Discretionary fund managers (DFMs), advisers and investment platforms are facing renewed pressure to draw up new contractual agreements and finalise the details of how they will work together to implement the “challenging” MiFID II ‘10% rule’, in time to meet the implementation deadline of 3 January 2018.
The legislation requires firms providing portfolio management services to inform clients by the end of the working day when the value of their portfolio declines by 10% or more during a reporting period, creating uncertainty about responsibilities across the distribution chain, particularly when DFMs are running model portfolios on platforms and do not know the identity of their end clients.
However, director of regulation at the Personal Investment Management & Financial Advice Association (PIMFA) Ian Cornwall warns there is no doubt about the obligations on DFMs under the new regulations.
He said: “The rules are quite explicit that the responsibilities lie with the discretionary manager. The question is whether they will be able to do it. They may need help from their platform, but the actual obligation rests with the DFM.”
Cornwall also acknowledged implementing the rule would be “very challenging in terms of data processing”.
Lothar Mentel, founder and CEO of Tatton Asset Management PLC (LON:TAM), said this particular guidance and MiFID II in general “was not really written recognising this platform set-up”. They [regulators] assume it is all one integrated thing, which it is not,” he said.
From the start, Tatton IM set up a contractual framework with its platform providers that enables the firm to download client and portfolio data it needs on a daily basis.
“If any one of our portfolios falls by 10%, within ten minutes we can communicate with all the IFAs and clients affected,” he said.
