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Vanguard: Mifid II fails to address conflict of interest concerns

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Mifid II does not go as far as the RDR in addressing conflict of interest issues across Europe, says Vanguard head of retail Nick Blake, leaving room for a third or even fourth iteration of the rules.

The Mifid II changes are designed to strengthen protections for retail investors across the EU through limits to the use of commissions, stricter requirements for product design and distribution, new product intervention powers, improved disclosure of costs and charges, and conditions for the provision of independent advice.

Blake says: “What we thought was great about RDR was that it dealt with the central conflict of interest between advisers and clients. Unfortunately Mifid II doesn’t go that far, so we would argue that you’ve still got a fundamental conflict of interest issue within the model.

“We don’t think it goes far enough in addressing some of the central conflict of interest issues that we think exist in the market.”

He argues Mifid II is not “big enough” and expects it to go further with some proposals. For example, commission and inducements will still be part of the system under existing plans.

However, Black expects Mifid II regulation to benefit the passives business at Vanguard.

He says: “The UK is fundamentally different to the rest of Europe. We have got a cottage industry of 14,000 advisory firms here, in Germany you’ve got four big banks they control all the product manufacturing and distribution and they lobby very hard. It is a very die hard market.”

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