With just over three months left until the implementation of Mifid II, experts are cautiously optimistic that advisers will be ready for the incoming European regulation.
However, concerns remain that there is a lack of clarity on several important rules. A survey this month by discretionary fund manager Smith & Williamson found 73 per cent of advisers did not feel there was enough clarity on Mifid II to adequately prepare their business for the new rules that will come into force on 3 January.
Some commentators say the requirement around costs disclosure is unclear and that the FCA has missed an opportunity to make changes to illustrations.
Advisers are also being urged to check their agency agreements with DFMs, which could lead to liability issues under a Mifid II requirement to notify clients when the value of a discretionary portfolio drops by 10 per cent.
Last week, Money Marketing reported on the need for advisers to make sure those clients that need a legal entity identifier to make certain trades have got one before the regulation is introduced.
With the implementation date closing in, we get an update on which parts of Mifid II still concern advisers and hear from compliance experts about where future liabilities could emerge.
Coping with calls and conflicts
The FCA has published two Mifid II policy statements this year – one in March, which mostly concerned markets and organisational requirements, and a final statement in July, which included rules around conduct, research, inducements and client assets.
In the first policy statement, the FCA pulled back on the proposed requirement for so-called Article Three firms – which can include advisers – to “tape” phone calls where they are executing an order or dealing on an account and said they could make an “analogous” written note of the call instead.
Money Marketing has heard many anecdotal reports that the number of firms asking about getting call recording technology in their business has increased regardless.
The relaxing of the taping requirement was welcomed by the market but TCC Group technical director Phil Deeks warns the demand for written notes will still be onerous. Advisers will still have to make a note of the date and time of the meeting, the location of the meeting, who is present, who initiated the meeting, as well as information about price, volume and when an order will be executed.
Deeks explains: “Some of the bigger firms are recognising that not only does [recording] help them with Mifid II, but is good for suitability, so you don’t get a case of he-said-she-said five years down the road; everyone knows exactly what was said.”
Page Russell director Tim Page says the alternative paper-based recording option is not available to his business because it is a Capital Adequacy Directive exempt firm. That means the firm opted into Mifid I to deal with European clients.
However, Page says there is a silver lining to this. He says: “That has encouraged us to [introduce] a call recording system that will link up with our [customer relationship management] system. Another big worry was how much it will cost to store all of the calls but it doesn’t seem to be too bad.”
Overall, Page says his firm is on track with its preparation for Mifid II; although late policy statements have not helped with readiness.
Nick McBreen, adviser, Worldwide Financial Planning
There is still huge uncertainty out there in terms of drilling it down to, on a day-to-day basis, how Mifid II will impact investment advisers and what they have to provide clients with and preparedness on things like suitability and call recording. The big thing advisers need to be thinking of is the preparedness of processes for doing business. It does not change advice but it changes the paper trail and the record-keeping.
Deeks says some firms are also making changes as a result of Mifid II rules on conflicts of interest. Under Mifid II advisers need to take an extra step when they cannot prevent or manage a conflict of interest arising. In that case, they need to make an enhanced disclosure explaining that the firm’s arrangements have not been able to protect the client’s interests from potential conflicts.
Deeks says: “Some of the firms are waking up to the fact there is a higher bar now with conflicts of interest rather than just the disclosure point. Some of the firms we are working with are doing a more detailed review of their business model and then are seeing if they can identify where they have more inherent risks.”