A CoreData Research study surveying nearly 1,000 UK financial advisers found while volatile markets (28%) tops the list of challenges for advice businesses this year, MiFID II (19%) is deemed the second-biggest challenge. This is followed by Brexit (15%), macroeconomic and geopolitical risks (13%), GDPR (13%) and cybersecurity (9%).
“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%), with a similar proportion seeing the regulation as a waste of time and money (56%).
In addition, advisers are struggling to see the wider rationale and reasoning of the regulation – a third (34%) 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%) say MiFID II has had a negative initial impact on the advice industry compared to 21% who think the regulation has been positive. And one quarter (25%) say the initial impact on investors has been negative compared to 17% who say it has been positive.
Going forward, four in 10 advisers (41%) think MiFID II will result in higher advice fees — significantly higher than the 24% who disagree. And more than a third (36%) agree the regulation will result in a fall in adviser numbers compared to 23% who disagree.
The most challenging aspect of the regulation for advisers is the disclosure of aggregated costs and charges, cited by two-thirds (65%) of respondents. This is followed by writing suitability reports (32%), recording client conversations (27%) and reporting when a portfolio has dropped 10% or more (23%).
Advisers think increased market transparency (26%), improved investor confidence and trust (23%) and enhanced investor protections (17%) 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%) say implementation required a lot of work and the same proportion say it was harder than expected. Just 15% 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%) advisers say they would have started to prepare earlier. A quarter (24%) say they would have drawn up a better strategic plan and nearly one in five (18%) would have put more operational resources in place.
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