Advisers Slow to Adopt MIFID II Rules, FE Research Finds

FE’s latest survey of UK advisers finds that the industry is adapting gradually towards the changing regulatory landscape, rather than adopting new rules such as MIFID II immediately.

23 April 2019

LONDON, 23 APRIL 2019: FE’s latest survey of UK advisers finds that the industry is adapting gradually towards the changing regulatory landscape, rather than adopting new rules such as MIFID II immediately.

The 2019 report, ‘Walking on Shifting Sands – how Advisers are Negotiating a Changing Landscape’, analyses responses from over 200 UK advisers to highlight best practice and areas where advisers could make improvements.

Only 25% of advisers said that MiFID II had improved their business processes against 32% who reported that it had worsened them. Surprisingly, 43% said the rules had made little or no difference.

Mikkel Bates, regulatory manager at FE said: “It is concerning that almost half of the advisers surveyed may not be following the MiFID II disclosure rules as diligently and rapidly as they should.  However, some may be simply relying on others, such as platforms, to deliver the reports, rather than struggling with the intricacies of the new disclosure requirements.

“It also highlights one of the many unintended consequences of MiFID II – that due to ambiguity in the directive, it is quite possible to interpret and action the rules differently. I’d expect to see the number reporting changes to their business processes to increase significantly over the next two years, as a consensus about how to interpret and apply the rules emerges.”

Advisers were split down the middle as to whether MiFID II had provided better transparency and protection to clients but 63% thought that in general terms, MiFID II provides no benefit to clients. Of the third of advisers who reported that MiFID II has worsened business processes, 70% said it hasn’t provided better transparency and protection for clients.

The new PRIIPs KID regulation is also viewed as ineffective, with 75% of advisers saying it has not increased clients’ understanding of a fund’s risk/reward and costs.

Bates continued: “Last year saw one of the most active years by regulators, with the introduction of MiFID II, PRIIPs, and GDPR, to name a few. These findings highlight a sense that advisers are suffering from regulatory fatigue and begrudge the new rules as they impact their business processes, often with little perceived benefit for clients.  This feeling will undoubtedly be contributing to the slow uptake of the new rules.”

Additional findings:

  • Pensions freedoms have been a major driver of profitability for advisers, with 75% reporting a positive impact to their business.
  • Outsourcing investment management has continued to increase, with over 50% of advisers now using third parties to manage client portfolios.
  • Adviser networks losing popularity, with only 25% of adviser being members.
  • Despite difficult markets and on-going regulatory changes, advisers’ general sentiment for business outlook is overwhelmingly positive, with 87% saying they’re either neutral or positive for the next 12 months whilst only 13% are negative.
  • Only subtle changes within investment propositions, with a creep away from UK and European equities into US and global assets, but no knee-jerk shifts in asset allocation.
  • Ethical investment on the rise – only 10% show no interest in offering an ESG solution to clients.

Bates said: “Overall this report shows an industry prospering in an era of unprecedented change – economic, regulatory and technological. However, adapting to change is a gradual process, and initiatives such as MiFID II create challenges that any business would struggle to adapt to rapidly. The findings highlight that the adviser industry may not adapt to new regulatory regimes as quickly as it would like but the intention – and direction of travel – is there and evidenced.”