Advisers are backing the response of the Wealth Management Association to the FCA’s latest discussion paper on implementing Mifid II as they agree the upcoming European regulation better defines what independence is.
The WMA said the RDR should be replaced by the provisions in Mifid II to address some of the “anomalies” of the current RDR regime and “more accurately reflect the manner in which independent advice is provided in the market”.
Apfa director general Chris Hannant says clearly there should be one definition of independence and that there is still ambiguity about how far a firm is considered independent.
He says: “[The] Mifid II definition captures the essence of what independent advisory is in practice.”
The RDR definition needs “more guidance”, he adds, as the FCA says advisers have to check every product and the number of products available out there is “huge”.
The RDR defines independent advice as having the capability and awareness 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 advisory firm, or firms with close links to the advisory firm, to prevent any potential bias that may occur.
The WMA stated: “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.”
The FCA has so far released two guidance documents on Mifid II but there is still a degree of uncertainty on the definition, Hannant says.
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.
Hannant has concerns about the RD and Mifid II working alongside each other. “What worries me is that we might end up with two definitions of products and independence and that’d be a disaster.”
The UK regulator is best placed to give a definition of independence, says Chase de Vere head of communications Patrick Connolly.
“They are the best judges on what independence should be. The current approach is sensible and pragmatic although they should continue to review the definition as the industry develops,” he says. ”The review of the definition should be on an ongoing basis to make sure that it is correct. If it is not broken, why change it?”
Additionally, Yellowtail Financial Planning managing director Dennis Hall believes the UK regulator should come up with a third and final definition of independence to avoid further confusion.
Hall thinks the Mifid II definition of independence is “better”, but “we should come up with one ourselves”.
“I’d prefer the FCA did revisit the definition and came out with something rather than take Mifid II. The argument is that the more of Mifid II we take the more we get regulated by Europe and there are some people saying there are aspects of Mifid II that we don’t quite like in our market place, so our regulator should be doing it and should come up with a proper definition,” he says.
He concludes: “If we just slavishly follow everything that comes out of Europe..sometimes we get things we don’t like. This happens to be one of the good things but we don’t want the regulator to be a rubber stamp of European legislation, we want our regulator to be doing a job that fits our market precisely.”