There is a big folder in my office labelled Mifid II. Every week or two, I set aside a couple of hours to read parts of it, make notes and circulate thoughts to colleagues about how we are going to comply. From everything I have read so far, here are my observations about what it means for firms like ours.
Firstly, it does little, if anything, to improve outcomes for clients. I like to measure every rule change against the simple test of whether it will genuinely improve things for clients. In the case of Mifid II, it will not. No client was ever made better off because their adviser considered a structured deposit when making investment recommendations. Fact.
Secondly, there is nothing significant in the new rules that cannot be addressed by spending countless hours making minor procedural changes, writing up a few new business policies and adopting updated client disclosure documents. This is all time spent away from providing a service to clients. It does result in higher fees to our clients, as this work comes at a cost, so it is fair to say implementing Mifid II is widening the advice gap.
Thirdly, this bureaucratic dream is going to create some fun come January. That is if you enjoy arguing the toss with providers over whether your client is a natural entity and really does need to spend £115 plus VAT (and waste a few hours of their time) applying for a legal entity identifier before they can switch funds. We know how much providers love to gold plate the rules the FCA has already gold plated. Current tasks include determining the approach one wrap platform will take in the absence of National Insurance numbers for under-16s with Junior Isas.
As a side note, we have already seen one opportunistic Sipp provider offering to get LEIs for clients who might or might not need them for a 200 per cent mark-up. At least regulation inspires entrepreneurship.
Mifid II has also inspired regular cold calls from technology providers engaging in a spot of scaremongering around the recording client calls rule. Yes, there are new rules to record client calls. No, we do not need to spend thousands of pounds to digitally record each call and link it to our back office system. Making notes in the prescribed format for relevant calls, which we estimate to occur once in a blue moon, is fine thank you very much.
And then there is the ridiculous requirement for discretionary fund managers to notify clients when their portfolios have dropped by 10 per cent during a quarter. This (hopefully) is not going to happen too often. It has only happened a handful of times in the past 50 years, usually followed pretty swiftly by a strong recovery.
What worries me is the implications of providing too much information to clients about movements in their portfolio values. Applying short-term performance measurements to long-term objectives rarely makes sense. At least we get to earn our fees as advisers by coaching them through this noise.
The next few months will probably involve writing to a few clients with the upsetting news they have work to do and expenses to incur in order to remain as such. They will definitely involve me banging my head against the desk in despair. But, hey, at least we get to harmonise our regulatory standards across the EU, just before we leave it a year later.
Martin Bamford is managing director of Informed Choice