Wealth managers and platform providers will lose business due to MiFID II

Written by Oliver Wade
28/06/2019

Financial advisers predicted that wealth managers and platform providers will start to lose business as MiFID II reporting standards allow clients to be more aware of costs and charges, new research has found.

In a report sponsored by wealth management and financial planning firm NetWealth, MiFID II Implementation – A Work in Progress, analysts from AKG revealed that 34 per cent of advisers expect clients to move funds away from investment solutions and providers. According to 62 per cent of advisers, the standard of reporting and transparency on charges and services is already influencing clients’ choice of discretionary fund managers (DFMs) and platforms.

The most significant impact on adviser businesses, the study found, has been an increased workload for advisers, with two thirds highlighting that additional MiFID II requirements have meant they have less time to liaise with clients, with a knock-on effect on minimum serviceable client portfolio sizes also identified. As a result, nearly a third have expressed their desire to increase the minimum client portfolio size.

Furthermore, over half (51 per cent) of advisers stated that reporting of costs and charges must be more consistent across the DFMs and platforms they use, while 59 per cent cited that 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 explored 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 respondents claimed that reporting standards “always” influence their choice of preferred DFM and platform, while a further 39 per cent stated it only influences their choice “sometimes”.

Commenting on the findings, AKG communication director Matt Ward said: “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.”

The major points of concern that emerged from AKG’s research were discrepancies, inconsistencies and challenges with costs and charges disclosure, as well as challenges with composition and delivery of ex-post reports and projections.

NetWealth head of intermediary business development Sophie Austen added: “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."

In his final comments, Ward concluded: “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.”

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