MiFID II should be the death of ‘agent as client’ but advisers will need to speak up, according to PortfolioMetrix.

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, the firm stated.

“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,” PortfolioMetrix UK managing director Mike Roberts stated.

“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.

Roberts continued: “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.”

Share Story: