Euan Munro, CEO of Aviva Investors, suggested that, globally, the second Markets in Financial Instruments Directive (MiFID II) has “complicated the picture”.
While Munro noted the importance of the directive’s main objectives of transparency and investor protection, he also conceded that actually implementing the legislation is “incredibly complicated”.
He warned, specifically, against the potential unintended consequences of the directive and the possibility that some investors may end up receiving worse-quality counsel. He referenced the “race-to-the-bottom” in fee structures following the implementation of the Retail Distribution Review in the UK, in which the only aspect considered is return outcome, not risk outcome.
Taking responsibility for a fund is critical, Munro added.
Within the current regulatory landscape, investor solutions are changing. Another speaker, Jamie Hammond, UK CEO at AllianceBernstein, said they have evolved, and will continue to do so.
Investors have different appetites for risk and return, Hammond said, and firms should assess them individually and come up with a solution that meets their needs.
Finally, Julie Patterson, director of asset management and regulatory change at KPMG UK and moderator of the session, asked panellists whether new transparency and disclosure requirements are actually helping the end investors in real terms.
On this topic, Neil Carnegie, founder of Carnegie Fund Services, suggested that, of all the investor disclosure documents and prospectuses that are produced, only about 15 percent is actually ever read.
Some of these prospectuses can run into more than 200 pages, Carnegie said. He called a lot of the information “stale and repetitive” and questioned whether it is of any use in helping the adviser or investor to understand what the product is.
In a later panel discussion, Peter Nonner, managing director at FIL Fondsbank, suggested that in the new distribution landscape under MiFID II, independent financial advisers (IFAs) should consider changing their business models and move “away from pure commission-based models to service fee models” to “show added value to their clients”.
From a legal standpoint, Dr Edgar Wallach of Hengeler Mueller added to this, noting that under the new directive, inducements “can only be justified if it can be demonstrated that it is in consideration for enhanced quality of services”.
Wallach went on to question what this advanced quality of service actually means. If IFAs would like to receive ongoing commission in the future, they could offer third-party products or portfolio monitoring services.
He reminded delegates that IFAs are not directly subject to MiFID II rules, but added that they are indirectly affected because of the data collection requirements for fund platforms, which have to verify that products are being sold in line with the distribution strategy.
IFAs are “already an integral process of the target market supervision”, he said.
Another panellist, Dr Christian Dicke, CEO of Fondsdepot Bank, took a generally positive view of MiFID II, saying: “In all the threats there are also opportunities”
Firms are investing in order to stay compliant, and to meet cost transparency and product governance requirements, they need robust IT systems.
Within the whole industry, but particularly among small- and medium-sized banks that may not have invested so much in the past, “this is a small technology revolution”, Dicke said.