Part II of the Markets in Financial Instruments Directive (MiFID II) has now been in force for a little over a month. In its January 2018 Regulation Round-up, the Financial Conduct Authority (FCA) has included a link to a webpage that summarises the main implications of this piece of European legislation for retail investment advice firms.
Advisers are expected to disclose all fees, costs and charges which relate to their advice. Before the sale, the client should be informed of the expected costs, and post-sale, they should be informed of the actual costs. The FCA lists the items that need to be disclosed as: all one-off and ongoing charges, and transaction costs, associated with the financial instrument; all one-off and ongoing charges, and transaction costs, associated with the investment service; all third party payments received, and the total combined costs of these three categories.
The illustration which the client receives should show expected returns from the investment once all of these charges have been taken into account.
MiFID II uses a new definition of independence, which requires that firms holding themselves out to be independent financial advisers “must assess a sufficient range of relevant products that are sufficiently diverse in terms of type and issuer to ensure that the client’s investment objectives can be suitably met.”
The FCA adds that, while this does not mean that an adviser needs to assess products from every provider in the marketplace, the range of products and providers covered by the assessment should be sufficiently broad as to be representative of the market as a whole. It adds that, to be considered genuinely independent, the requirement to consider the merits of “all types of financial instruments, structured deposits and other retail investment products” remains in force.
Any firm that wishes to offer advice, or to arrange transactions, in structured deposits now requires specific permission from the FCA to do this – it is not covered by the standard permission to give investment advice.
Unless they are able to tape all conversations with clients which “relate to the reception, transmission or execution of an order,” advisers must maintain a comprehensive written record of the conversations, and these notes must be written at the same time as the client meeting takes place.
Finally, on the subject of inducements, advisers are warned that they “may only accept certain minor non-monetary benefits.” The FCA guidance adds that offers of hospitality can be accepted, up to a reasonable value, but that invitations to sporting and cultural events are not deemed to be “minor” benefits.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article