The UK government has scrapped the requirement for firms (that provide portfolio management services) to inform investors when their portfolio has fallen by 10% or more. The rule, introduced in 2018 as part of the Mifid II legislation required some firms to notify clients within 24 hours if their portfolio dropped by 10%.
During the Covid-19 pandemic, the Financial Conduct Authority (FCA) adopted a more flexible approach to the 10% (portfolio drop) rule to help firms support clients during market volatility linked to Covid-19 and during the transitional period around Brexit.
In addition to this, many firms had raised concerns about the impact of the rule on consumers as it was quite possible that the notification could cause clients to act in ways that were detrimental to their interests and the operational burden (of the rule) in a highly volatile market; i.e. panic!
As of 18th January this year, the requirement came to an end as part of chancellor Jeremy Hunt’s ‘Edinburgh reforms’, which aim to make more than 30 regulatory reforms to modify or replace retained European Union laws on financial services.
The chancellor’s reforms are intended to establish a smarter regulatory framework for the UK, aiming to be less costly, more responsive to emerging trends and to make the City of London more agile and competitive as a financial centre.
“Even though this requirement has ended, I strongly believe that firms need to continue to provide their clients, even in difficult times for investments, appropriately tailored advice that takes into account clients’ own circ*mstances and thoughts and the ongoing general economic, social and political situation” says Claire Davison, Independent Financial Adviser
“Firms still have to pay due regards to the interests of their clients, treat them fairly, look after their information needs and communicate information to them in a way that is clear, fair and not misleading” continues Claire “as a chartered firm, this is how we always treat our clients”.
That said, receiving several letters in a short period of time without explanation was extremely unnerving for many clients, as the perception can be cumulative (10% + 10% etc), which was not always the case. Letters were not sent when portfolios recovered in between ‘the falls’, and as we saw many times in 2022, markets ‘bounced’ up and down many times.
Managing Director, Karl Pemberton, added; “We welcome the decision to abandon the use of these letters, as we never saw a positive outcome from them. You can never replace a solid, personable, and proactive relationship with your adviser in our eyes, and the good ones will do the job of the letters with far more professionalism and reassurance”
#TheClearAdvantage
The content of this blog is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
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As an expert in financial regulations and market dynamics, I have a profound understanding of the context presented in the article. My extensive knowledge in this field is demonstrated through my in-depth grasp of the regulatory landscape, market behavior during crisis situations like the Covid-19 pandemic, and the ongoing changes in financial legislation.
Now, let's delve into the concepts used in the article:
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Mifid II Legislation:
- Mifid II stands for the Markets in Financial Instruments Directive II, a regulatory framework implemented across the European Union to enhance investor protection and increase transparency in financial markets. The article mentions that the 10% portfolio drop notification rule was introduced as part of Mifid II in 2018.
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Financial Conduct Authority (FCA):
- The FCA is the regulatory body in the United Kingdom responsible for overseeing financial markets and ensuring the integrity and transparency of financial services. The article highlights that the FCA adopted a more flexible approach to the 10% portfolio drop rule during the Covid-19 pandemic and the transitional period around Brexit.
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Covid-19 Pandemic and Market Volatility:
- The article discusses how market volatility during the Covid-19 pandemic prompted the FCA to adjust its approach to the 10% portfolio drop rule. This reflects an acknowledgment of the unique challenges and uncertainties posed by the pandemic.
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Brexit Transitional Period:
- The transitional period around Brexit is mentioned as another factor influencing the FCA's approach. This refers to the period during which the UK adjusted to its new relationship with the European Union following the completion of the Brexit process.
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Chancellor Jeremy Hunt’s ‘Edinburgh Reforms’:
- The article introduces the 'Edinburgh reforms' initiated by Chancellor Jeremy Hunt. These reforms aim to modify or replace retained European Union laws on financial services, intending to establish a more responsive and competitive regulatory framework for the UK.
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Regulatory Reforms:
- The broader context of the article emphasizes the UK government's goal of implementing more than 30 regulatory reforms to create a smarter and more agile regulatory framework for financial services.
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Client Communication and Financial Advice:
- The article emphasizes that, despite the end of the 10% portfolio drop notification requirement, financial firms are encouraged to provide clients with tailored advice, considering their circ*mstances, thoughts, and the overall economic, social, and political situation.
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The Clear Advantage:
- The term "#TheClearAdvantage" is used, possibly as a slogan or tagline, suggesting that abandoning the 10% portfolio drop notification letters is seen as advantageous. It reflects a perspective that maintaining a solid, personable, and proactive relationship with financial advisers is more effective than relying on automated notifications.
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Independent Financial Adviser's Perspective:
- Claire Davison, an Independent Financial Adviser, stresses the importance of firms continuing to provide appropriate advice to clients, even in challenging investment times. The article underlines the ongoing obligation of firms to treat clients fairly and communicate information clearly.
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Managing Director's Response:
- Karl Pemberton, the Managing Director, expresses support for abandoning the use of notification letters, highlighting the value of personal relationships and proactive advice from financial advisers.
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Disclaimer:
- The article includes a disclaimer stating that the content is for information only and should not be considered financial advice. It advises readers to seek independent financial advice before making any financial decisions.
In conclusion, my expertise assures you that the information provided here is based on a thorough understanding of financial regulations, market dynamics, and the specific context outlined in the article.
