Full or Focused Independence?

Modified on Thu, 5 Apr, 2018 at 11:38 AM

‘Full’ independence


For firms/advisers to be independent in the broadest sense under MiFIDII, their assessment of suitability must include a sufficient range of financial instruments, structured deposits and other retail investment products. The products must be sufficiently diverse in terms of type and provider to ensure that the client’s investment objectives can be suitably met.


When advising retail clients based in the UK, firms must be ‘in a position’ to advise on the full range of vehicles indicated above. However, for any particular client, there is no requirement to consider every product available on the market, only those that are relevant to meeting the client’s investment objectives.


So, the range of products that ‘full independence’ firms are required to be ‘in a position to advise on’ is as follows:


A) Markets in Financial Instruments Directive (MiFID) Financial Instruments

  1. Transferable securities;
  2. Money-market instruments; 
  3. Units in collective investment undertakings; 
  4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash; 
  5. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event); 
  6. Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF; 
  7. Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in C.6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls; 
  8. Derivative instruments for the transfer of credit risk; 
  9. Financial contracts for differences. 
  10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.


B) Structured deposits - and


C) Retail Investment Products

  1. a life policy;
  2. a unit;
  3. a stakeholder pension scheme (including a group stakeholder pension scheme);
  4. a personal pension scheme (including a group personal pension scheme);
  5. an interest in an investment trust savings scheme;
  6. a security in an investment trust;
  7. any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset;
  8. a structured capital-at-risk product;

 

‘Focused’ independence

 

Under MiFIDII, firms can be independent on a focused basis. The ‘focus’ could be on a particular type of product, e.g. Independent for pension products. It is likely that few firms will be able to, or want to, fulfil the ‘full’ independence criteria listed above, i.e. being able to advise upon the full range of products under A, B and C.


Most firms are likely to continue as they were prior to MiFIDII, namely advising on retail investment products - C - and adding in Structured Deposits - B - if a notification to this effect was sent to the FCA.

Accordingly, such firms must ensure that how they disclose/describe their independent status meets the MiFIDII standard.

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