In conversations with advisers and providers alike, it’s clear that the biggest challenge they’ve had to overcome in recent years has been ‘the implementation of MiFID II’. That’s why I was interested to read recent research from our friends at AKG, capturing the views of stakeholders across the market – advisers, platforms and discretionary managers – on MiFID II and its effectiveness.

The objective of MiFID II was to improve integrity, fairness and efficiency across the UK wealth management industry. Has it achieved these aims? Of the advisers surveyed:

Just how has it failed and what are the implications?

A growing advice gap

It goes without saying that MiFID II compliance takes up an inordinate amount of time. Most advisers (66 percent) said the additional reporting requirements have increased their workload. As a result, nearly a third have increased the threshold for their minimum client portfolio size – or are considering it.

And a major headache
A large and albeit unquantified sum has been expended on implementing MiFID II, with resources diverted toward interpreting and implementing the new rules. Has the time spent been worth it? Are investors better off under MiFID II?
The AKG research indicates:

» 43% said MiFID II has not improved their clients understanding of their investment services and how they are being charged, and there is little evidence to suggest it has improved the client experience.

» 37% of those surveyed said the disclosure of costs and charges has improved under MiFID II. However unavailability, inconsistency and gaps in data are frequently reported in terms of approach and comparability, making accurate and transparent disclosure of costs and charges difficult.

» 51% of advisers said ‘costs and charges’ was the greatest discrepancy in standards of MiFID II reporting across the discretionary managers and platforms they use. Clearly further improvement and consistency needs to be achieved.

» DFMs and advisers raised concerns around unresolved conflicts between MiFID II, PRIIPS and product governance requirements, where target market reporting requirements operate against the client’s best interests. 

» There are concerns that, despite their best efforts, some firms may not yet be totally compliant with the requirements.

» The excessive focus on costs and charges could potentially to result in the rise of less well researched investment options, especially in relation to the perceived merits of actively managed funds vs. passives. 

» It can be argued that the sheer volume of outputs and reports reduces satisfaction for investors, who may receive more information than they can digest.

One respondent said:
The additional requirements for transaction reporting and other disclosures is proving onerous and some way from perfection, while the volume of paperwork mitigates itself against the achievement of transparency and investor protection.
Although, it’s not all bad…

So while we can agree implementing MiFID II has created headaches across the market, things aren’t all bad. For example:

» 75% of advisers said that they have not experienced more pressure from clients to justify their costs and charges.

» DFMs, platforms and advisers feel that MiFID II will ultimately prove its worth for investors (despite the current feeling that it is yet to achieve true effectiveness in reaching its stated objectives).

» Investor protection has been enhanced and customers are benefiting from greater transparency.

» MiFID II has reinforced the role of the adviser in the value chain, however the economics and impact of reporting requirements is driving advice businesses further upscale – to the detriment of those who cannot or will not pay for advice. 

As you can see, we can point to several benefits of the legislation which may serve to soften the headaches it has created. Although it is apparent that clients with portfolios of less than £250,000 – the vast majority of retail investors and arguably those in greater need of protection – are likely to derive little benefit from MiFID II, all things considered.

Are there findings in this research that surprise you? I’m keen to hear our thoughts, so please comment in the space below.

*BlackRock, 2018

This article was created for the DISCUS website to showcase the AKG MiFID II research, conducted in collaboration with Netwealth. You can download a copy of the paper here ›