering.

    My point though was more to do with the idea that being an IFA is essential. I haven’t used the words “Independent” ( Dell Boy) or “Adviser” for years.
    I have no interest in charging fees and even less interest in CAR. I have no intention of taking Mickey Mouse level 4 exams and will simpy retire.
    So yes I would prefer grandfathering.

    BUT I still believe that if an Adviser wants to be a professional rather than a salesman he or she should work on a proper Fee basis ( no CAR deceptions), and be properly qualified ( level 6 absolute minimum).

    This would only apply to say 5% of all current “Advisers” – with the other 95% continuing to sell simple products much as they do now. why let the 95% major market go to the banks ?

  14. Before you all get too excited – the fact that MiFID II bans commission for independent advice only – does not impact on RDR and the FSA will not need an exemption from MiFID II to ban commission for restricted advice. MiFID II is silent on whether commission can or should be paid for restricted advice. It may be implicit that it is allowed but that is not a requirement under MIFID II. Member States only need an exemption from EU legislation when there is actually legislative provisions to be exempt from! There is no explicit legislative provision regarding commission on restricted advice ergo no need for an exemption. RDR will not need to change.

  15. @ Anonymous | 30 Sep 2011 9:38 am

    I have no idea if you are right or wrong, but what you say then raises further concerns about UK FSA regulated firms having a commission ban for Independant and Restricted, while passported IN firms, I take it, could continue to receive commission…

  16. All this is very like the French advice market fee based IFAs serving the super rich and other ranks serving the rest on commission. Get ready for the two tone advisers. Fees Madam? 1st door on the left You want commission peasant? 1st right G

  17. @Phil Castle
    Yes, technically passported in firms (on a services basis only as branches would be caught by RDR) could continue to recieve commission for restricted advice BUT only from non-UK providers. RDR applies to providers as well as advisers so all UK providers are restricted from paying commission to advisers providing advice in the UK. This does not extend to advisers passporting in on services basis as they are regulated by their home state not UK. So, you could have a French adviser tied to a French (or other EU) provider passporting in to the UK on a services basis only and recieving commission. But this was always the case under the RDR provions. MiFID II documents/proposals don’t change this.

  18. This is not a leak, this is tried a tested method used by all governments and legislators to soften the blow.

    Well we all knew this would happen, the banks, insurers and the likes of SJP have got what they always knew they would get – complete exemption from CAR. No great surprise there then.

  19. We’ve had ‘two tone’ advisers for years. Rightly so !!! The client can choose RIGHTLY SO !!! The Adviser can choose how he works RIGHTLY SO !!! The market decides what is right and what is wrong for it RIGHTLY SO !!!

    RDR is irrelevent, unworkable stuff of farce and nonsense – it is now becoming hilarious albeit exraordinarily sad and unbelievably damaging to an industry that isnt broken anyway !!.

    And the COST – good god !!

  20. Thank you anon Anonymous | 30 Sep 2011 10:13 am

    So AXA has sold to Friends Life and AEGON are now using the name “Kames” for their investments. Does this mean in 2 years time we will see French and Dutch Regulated Tied and Restricted adviser firms passporting in to the UK and selling AXA and Kames, French and Dutch regulated investments on commission competing against UK IFA and Restricted advisers selling UK products being the only ones working in Adviser Charging?

    As Derek Gair says, what a complete mess and as otehr psoters have said above, Hector Sants and Sheila Nicholls of the FSA were specifically asked by the TSC whether NOT delaying the RDR so that it matched with European new rules coudl be seen as bad practice.

  21. Accountants and Engineers that hold chartered status sign to certify that their advice, recommendations and reports are accurate and comply with authorities such as HMRC and Council Planners. Chartered Financial planners have no such certification powers because unlike the previous who deal with hard facts, financial advice has no such clout, and never will have.
    Acheiving Higher levels of educational standard might be good for ego’s but a waste of time for investors.
    Investors will always expect the highest return, with the lowest risk and minimal cost and will not pay fees to over educated advisers when a nice “simple” advised (but written as if completed( on execution only basis to secure ongoing commission is allowed.
    If I dont go mad with all this regulatory claptrap, i’ll become deformed from every trying to watch my back.

  22. MiFID II the movie, a bit like most sequels, you saw the first film and couldn’t understand it so waited patiently for the next episode but found that… I’m bored now.

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