Advisers tend not to be fans of the seemingly never-ending bureaucracy that emanates from Europe, which serves only to add to an already increasing regulatory burden. But on closer inspection, some of the financial services proposals coming out of Brussels of late suggests Europe could be a more forward-thinking regulator than some would have us believe.
Take independence for example. The FCA has long been tying itself in knots since introducing the new definition of independence, and what it means to be restricted. But the consultation on Mifid II from the European Securities and Markets Authority, one of the euro regulators, simply says independent advisers should recommend a “sufficient range” of providers’ products, and should not be limited to firms with “close links to the adviser firm”.
Apfa believes this is a more sensible definition and could prompt the FCA to think again about its own convoluted wording. Plenty of advice firms would no doubt welcome the opportunity to rip up the current independence rules and start again with something more straightforward.
On dealing commission, Europe has gone further than the FCA, proposing that dealing commission cannot be used to buy bespoke models, investor field trips, corpor-ate access and market data services. The FCA ban on dealing commission does not apply to such a wide rage of services. But the lobbying effort to bypass the FCA altogether should not start in earnest just yet.
Europe’s proposals on costs disclosure would require advisers to disclose all product related costs, not just advice. Experts say this poses a nightmare scenario for advisers, particularly when it comes to disclosing underlying provider costs which may be hidden but could still act as a drag on investment returns. As one expert puts it, how can advisers disclose costs they do not have access to?
Execution-only is another potential battleground, with Mifid II potentially doing away with the principle of caveat emptor when it comes to complex products.
The difficulty will come if the FCA decides to succumb to tougher European regulations, without pausing to think about how such rules will be put into practice.
Unfortunately, all of this means advisers will have to stay on top of developments in Europe to make sure their advice is compliant. The question of who is winning the regulatory race is yet to be decided but regulators of all stripes need to ensure that clients do not ultimately lose out.
Natalie Holt is editor of Money Marketing – follow her on Twitter here