The UK may be set to leave the EU, but new European financial regulations known as Mifid II are set to cause turmoil in January 2018.
The far-reaching legislation, aimed at preventing a repeat of the chaos that occurred during the banking crisis, will have a major impact on financial services.
Financial advisers say they will be hard hit by the new rules. There are also fears the regulations will lead to banks restricting the number of fund managers they work with, and the ability to sell third-party products.
“It’s simply because of the practicalities of it,” said Sheila Nicoll, head of public policy at Schroders, in an interview with Bloomberg. Distributors may start to say, “rather than dealing with 25 product providers, we are only going to deal with five,” she added.
According to a recent report by Core Data Research, financial advisers are seriously worried about the potential impact of Mifid II.
Of 612 advisers surveyed, 45% think the incoming regulations will have a negative impact on the advice sector. Just 17% expect them to have a positive impact.
Advisers also think Mifid II will lead to a rise in restricted and specialist advice. More than half (52%) of those polled expect to see advisers move from independent to restricted in the post-Mifid II world and 75% think there will be more specialist advice offerings.
Furthermore, advisers believe they will be the group most negatively affected by the incoming legislation. The next most affected group, according to advisers, will be DFMs/fund selectors (with 39% of respondents saying this group will be negatively impacted), followed by asset managers (38%).
Cost of compliance
The survey revealed the cost of compliance and getting updated information from clients were the biggest issues that concerned them. Brokers will have to store all communications, including phone calls.
The new rules also require brokers to secure the best prices and restrict payment for investment research.
A large majority (86%) say getting clients to provide up-to-date information to meet Mifid II requirements will be challenging, while 82% cite the monetary costs of additional administration and compliance as a challenge.
Meanwhile 45% of advisers say their firm is not prepared for new Mifid II disclosure requirements covering cross-selling and unbundling rules.
“Our research shows that while nearly half of advisers expect Mifid II to have a detrimental impact on the overall advice industry, a similar number are unsure or unaware of how the regulation will affect them on a personal level,” said Craig Phillips, head of International, CoreData Research.
“This hints at a certain level of unpreparedness on behalf of some advisers and, with the implementation clock ticking, those advisers not up to speed should get their skates on.”