What’s MiFID and what does it mean for me?

NEW rules to help savers make the right investment decisions are coming into force next year, but what do they mean for you? The new Markets in Financial Instruments Directive II — known as MIFID2 — will take effect next January. But investment firms are gearing up for them now. Here’s what you need to know.

What is MIFID2?

MIFID2 is new legislation from the EU which aims to provide a more transparent world of investing whether you’re buying shares, bonds or any other assets. There’s a whole host of changes to be made, but only a handful will be felt by private investors.

One aim is to offer more protection and help for those making their own investment decisions (without the help of a financial adviser) and using platforms to choose and buy funds, by making things such as charges, clearer.

The regulation also requires that financial companies hold accurate details about their customers to help authorities monitor for market abuse – and so protect investors.

How will it affect me?

Strict rules designed to improve transparency over fees will be one of the more apparent changes to private investors. When you buy an investment from January, the provider will have to tell you what it is charging to manage your money, with other costs listed separately. At present, most of these costs are wrapped up into the headline charge quoted on funds. The EU believes that the transparency in Mifid II will encourage providers to compete more aggressively on pricing, bringing the overall cost down.

There will be more information published on who particular investments are suitable for, and once invested, you will receive a quarterly report on how they are faring. Providers will have to contact you if your fund or portfolio falls in value by more than 10%.

Since the rules force companies to hold the correct information about their clients, you might get some correspondence from your platform asking for personal details. Hargreaves Lansdown, the UK’s largest fund supermarket, for example, has already written to 520,000 of its clients and will be writing to the rest over the next couple of months to ask them to log into their accounts and confirm their nationality and National Insurance number.

Without this information, investors will not be able to trade shares, ETFs, investment trusts, bonds and a number of other stock market-listed securities from 3 January 2018.

I have a financial adviser – are there any changes there?

Advisers will be required to detail how the advice they offer will meet their clients’ objectives and need to display this clearly, to stamp out any poor practice.

What about Brexit?

UK firms must still comply with European regulation for now and the Financial Conduct Authority (FCA) has said that it’s business as usual. The future is uncertain. But the Financial Conduct Authority is proposing reforms on pricing, which should align with MiFID2 rules and will apply after we leave the EU.

Photo by Jack Kaminski on Unsplash

Article is accurate at date of writing.