The Markets in Financial Instruments Directive (MIFID) is the framework of the European Union (EU) legislation which regulates, among others, financial advisers providing investment and pensions advice in the UK.

Since 3 January 2018, MIFID II has been in force, with the FCA having updated its regulatory handbooks in line with the new directive.

Below is a brief, non-exhaustive look at the key changes in MIFID II and how Dynamic Planner can support advice firms in complying with the new regulatory requirements. We can begin by looking at a number of the MIFID II requirements and how they can be met with Dynamic Planner.

Assessment of Suitability and Appropriateness and Reporting to Clients (Article 25)

While there are no significant changes from the current rules under the FCA COBS section 9.2, MIFID II re-iterates that firms must obtain information from the client such as:

• The client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service
• That person’s financial situation including their ability to bear losses
• And that person’s investment objectives including risk tolerance

We can look at now how Dynamic Planner’s risk profile process provides you with a framework for evidencing investment suitability.

Suitability Reports

MIFID II reinforces the need to provide a suitability report to advised clients specifying how the advice given meets the client’s circumstances and objectives. Importantly, MIFID II mandates that this report is provided to the client ahead of the transaction being concluded.

We will look at how the reports generated by Dynamic Planner can provide a robust audit in a client-friendly and accessible way.

Client Servicing

Many firms now provide an ongoing review service to clients, charging an ongoing fee for the provision of continuous servicing and monitoring of the client’s portfolio. MIFID II mandates that where ongoing suitability is being monitored, it must be done at least on an annual basis.

We will now look at the features of Dynamic Planner to help you provide an efficient suitability review process.

Assessment of Suitability and Appropriateness and Reporting to Clients

The directive re-enforces many familiar elements of the current rules on assessing suitability, as documented in the FCA COBs section 9.

Specifically, MIFID II requires the following information in Article 25, which addresses suitability and client reporting:

“When providing investment advice or portfolio management the investment firm shall obtain the necessary information regarding the client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service, that person’s financial situation including his ability to bear losses, and his investment objectives including his risk tolerance, so as to enable the investment firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him and, in particular, are in accordance with his risk tolerance and ability to bear losses.” MIFID II, Article 25 .2

Evidencing Suitability Using Dynamic Planner

Breaking down the requirement into its constituent parts, we can look at how Dynamic Planner can support advisers in evidencing suitability as part of the advice process.

The full ‘MIFID II with Dynamic Planner’ paper – which is available to download – includes complete information on ‘Assessment of Suitability and Appropriateness and Reporting to Clients’ alongside sections focusing on ‘Suitability Reports’, ‘Providing an Ongoing Suitability Assessment’, a convenient ‘Dynamic Planner MIFID II Checklist’ and ‘Other Notable Changes’