Europe has been given some breathing space with the MiFID implementation being put back a year, but this is not an excuse to sit still and doing nothing. As RDR was the precursor for MiFID II, distributors in Continental Europe have turned to the UK to understand how it might affect the distribution landscape and what lessons if any can be learned.
First of all, it’s important to understand one of the fundamental differences between RDR and MiFID. In the UK, advice has to be paid for whether it is provided by an independent financial adviser, a tied adviser or a bank adviser. All advice must be paid for. This had the unwanted effect of creating an advice gap because modest investors were no longer able to afford advice. In addition, banks pulled out of advice provision because they could not offer a cost-effective service and because they were concerned of future poor advice scandals.
In Europe the situation is different. Under MiFID II, only independent advice has to be paid for, meaning that tied advisers can continue to benefit from retrocessions as long as these are declared to the investor. This will not create an advice gap as it has done in the UK, but it is likely to drive investors towards solutions where they do not have to pay for advice (although in reality they will pay much more over the years in rebates). For countries with nascent advice industries, such a move could spell trouble but there are plenty of ways that independent advisers and wealth managers can fight back and ensure they have a long-term future in financial services.
Lesson one: It is important to remember that this is a supply-side reform. Investors will always need advice, but how they access it will change. People will still need advice on their savings and investments and long-term plans. The industry is not going to end just because of this new legislation.
Lesson two: work closely with the regulator to ensure that you get the best out of this legislation in Spain. Don’t protest and be difficult, make sure your voice and opinions are heard and taken into account.
Lesson three: Don’t wait until it’s too late. The most successful advice and wealth businesses in the UK started working on their post RDR model straightaway. You can gain a competitive advantage by working out your proposition now. Review your costs, your client base and understand how you add value. Promote that message consistently.
Lesson four: Don’t try to do things the old way. You need to adapt and change to the new environment. Make the use of technology and the internet to deliver a streamlined and cost-effective service. Make your proposition as attractive as possible to your clients.
Lesson five: Do not wait for the regulator or the press to promote your business. Do it yourself and do it now. Push your trade associations to work with you to promote the value of independent advice and superior investment skills. Be proactive. Advertise. Place articles in the press. Do everything you can to persuade consumers that tied advice is not the best advice.
And if all else fails, there is one last thing you can do… define yourself as non-independent!
Opinion column by Bella Caridade-Ferreira, CEO at Fundscape
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