MiFID II increases the number of operating frameworks available for advisers and discretionary investment managers to work together, but it will be down to advisers to lobby for change, according to PortfolioMetrix.

Mike Roberts, UK Managing Director of PortfolioMetrix says: “We estimate that at least 90 per cent of advisers using model portfolios on platform supplied by discretionary investment firms are operating under an ‘Agent as Client’ framework. This approach addresses the key issue of ensuring advisers are responsible for the suitability of recommending a portfolio management service, but it has some very undesirable consequences for the adviser.

“From what we see happening, we estimate the majority of advisers operating under ‘Agent as Client’ terms do not fully understand it and are unaware of the risks accepting this operating term poses to their businesses.”

MiFID II will open the door to a new operating model – ‘Reliance on Others’ – where the responsibilities of each party in the chain is much clearer making it easy for advisers to fully understand where their responsibilities lie.

Mike Roberts continues: “The new ‘Reliance on Others’ process removes the ambiguity from who carries the can should an end client complain. The problem is there is no requirement for discretionary managers to change their terms of business to adopt Reliance on Others and there is very little incentive for them to do so. Therefore, the ball really is with advisers to be aware of their terms of business with discretionary managers and to be proactive in demanding a change to the ‘Reliance on Others’ framework.”

To help advisers understand what Agent as Client means to them and why Reliance on Others is a better model, PortfolioMetrix has produced a paper called ‘Regulation in a Tangle’. The paper also looks at the controversial 10 per cent drop rule that comes in with MiFID II and where responsibilities lie in terms of contacting clients should this become necessary to meet the regulation.

‘Regulation in a Tangle’ is free to download at the PortfolioMetrix website http://info.portfoliometrix.com.pages.services/Tangled

For further information contact Jo Rimmer on 07970 088383 or at jo@redsparkpr.com.


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