The Insurance Distribution Directive (IDD), the Packaged Retail and Insurance-based Investment Products (Priips) directive and the revised version of the Markets in Financial Instruments Directive (Mifid II) are all due to be implemented early next year.
“The bottom line is, a lot of advisers in the UK, as well as the rest of the EU, don’t know what is about to hit them,” said James Pearcy-Caldwell, chief executive of European advice network OpesFidelio.
“I liken it to a hurricane, it’s not going to kill anybody but it will destroy a few businesses.”
Pearcy-Caldwell was speaking on the Future Advisory Panel before an audience of European IFAs.
“People don’t really recognise that the IDD was introduced over a period of five deadlines,” he added. “The final deadline for Mifid is January, with Priips also around the same time.”
The final deadline for IDD implementation is 23 February 2018.
Small advisers to struggle
Fellow panellist, Eamon Porter, principal at Aspire Wealth Management, added that small one or two-man bands will struggle “getting their heads round what the legislations are”.
Porter described “a deep intake of breath” of attendees when the topic of Mifid was raised at a recent conference he attended.
Identification number
Another point Pearcy-Caldwell raised was the Legal Entity Identifier (LEI), which will impact every single firm that wants to trade in a range of vehicles, including ETFs and structured products.
“Any company, whether under IDD or Mifid, that wants to deal with these investments will need an LEI. Not only that, but they will be working with trustees in various countries that will also need an LEI.”
A quick hand poll of the audience revealed that few of those in attendance currently have one.
Brexit
With the topic of conversation inevitably turning to the UK’s departure from the EU, Porter cautioned advisers that “what looks good now, might not be that great in future”.
Using Portugal as an example, Porter warned that while the country is “a very liberal and friendly tax environment, it is also one of the original PIGS (Portugal, Italy, Greece and Spain)”.
Product providers supporting advisers
“The time has come for us to move on, those of us who seek to represent our clients, to no longer be distributors of product providers but they form part of our support chain,” said Phil Billingham, financial planner at Perceptive Planning.
“We look after and represent our clients and I don’t think commission has a place in that world.”
He added that he did not believe that it was unethical to take commission and conceded that it is not always appropriate for a lot of consumers to pay fees, either because they can’t afford it or their circumstances are not complicated enough to warrant specialist advice.
“We’re trying to run a business and find clients that have a sufficient complexity of problems and understand that they need to pay for a solution.
“Frankly, that’s no different to a vet, an accountant, civil engineer, or chimney sweep.”
He added: “We’re all looking for clients with a problem that matches our expertise and have the means and willingness to pay our fee.”
The transition
“We want to be fee-only and in an ideal world we would be. We call ourselves fee-based but we take commission. What we’ve been doing in the last six months is transitioning to an account-based model for clients,” Aspire’s Porter said.
“We’ve a lot of legacy business and the problem is managing the cash flow.”
Aspire creates an account for each client that provides a quarterly statement detailing commissions paid on each product.
The company charges 0.5% AUM and, depending on the value of the commission received, Aspire applies a credit to the account or requests an additional payment from the client to make up the shortfall.
