A-Day, RDR and MiFID II; all acronyms that will most likely mean absolutely nothing to you, but deep down you may (or should be) benefiting from the changes that they brought about.
Pension tax simplification, often simply referred to as “pension simplification” took effect from A-day on 6th April 2006, and was originally a policy announced way back in 2004 to rationalise the British tax system that applied to pension schemes. The aim was to reduce the complicated patchwork of legislation built-up by successive administrations which were seen as acting as a barrier to the public when considering retirement planning. The government wanted to encourage retirement provision by simplifying the previous eight tax regimes into one single regime for all individual and occupational pensions.
The Retail Distribution Review, RDR for short, was a new set of rules that came into force on the 31st December 2012 and was all about ensuring there was more transparency and fairness in the investment industry.
RDR rules stipulated that investment advisers (like ourselves) had to be split into two clear distinct categories – independent and restricted. Advisers were also required to be much higher qualified than they had been previously, ultimately raising the standards required like in other professional industries. This ‘upskilling’ ultimately created a culture within Active to continuously self-develop, aiming much higher than ‘just the standard’ set by the regulator, reflecting now in our Chartered status.
That said, the biggest change was that financial advisers were no longer able to receive commissions from fund companies when they ‘sold’ investment products. Financial advisers would no longer be getting that piece of the pie! In short, from 1st January 2013, instead of paying your adviser indirectly through commissions, you would be agreeing on the fees for all parties upfront, which is certainly a more transparent practice.
Active had already worked in this way for many years previously, so this was music to our ears. Financial Advice firms that had embraced the changes, adapted their processes and endeavoured to continually improve their knowledge are providing a professional service that clients deserve. Sounding familiar now I hope?
So fast forward to 2018, and the introduction of MiFID II. It doesn’t sound exciting does it? Sounding more like a NASA satellite than a piece of regulation that is ultimately there to make sure you are being looked after properly, you should already have noticed it’s changes from your adviser in these last 12 months.
MiFID is the Markets in Financial Instruments Directive and it has been applicable across the European Union since November 2007. It is a cornerstone of the EU’s regulation of financial markets, seeking to improve their competitiveness by creating a single market for investment services and activities and to ensure a high degree of harmonised protection for investors in financial instruments.
Enhancements introduced on the 3rd January 2018 (MiFID II) include greater protection for investors through the introduction of new requirements on product governance and independent investment advice, the extension of existing rules to structured deposits, and the improvement of requirements in several areas, including on the responsibility of management bodies, inducements, information and reporting to clients, cross-selling, remuneration of staff, and best possible results for clients.
The key visible aspect here for you (the client) relates to client reporting, and in particular, the service you receive and charges you pay. Remember the paragraph earlier about RDR and client agreed remuneration? Well five years on, this should ensure that those rules are being adhered to you, and you are being advised (or reminded) of what charges you are paying.
For most clients, certainly Investment and Retirement Planning clients, an ongoing charge will apply for the service being provided by your adviser. In return for this fee, you should be receiving an ‘ongoing service’ which could (or should) include a review, often on an annual or six monthly basis. The results of this client review are then formally communicated to you, confirming your objectives, your attitude to risk, the ongoing suitability of your portfolio, and the charges being applied.
In short, the amount of work your financial adviser now has to do for you on an ongoing basis has increased, but it has increased ultimately to help protect you. Granted, much of this work goes on behind the scenes, and that’s where having the strength and experience in depth here at Active has helped tremendously when implementing the changes when they arise.
Change is never an experience anyone looks forward to, be we know that it will always happen in our industry. That is why we have always tried to embrace every change way before it’s time, and well ahead of our peers. This has allowed Active to thrive into what you see today, and what you will continue to see for many more years to come.
We are passionate about educating our clients about ‘why’ we have to operate as we do, and what good practice looks like. To us, it is just as important as the financial planning aspect of our work we do for you.
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