MiFID II came into force on 3 January 2018 with the aim of guaranteeing more protections for savers: a better definition of the customer profile, whose ability to tolerate risks and possible losses will have to be measured more carefully and scrupulously through a specific questionnaire, the total cost transparency of the advisory and investment service and a greater clarity of the prospectuses showing the characteristics of the products.
Having said that, let's try to explain through some keywords what MiFID II will really mean for every saver.
Appropriateness and appropriateness
A central point of MiFID II is the assessment of adequacy and appropriateness. This is nothing new, it was also discussed in MiFID I, but with MiFID II the concepts are strengthened.
Consultants and companies will have to collect all the information useful for framing the client's knowledge and experience, his ability to bear any losses, his investment objectives and his risk tolerance. This in order to then be able to recommend suitable investment services and appropriate financial instruments.
It will be mandatory to repeat the evaluation of the customer profile at least once a year, while the adequacy of the portfolio with respect to the aforementioned customer profile will have to be monitored continuously.
Or
Let's imagine we want to start investing with the help of a financial advisor. But how do I choose it? where can I find it?
Either I ask my bank, which will put me in touch with its advisors, or I go to the website of the Supervisory Body and Keeping of the Single Register of Financial Advisors (OCF) and I consult thesingle register of financial advisors.
To which they will be enrolled, in three distinct sections:
- financial advisors qualified for door-to-door selling (former financial advisors);
- independent financial advisors (formerly independent advisors);
- financial advisory firms.
The register can also be consulted to verify that the professional or company from which I was contacted has all the credentials to do what he does. And it will be the only accredited source for this purpose. Attention: at the moment only former promoters are registered in the register. It will take a few months to activate the other two sections. Info on the dedicated website.
Client
It is the person or company that receives investment and product advice. He is considered "professional" if he already has significant knowledge and experience, while he is called "retail" if he is decidedly less knowledgeable in the matter (most Italians fall into this second category).
MiFID II reaffirms the customer's right to receive clear information, to be able to truly understand the nature of the service offered and the risks of the proposed instrument and therefore make his decisions. Consultants and companies will have to document each step in detail and scrupulously and the customer will eventually be able to enforce this documentation in the event of disputes.
Consultant enabled for out-of-office bidding
Former financial planner, renamed financial advisor qualified for door-to-door selling by the 2016 stability law (law 208/2015), carries out its activity on behalf of an intermediary (bank, stock brokerage company, asset management company).
It can receive from the customer, to transmit them immediately to the intermediary, only and only bank or postal checks, cashier's checks or postal orders bearing a non-transferability clause, bank transfer orders and similar documents, named or made-to-order financial instruments. In short, only means of payment that leave a trace. And never made out to the consultant himself.
Independent consultant
Also the 2016 stability law renamed the independent consultant independent financial advisor. Autonomous because it has no relationship with intermediaries. He absolutely cannot take money from the customer to invest it: instead, the customer will send his bank the investment or disinvestment advice of the independent consultant.
Provides the investment advisory service on the basis of a written contract which must define, among other things, the content and modalities of the services, the client's rights, the type of financial instruments dealt with, the remuneration of the service or at least the objective criteria to determine it, the relative payment methods, duration and methods of renewal of the contract and how to modify it.
Cost
It is the other decisive point of MiFID II: all costs must be made explicit both in absolute and percentage terms. More than for the self-employed and SCFs, who have always been paid directly and exclusively by the customer on a fee basis, the novelty will be disruptive for consultants who operate on mandate.
These are paid by the intermediary, who then bills the costs to the customer. Well, MiFID II obliges not only to make these costs clearly evident, as a percentage and in Euros, but also to communicate separately the various items of the service costs (for example: subscription commissions, transaction and custody costs, and so on) and product costs (management, brokerage and exit, performance fees, tax expenses, etc.).
Independent and non-independent
Intermediaries will be able to provide the advisory service on an independent or non-independent basis, but through different structures. The same consultant authorized for door-to-door offers cannot offer both types of consultancy at the same time.
Non-independent consultancy will therefore continue to exist and be remunerated through the traditional system of costs and commissions (see the item "Costs"), which however must be clearly highlighted and specified in detail.
Intermediary
It is the bank, the securities brokerage company (SIM) or the asset management company (SGR) on whose mandate the financial advisor authorized to offer door-to-door offers operates. It can offer independent and non-independent advice, but through different channels and consultants.
Product Governance
With MiFID II the "construction" of financial products changes, the so-called product governance. Every time a product is manufactured to be distributed to savers, the company that will create it will be required to define, in principle, an objective (in jargon, target) positive and one negative: the positive objective is the type of investor for whom the product is appropriate, while the negative is the type of customer to whom that product should never be offered. The consultant will have to identify among his clients which fall into one and which fall into the other category.
Product intervention (or product intervention)
MiFID II also establishes the so-called product intervention: the authorities, in extreme and exceptional cases, will be able to intervene to block or limit the sale of financial instruments or structured deposits, even before they are marketed, always with a view to protecting savers as much as possible.
Questionnaire (MiFID II)
It is the tool that allows you to acquire information relating to the knowledge of the customer, his investment objectives and his propensity for risk. Essential not only for assessing adequacy and appropriateness, but also for understanding which target, positive or negative, the saver can be associated with (see the entry product governance).
Research
Until now, research costs were included in negotiation costs. From now on, however, it will be necessary to declare in advance who will have to bear these expenses.
In recent months, many asset management companies have announced that they will bear the search costs themselves. This, therefore, has already proved to be an advantage for the saver.
Financial advisory company
Like independent advisors, financial advisory firms provide investment advisory services on the basis of a written contract which defines, among other things, the content and methods of the services, client rights, types of financial instruments dealt with, remuneration for the service o the objective criteria for determining it, the relative payment methods, the duration and methods of renewing the contract, as well as the methods for modifying it.
Switch
The sale of a financial instrument and the simultaneous purchase of another instrument – the Switch, in fact – must always be justified: the intermediary will in fact be called upon to demonstrate that the benefits of this variation exceed the costs (understood in a broad sense).
Transparency
MiFID II provides for both a preliminary disclosure, to specify, among other things, whether the consultancy is carried out on an independent basis or not, and periodic disclosure, at least annually, with details of the costs relating to the individual products and the portfolio as a whole.
Only for asset management, the intermediary will then have to send, at least once every three months, communications with the details of the instruments in which they have chosen to invest.
Supervision
The financial advisors authorized for door-to-door selling must behave with diligence, correctness and transparency. In providing the investment advisory service, independent financial advisors and financial advisory firms are required to act honestly, fairly and professionally, in order to best serve the interests of their clients.
Otherwise, they will be held accountable to the OCF, which will adopt disciplinary measures proportionate to the violations (sanctions, suspensions, radiation). The provisions will be reported in the single register of financial advisors, and therefore will be public.
Currently, the supervisory provisions regarding those registered in the register are adopted by Consob and can be consulted on the CONSOB website. It will take a few months to transfer the supervisory functions from Consob to the OCF.
SOURCE: Advise Only
