Report says MIFID II is impacting on wealth managers and platform providers’ businesses

Financial advisers believe wealth managers and platform providers will start to lose business as MIFID II reporting standards make clients more aware of costs and charges, according to a new research paper from analysts AKG, sponsored by wealth management and financial planning firm NetWealth.

Independent research for the report ‘MiFID II Implementation – A Work in Progress’ found one in three (34 per cent) advisers expect clients to move funds from investment solutions and providers and 62 per cent of advisers say the standard of reporting and transparency on charges and services already influences their choice of DFMs and platforms.

The study found that advisers are feeling the strain of MIFID II – 66 per cent say it has increased their workload and that is having a knock-on effect on minimum portfolio sizes with nearly a third saying they have raised or are considering raising minimum client portfolio sizes.

They warn MIFID II has failed to deliver on its objectives and more than half (51 per cent) say reporting of costs and charges must be more consistent. One in three financial advisers expect clients to switch investment solution/provider in the future because of disclosure regulations, the paper found.

Transparency and reporting standards are driving advisers’ choice of preferred DFMs and platforms, but regulation has so far failed to deliver, with more than half of advisers saying that standards of reporting need to be more consistent to benefit clients.

The biggest impact on adviser businesses, the study found, has been increased workload with two out of three (66 per cent) saying additional MiFID II requirements mean they have more work to do, with a knock-on effect on minimum serviceable client portfolio sizes also identified. Nearly a third say they have increased or are considering increasing their minimum client portfolio size.

AKG’s research paper underlines that DFMs, platform operators and asset managers can stand out from competitors by matching up to MiFID II requirements, but need to address inconsistencies to be successful.

More than half (51 per cent) of advisers say reporting of costs and charges must be more consistent across the DFMs and platforms they use while 59 per cent believe MiFID II has failed to deliver on its objectives of improving integrity, fairness and efficiency within the wealth management industry.

Beyond the regulatory requirement to be compliant, AKG wanted to explore whether the standard of reporting and transparency on charges and services is likely to be a deal-breaker for advisers when it comes to selecting or retaining preferred DFM and Platform partners.

Around 23 per cent of those surveyed stated reporting standards always influence their choice of preferred DFM and platform while a further 39 per cent stated that it sometimes influences their choice.

Matt Ward, Communications Director at AKG says: “There is enough evidence here for DFMs and platforms to target continuous improvements with their reporting suite and to seek further transparency on charges in order to retain intermediary business. And further evidence about the importance of adhering to the MiFID II initiatives closely and expediently in order to ensure that clients are retained.”

Major points of concern to emerge from quantitative and qualitative MiFID II market research carried out for AKG’s new paper are discrepancies, inconsistencies and challenges with costs and charges disclosure, as well as challenges with composition and delivery of ex-post reports/projections.

Sophie Austen, Head of Intermediary Business Development at Netwealth says: "The research identifies that the greatest propositional impact has been on intermediaries, largely due to the increased workload generated by additional MiFID II requirements. There’s little doubt that the workload has been amplified by the trickle-down effect of incomplete or inaccurate data being provided by other areas of the value chain.”

“Worryingly, an increasing workload seems to be resulting in an emerging advice gap as servicing clients becomes more expensive – an unintended, but nonetheless apparent, consequence of the introduction of MiFID II. More needs to be done across the industry to address the quality of data being produced, as well as improving delivery, in order to alleviate some of the pressure on advisers and generate better client outcomes."

AKG wanted to appraise MiFID II impact and effectiveness from a range of perspectives across the retail wealth management value chain and the delivery of this project has been underpinned by independent qualitative and quantitative research exercises designed to gather feedback and thoughts from advisers, platform operators and DFMs.

“It is disappointing to see that many of those advisers surveyed do not feel that, at this stage, MiFID II is delivering improved integrity, fairness and efficiency in the wealth management industry. Rather than dwell on this, it should be viewed as a call to action for all industry participants. Strong, collaborative efforts need to be made during the second half of 2019 and during 2020 to ensure that these core MiFID II initiatives begin to bear fruit.”

“Given the huge amount of time and resource that has been sunk into preparation and implementation it would be a great shame if these initiatives could not be translated into beneficial change for customers and the sector,” Matt Ward says.

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