One man’s poison is another man’s meat


I think we have all established that 2017 is going to be a busy year, with preparation for GDPR, SMCR and MiFID II. Whilst these projects will have various work streams ensuring that no aspect is missed, there are still some significant business decisions that have to be made before the projects can move forward. In isolation a number of aspects may seem relatively easy to cope with, but the reality of their impact may be enormous. Here’s an example of some possible unintentional consequences of change which may have a wider impact with our institutional colleagues than we might first imagine.

In isolation a number of aspects may seem relatively easy to cope with, but the reality of their impact may be enormous

CP16/29 MiFID II implementation, (Consultation Paper III!), issued in September 2016, details of the suggested changes to the Conduct of Business rules were provided. Client categorisation is covered as part of this and sets out some very cogent reasons why clients of various levels of experience, knowledge and expertise should be catered for by recalibrating the criteria required to be categorised as a non retail client. It highlights local authorities as being able to opt up to professional client status (elective professional clients) which may not always be appropriate. Currently there is a qualitative and quantitative test required, this would remain but the criteria for qualification will change;

Qualitative test – firms must still undertake an adequate assessment of expertise, experience and knowledge of the client to give reasonable assurance in light of the transactions or service being offered, that the client is capable of making his own investment decisions.

Quantitative test – the client must satisfy a) and either b) or c)

  1. a) Have a portfolio that exceeds £15m (includes cash deposits and financial instruments)
  2. b) Carried out transactions, in significant size at an average frequency of 10 per quarter over previous 4 quarters
  3. c) Client works or has worked in the financial sector for at least 1 year in a professional position

Having seen a couple of responses to the CP, on the face of it retail wealth and investment managers are pretty un-phased by this with the exception of those who choose to “opt up” individual Hedge Fund Managers or very Senior financial services staff on who’s behalf they manage money, based on reduced suitability requirements. They will need to think about the impact.

My observation is the impact on segregated portfolios managed by the large fund and asset management houses.  Admitted it’s been a long time since I dealt with RFPs for segregated portfolios but I remember there being a lot sub £15m. In many instances neither the firm or fund managers themselves are permitted or qualified to advise retail clients.

Institutional Fund and Asset Management houses should be ring fencing their clients who are elective professional clients and considering how they will apply the tests as detailed in the CP as a part of their project plans. Having spoken to a couple of firms caught by this, work is underway and in some instances appears to be causing a larger problem than you might have at first imagined.

As alluded to in the title of this article, could this in fact be an opportunity for retail investment managers? Should they be trying to find the clients who can no longer be catered for through segregated portfolio management and offer them their own discretionary service?


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Julia Kirkland, Head of FSTP Limited FSTP is now part of ZISHI and OSTC Group

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