The RDR should be replaced by the provisions in Mifid II to address some of the “anomalies” of the current RDR regime, says the Weath Management Association.
In response to an FCA discussion paper on its approach to implementing Mifid II, published in March, the trade body for wealth managers says Mifid II provisions “more accurately reflect the manner in which independent advice is provided in the market”.
It states: “It is simply not practicable for firms to consider all types of products that may be suitable for their clients’ needs and it is misleading to give consumers the impression that they can.”
The WMA believes the Mifid II standard of independent advice is different to the RDR standard, as the Mifid II concept of independence better reflects “the generally-understood dictionary definition of independence”.
The RDR defines independent advice as having the ability to offer whole of market advice, with no bias to one product provider. It puts the burden on the adviser to consider a broad range of investments.
Mifid II’s standard for independent advice focuses on ensuring that firms offering independent advice do not limit the products considered to those of the advice firm, or firms with close links to the advisory firm, to prevent any potential bias that may occur.
The WMA states: “The adoption of ‘independent’ and ‘restricted’ labels has been widely misunderstood and there is a total lack of clarity as to the meaning of such labels.”
In its March paper the FCA had warned any material change to Mifid II independence definition risks creating “more consumer and industry confusion”. It adds: “We need to ensure that any independence standard is clear, both to firms and consumers. We already know that consumers understand independent financial advice to cover a range of products.”
The WMA also said there are a number problems with the RDR that have not been addressed by the UK regulator, such as the absence of comprehensive market data for certain retail investment products, such as structured products.
“The FCA has also left it for individual firms to exercise their judgement as to what types of instruments may fall within the definition. As far as we are aware, no work has been undertaken to review this issue to ascertain what types of instruments firms are and are not considering,” the WMA adds.
However, Mifid II regulation is not without its problems. Among other key issues in the WMA’s response are the Mifid II telephone recording requirements, which extend recordkeeping from six months to five to seven years and require complex storage, indexing and retrieval systems that will be “very expensive” to implement.
It adds: “Similarly, the proposed withdrawal of the recording exemption for discretionary investment managers looks likely to place a considerable burden on smaller firms for no obvious purpose other than regulatory consistency.”
WMA director of regulation Ian Cornwall says the WMA is collaborating “closely” with its members to address the challenges arising from the implementation of Mifid II.
He adds: “We are continuously engaging with the FCA and providing them with detailed implementation issues we are identifying as part of our work on Mifid II. The issues we raise in our discussion paper response reflect some of this work. The challenge of successfully implementing the provisions of Mifid II can only be met by a collaborative approach with all stakeholders.”