The Model Office Blog

Treating Customer’s Fairly on Speed? Well with the FCA final implementation rules upon us, the MiFID II requirements are intended to increase disclosure to clients, provide transparency around execution arrangements and order routing decisions, and should facilitate greater investor challenge and scrutiny by clients on the performance of firms acting on their behalf.

What is clear is that there is still a fair amount of uncertainty within the retail investment adviser and wealth management communities about what MiFID II is and how it applies to them, enter Model Office and #RegTech.

We have aligned MO’s questions to include MiFID II (and how it relates to other key areas) to ensure adviser, planner and wealth management firms gain a good understanding of how they will be affected and indeed what they need to implement to ensure compliance, client-centricity and on-going professional practice. So what are the key areas?

1. Disclosure and information for clients:
   1. Independence: Advisers need to ensure the nature of their service is clear and understood
   2. Financial products: What type are offered, number analysed, selection process to recommendation and details of suitability reviews
   3. Costs & charges: Point of sale disclosure aggregated costs and ancillary services i.e. full service chain charges need to be disclosed
   4. Timing of appropriate information, e.g. risk/guidance warnings

MO reviews firm's disclosure processes and client documents

2. Inducements:
   1. Any payments received (e.g. research) need to be evidenced as enhancing the client experience – so in this case the firm needs to evidence a process where the research quality is assessed

MO ensures firms test their systems and controls in this area

3. Advice:
   1. A personal recommendation will bring suitability requirements (for compliant firms) not the wider RAO advising on a ‘range of investments’ (This will apply to the bad boys)
   2. The above means that adviser firms need to have a reviewed a sufficient range of the market rather than a comprehensive ‘whole of market’ review
   3. Whether independent and/or restricted ensure the definition is clear and meets regulatory requirements

MO ensures a firm understanding of the new advice definition and its benefits

4. Suitability:
   1. Based on a personal recommendation definition this means advisers now need to ensure adequate policy procedures, understand nature of product features, costs and risks i.e. Evidence knowledge through training and development
   2. Client information needs to be up-to-date with a reliable information collation system
   3. Client risk profile needs to be aligned with any investment/fund risk profile and evidence to showcase the investment/fund suitability plus there is an obligation to engage if portfolio values fall by 10% in a quarter 

MO assesses a firms suitability processes and reviews

5. Appropriateness:
   1. Although one for product providers to ensure manufacturing is around end-user needs i.e. the customer, advisers and wealth managers need to ensure that client knowledge and experience is appropriately aligned to the products sold
   2. Knowledge of what is a complex (potentially Non-UCITS products/ETFs) and non-complex investment and how this affects distribution e.g. Auto-advice services require due diligence here

MO tests for understanding of client knowledge and experience

6. Client communication recording:
   1. It will be inevitable (in our opinion) that all adviser firms who engage with regulated advice will have to introduce taped recording, but for now must ensure they record all communications in an analogous (comparable) way. The FCA have confirmed DIMs now have to adopt taped recording
   2. The recorded information needs to cover: Date, time, location, initiator, attendees of the meeting along with details on the client order (price, volume, type and when executed)
   3. This covers all electronic communications that relate to “the reception, transmission and execution of orders, or dealing on own account”

MO tests this against current systems in place,  ensuring communications are recorded uniformly across the business

7. Conflicts of interest:
   1. Active due diligence strategy required to monitor and review any conflicts
   2. Disclosure is considered the last resort to managing conflicts

MO tests for a conflicts register as a living document to manage this

       8. Anti-Money Laundering - AML: 

1. Ensure a robust aggregated financial crime data process runs through practice management          technology
2. KYC checklist needs to be up-to-date with latest on Client type, Knowledge/experience, Loss capacity, Risk appetite, Objectives/needs

MO asks key questions about your practice management technology and AML/KYC processes

      9. General Data protection Regime - GDPR: 

1. Ensure 7 principles are in place: Lawfulness, Consent, Purpose, data minimisation, accuracy, storage, integrity and confidentiality 

MO will assess the firms data collection and management processes plus how your firm communicates this to your clients and regulator

      10. Senior Management Certification Regime - SMCR: 

1. Roles and responsibilities are clearly mapped across the business 
2. The 1st tier individual conduct rules are understood and implemented 
3. The 2nd tier senior management conduct rules are understood and implemented 

MO's Your People key covers all the SMCR details you need to ensure you have the right people in the right place with the right skills 

Please click the below icon link to MO's platform and learn more about MO today..