What is MiFID II and How Does it Affect Netwealth Clients?

MiFID II is a new European directive that aims to increase protection for investors, create more transparency and improve how financial markets function. Here we explain what it means for Netwealth’s clients and how we are addressing the changes.

Extra rules are usually not something to get too excited about. The author Albert Camus once said, “Integrity has no need of rules”, but we cannot take integrity as a given across the financial services industry. Fortunately, new rules can sometimes work in our favour.

MiFID II aims to provide greater transparency and protection for investors, and comes into effect across Europe on January 3rd 2018. It is an evolution of the first MiFID (Markets in Financial Instruments Directive), that aimed to harmonise regulations for investment services across the European Economic Area.

Some banks and wealth managers – but not all – have found it challenging to accommodate changes required by MiFID and to get in shape for MiFID II. Archaic technology, layers of bureaucracy and a lack of clarity in communicating can be considerable obstacles to overcome.

At Netwealth, we have built our systems and technology around flexibility and transparency – specifically, with our clients in mind. This allows us to meet challenges now, and respond quickly to changes that may occur in future.

Among the main changes which may affect those who invest include:

Costs and charges

New regulations around costs and charges will demand more transparency so individuals can understand what is happening with their money, and investors should be able to compare prices between providers easily.

We offer an all-in charge for discretionary wealth management which includes platform, management, transaction charges and VAT and make sure we detail the specific charges levied by our pension provider. Starting in December when you design an investment on the website we will provide a forward-looking projection of those charges on both an annual and one-off basis. This will include both the explicit fees as well as the frictional costs of trading and the fund charges. This will be calculated at the portfolio level and be displayed in both monetary and percentage terms, so you receive a personalised forecast of your potential costs and charges. Our philosophy of offering high quality, efficient service at an attractive cost has not changed and we believe that keeping fees low can have a huge positive impact on clients’ investment returns.

If portfolio values drop by 10%

MiFID II rules aim to provide more clarity for investors by declaring that any 10% drop in an investment portfolio’s value from a previous quarter must be communicated to clients.

Our clients can already log in to their accounts to monitor on a daily basis the time weighted return of their portfolio across different time periods and against different market benchmarks. We do have mechanisms in place to alert clients in the event of a 10% drop but we would assure all clients that if there ever is a major drop in the value of our portfolios – for whatever reason – we would always be in contact to explain the context for them and reassure. Our philosophy is unchanged that remaining invested in the long term is usually the right decision to achieve financial goals.

Periodic reporting

From 3rd January 2018 investment firms must formally send out value statements quarterly, rather than the twice a year they are required to do so now.

This is something we already do.

Periodic assessments

Portfolios and chosen Risk Levels should continue to be suitable for the needs of clients – a fact that they must reaffirm.

We will shortly be asking all our clients to reaffirm their goals and review the portfolios they have set up. This will give clients an opportunity to reassess their financial objectives and make any changes they would like. Our advisory team will be on hand to answer questions and provide assistance.

Transaction reporting

The new MiFID II rules mean that financial providers must provide regulators with more details on who is making investment decisions and trades and who owns the investment.

We are collecting additional information from our clients on their nationality and national identity numbers to ensure that we are compliant come January 3rd with the transaction reporting requirements. We would urge any clients who have not yet provided this to contact our Client Service team for assistance before the end of the year.

In conclusion: extra reassurance for investors

Most of the new MiFID II regulations will favour investors – without making their lives any more onerous. Because there is an increased focus on transparency and investor protection, these correspond to the values we already embrace: clarity and openness, lower fees and always aiming for good outcomes for our clients.

Our clients should therefore not see many noticeable changes to the service they receive from us. Yet if investors have any questions about what the implications of MiFID II might mean to them specifically, please get in touch with me at clientservice@netwealth.com

Please remember that when investing your capital is at risk.

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