What are the impacts of the MiFid org regulation changes?
As an industry, we are all too aware of the gruelling application process to obtain a MiFID II licence. Beyond the MiFid II paperwork, sponsorship, snowballing timescales and proverbial hoops that are to be jumped through; there is an unwavering requirement for an entire infrastructural overhaul, enhanced corporate governance and product management. And for anyone in doubt as to the breadth of MiFID regulations nearly every asset and professional occupation within the financial services industry across the European Union is affected.
Infrastructure and increased administration aside, there is now also the demand for more sophisticated product governance, with the introduction of MiFid II. Companies need to have this function established to ensure that the investments proposed to retail clients are not only regularly reviewed and analysed, but also fully approved as the appropriate options for the identified target audience.
Why is there a demand for governance with MiFid II?
Transparency and complete honesty is imperative to when developing a long-standing and fruitful relationship between client and adviser. This is a notion that has only strengthened under the latest MiFid regulations; it is crucial to ensure that companies are putting the client’s best interests at the crux of all outputs, rather than merely paying lip service.
Standards imposed by MiFid II
Of course, it is a common rhetoric in the industry that we do not hold a crystal ball when giving financial advice around MiFid II costs and charges. One cannot guarantee the market behaviour, and nothing is absolute. Nothing, that is, except for the adviser’s resolute dedication to practicing in the most ethical way.
Integrity can no longer be a flag waved as a part of a marketing initiative, but fundamental to a firm’s front end sales operations. This benefits the client, and truly is best practice for any wealth management firm worth its salt.
With the insistence of scrupulous reporting obligations, mandatory quarterly client valuations, compulsory record keeping with regards to all electronic and verbal client communications and annual transactional statements issued, the administrative demands influenced by MiFID II now weigh on the industry more than ever before. In tandem, these new standards of communications monitoring are placing greater stress and importance on businesses employing a solid GDPR policy framework than ever before.
How MiFid II costs and charges might affect small businesses
For smaller firms, with the increased responsibilities along with time, cost and resource, there is need for a justified, commercial decision to be made on every potential client. They must determine whether the value equates to the manpower needed to sustain the professional relationship in line with MiFID II regulation.
As such, it is not unreasonable to suggest that clients bringing in smaller investments may find it more and more challenging to seek financial counsel.
Not only this, but clients are becoming increasingly aware of their rights and the ethical responsibilities of advisors when it comes to their finances. With sensationalised media headlines at their fingertips and a developing reliance on immediacy, clients are generating a higher number of complaints than ever before.
Will MiFid II prompt an increase in independent advisory businesses?
In the wake of MiFid regulations, it is likely that we will begin to see an increase in smaller financial advisory businesses plugging in to larger existing networks. Here, they are likely to absorb and bolster licencing expenses and the potential increased overheads that can arise with the new MiFid org regulation standards. In turn, shrinkage in the industry is a likely forecast, as more advisers look to consolidate with larger, more established firms or close shop altogether.
How new MiFid regulations can improve the finance industry
History proves that any new law or regulation comes laden with challenges; that is inevitable. MiFID II may present more extensive process workflows and intensive administrative labour in situ, but it is set to revitalise and reinforce transparency in our industry.
The changes not only offer greater protection to clients and their funds, but extract continually higher levels of excellence from the industry as a whole. So long MiFid regulations are ever client focused, and seek to retain the quality of the commercial capabilities of our peers, then change is always going to be widely perceived as a positive.
There is also clear motivation from a regularity standpoint to utilise the increased transparency of MiFid II to greatly reduce the use of ‘dark pools’ – a term commonly used when referring to private financial exchanges that facilitate trading between anonymous investors. It is a practice commonly employed to protect identities of traders from public view during early stages of investment transactions. The revised MiFID II regulations aim to limit the trading volume of stock to 8% over a one year period.
As an industry, we pride ourselves on professionalism and anyone who strives for less than the utmost levels of integrity, ethics and knowledge simply cannot operate in this new era of heightened governance when providing financial advice.
We would strongly empower any client of private financial services to take serious consideration of the MiFID II regulations. Whether you’re considering new investments or products, or are someone with an established relationship as an existing customer, there has never been a more crucial time to know your rights, have knowledge of the legislations in place to protect you and your finances, and to be asking important questions of your chosen firm.
Disclaimer: This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity.