Advisers or advisors?

The requirements of MIFID2 are now centre screen for firms on all sides of the asset management industry.  The newspaper headlines focus on the requirement to unbundle and pay separately for research, but for LGPS Funds the categorisation by default as retail clients has caused the most angst.  Most, if not all, will wish to ‘opt up’ to professional status, so that they can continue to invest in lower fee vehicles.  


After many months and heavyweight representations to the FCA, there is now a template which they can complete to ask fund managers to opt them up, which contains both quantitative and qualitative criteria.  The latter are intended to ensure that there is sufficient expertise present that the client can understand the advice and information given by the fund manager.


As always with something done in a hurry against a deadline, in this case 3rd January 2018, there are some anomalies and unintended consequences.  The first question is who needs to opt LGPS funds up.  Managers do, of course, but what about consultants and advisers? 


In theory any firm or individual providing regulated advice (FCA definition) on specified investments should do so.  As pool subfunds will be included in this definition, and individual LGPS Funds will continue after pooling to be responsible for allocating between them, there is a clear argument to say that any entity assisting them with advice in this area needs to be FCA regulated and to opt their clients up.  However, asset allocation and general advice are not regulated activities, and the funds’ investment activities are, according to the guidance on pooling provided by the Government, explicitly restricted to asset allocation.  Which suggests that there is no need.

Despite the arguments both ways, the direction of travel is fairly clear and I would expect anyone providing specific advice on individual subfunds - as opposed to commenting on, for example, an investment consultant or pool’s choice of them - to end up requiring to be FCA regulated, and having to opt his/her client up.  Personally, I am going to rely on the wording in my contract which defines my duties as providing ‘general’ advice.


To confuse matters further, what the industry knows as the consultant is the adviser from the template’s perspective and vice versa.  This is because it refers to the entity advising the firm on its Investment Strategy Statement (ie. ‘advising’ as per the LGPS regulations and not in the FCA meaning of the word).  Where both investment consultant and independent adviser are present, that will be the former, so the latter has to be put down as consultant.


Then there are the qualitative criteria, such as longevity of tenure.  An Officer at one of my clients has 38 years in post and we are joking that MIFID2’s requirements mean he will not be allowed to retire because they need to keep the average years of experience up.  There’s also the form’s usage of the American ‘advisor’, whereas my LGPS contracts use the English form ‘adviser’.  


I could go on and on, but I have to go and feed my dog her morning meal.  I must be careful not to get the MIFID2 ‘opt up’ process muddled up with what I normally give her!