Greater focus
For most advisers, according to Richard Janes, spokesman for Brewin Dolphin, the daily routine of assessing suitability is already “well defined in the UK, and Mifid II does not fundamentally disturb this”.
As Barry Neilson, business development director for Nucleus comments, “a lot of the new rules on suitability under Mifid II basically formalise guidance that already exists”.
However, Mr Janes says although the daily practice for advisers will not change significantly, Mifid II does cause subtle shifts in the nuance of assessing suitability.
He explains: “The increase in obligations are in relation to those advisory businesses where the obligation for suitability reports for all recommendations are now required.”
For these firms, this means a far greater focus on product, target market, cost and appropriateness. It also means providers need to give more information to advisers to make their recommendations in the first place.
With the proliferation of funds across Europe from which a whole-of-market financial adviser must choose, it becomes imperative under Mifid II to have proper data on which to compare funds.
Assessing suitability and making recommendations rely on the quality and clarity of the information and data provided by fund managers. Under Mifid II, fund management firms will be required to show proof of how funds are being assessed by the distributors.
Any flaws that are evidenced regularly will draw regulatory scrutiny towards the fund manager if the manager ignores those reviews.
But even so, different countries will be implementing Mifid II in a slightly different way. For example, the UK’s Financial Conduct Authority has made it clear it will gold-plate certain aspects of Mifid II.
Complex or not?
It might be hard for advisers to make sense of the various data points offered by the multitude of funds, let alone to do a proper comparative study of these to help make investment recommendations that are suitable and appropriate for each client.
"Another question we have had is 'How will you identify complex and non-complex products?", says Mr Ogden. For advisers working with Seven Investment Management, Mr Ogden says the firm will be obtaining a feed of information from an external supplier, which will show complex products.
Generally, he says: "If an adviser is placing a transaction on behalf of a client without giving advice, then the adviser will be asked to confirm that an appropriateness check has been carried out.
"Appropriateness checks are only required for instructions executed on a non-advised basis. For advised trades into complex products, it is assumed the adviser will have undertaken client suitability and hence providing a personal recommendation, and so no appropriateness check is required."
