Advisers consider MiFID II more challenging than Brexit and macroeconomic/geopolitical risks, new research from CoreData Research shows.
The study surveying nearly 1,000 UK financial advisers found while volatile markets (28 per cent) top the list of challenges for advice businesses this year, MiFID II (19 per cent) is deemed the second-biggest challenge. This is followed by Brexit (15 per cent), macroeconomic and geopolitical risks (13 per cent), GDPR (13 per cent) and cybersecurity (9 per cent).
“The fact that advisers consider MiFID II more of a challenge than Brexit and macroeconomic risks speaks volumes about the scale of concern over the regulation,” says Craig Phillips, head of International, CoreData Research.
The study also reveals a majority of advisers think MiFID II has been an unnecessary burden (57 per cent), with a similar proportion seeing the regulation as a waste of time and money (56 per cent).
In addition, advisers are struggling to see the wider rationale and reasoning of the regulation – a third (34 per cent) do not think MiFID II is a sensible package of reforms that will improve industry standards.
A significant number of respondents also think the impact of the regulation on both advisers and investors has thus far been detrimental. Nearly a third of advisers (30 per cent) say MiFID II has had a negative initial impact on the advice industry compared to 21 per cent who think the regulation has been positive. And one quarter (25 per cent) say the initial impact on investors has been negative compared to 17 per cent who say it has been positive.
Going forward, four in 10 advisers (41 per cent) think MiFID II will result in higher advice fees – significantly higher than the 24 per cent who disagree. And more than a third (36 per cent) agree the regulation will result in a fall in adviser numbers compared to 23 per cent who disagree.
The most challenging aspect of the regulation for advisers is the disclosure of aggregated costs and charges, cited by two-thirds (65 per cent) of respondents. This is followed by writing suitability reports (32 per cent), recording client conversations (27 per cent) and reporting when a portfolio has dropped 10 per cent or more (23 per cent).
Advisers think increased market transparency (26 per cent), improved investor confidence and trust (23 per cent) and enhanced investor protections (17 per cent) are the main benefits of MiFID II.
“Encouragingly, these top three benefits all align to the needs of investors – indicating that advisers are putting clients first and foremost,” added Phillips.
Meanwhile, advisers have struggled with MiFID II implementation. Three in 10 (29 per cent) say implementation required a lot of work and the same proportion say it was harder than expected. Just 15 per cent say implementation was straightforward and easy.
The findings indicate a lack of planning and preparation is a major cause of the implementation difficulties. When asked what they would have done differently in terms of MiFID II implementation, seven in 10 (70 per cent) advisers say they would have started to prepare earlier. A quarter (24 per cent) say they would have drawn up a better strategic plan and nearly one in five (18 per cent) would have put more operational resources in place.