The implementation of Mifid II could result in “unintended consequences” by reducing the options for the consumer in the range of investment choice and also in the type of provider, says the Tax Incentivised Savings Association.
Tisa, the not-for-profit membership association, warns that many asset managers, distributors, wealth managers, life and pensions companies and firms for whom D2C is important are unaware of the implications of Mifid II.
In its response to the FCA’s Discussion Paper Developing our approach to implementing Mifid II conduct of business and organisational requirements published in March, Tisa believes that there are particular risks posed by the upcoming Mifid II regulation, particularly around complex products, appropriateness, suitability and product governance.
Tisa technical director Jeffrey Mushens says: “[The directive] could also impact the implementation of new technology by limiting the number of investments available to the consumer to purchase without advice. This would mean that those who do not want to pay for advice would be particularly affected.
“For the industry, any increase in suitability and appropriateness tests will inevitably lead to higher costs and risk for firms, further adding to their regulatory burden.”
The FCA says Mifid II requires firms to be able to offer independent advice on a sufficient range of shares, bonds and/or derivatives from a sufficiently diverse range of providers.
The UK regulator stated: “We would expect firms to clearly disclose the scope of the service provided to a client, and ensure the client fully understood the extent of the independent advice being offered. It would seem reasonable that a firm offering independent advice based on a sufficient range of shares, if accurately communicated to their client, could ensure they met their client’s expectations in terms of the breadth and range of services offered.”
Muchens adds: “We believe it is critical that the directive does not extend the scope of complexity to include, for example, peer-to-peer loans or default funds for personal and occupational DC pensions or UK listed investment trusts.”
“We would like to see more details of the specifics of what product governance the directive envisages and encourage the FCA to revisit its obligations to firms in respect of appropriateness tests.”
Tisa also supports the adoption of the proposed standards for independence but has “serious concerns” about the requirements for telephone records to be kept for five years, which it considers both impractical and expensive.
Most recently, the Weath Management Association said RDR should be replaced by the provisions in Mifid II to address some of the “anomalies” of the current regime, as Mifid II provisions “more accurately reflect the manner in which independent advice is provided in the market”.