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Wealth managers call for Mifid II to replace RDR

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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.”



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Huge Wisdom here! Well done WMA we need to rethink these labels. MIFID II gives us an excellent option to redesign advice so that more clients can benefit

    Looking forward to working with WMA

    Garry Heath

  2. might be best to see if we’re going to stay in the EU before basing things around EU legislation…

    • Likewise, the, then FSA should have delayed RDR (as advised by the TSC) before the EU made rulings on Mifid II, but oh no, Hector laughed in their faces, and cracked on irrespective of the fallout and cost, and here we are only to (potentially) do it all again, we are regulated by greedy, ignorant morons !

  3. @Bob Smith – Good point, however we are where are currently and can only work with what we have got. The FCA state “We already know that consumers understand independent financial advice to cover a range of products” on one hand and in another totally agree that the definitions have caused much confusion. Which is it?
    I only have one question – Why do the FCA have to make things so incredibly complicated?

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