The Mifid II rule requiring advisers to notify clients of a 10 per cent drop in their portfolio is putting some advisers off using multiple platforms.
Philip Milton, who runs PJ Milton and Co, an advice company in Devon, and who is also a discretionary fund manager, said the problem is that the rule applies to the whole portfolio, therefore advisers need to look at the assets held on all platforms and manually calculate the overall drop.
This applies to advisers who also act as discretionary fund managers and are therefore obliged to inform clients of such a drop in value.
While Mr Milton only uses one platform, he had a client who had assets spread across two platforms.
When one of the platforms notified him that the portion of the client’s portfolio had fallen by 10 per cent, he got the figure from the other platform for that slug of the client’s portfolio and then had to manually perform the calculation to see if the overall portfolio had fallen by 10 per cent.
The calculation must be done at the portfolio level, not the client level, this means that if, for example, an Isa portfolio falls 10 per cent, it is irrelevant under the rules whether the same client’s Sipp has fallen 10 per cent.
Mr Milton said: "Fortunately we major on just the one platform but we did find, yes, that we had one discretionary client who still had some residual assets with Transact and so as a consequence we had to do a manual calculation to see if in aggregate the 10 per cent breach had arisen."
The adviser said he spent Christmas Eve 2018 writing to clients to inform them of a 10 per cent drop in the value of their portfolios, only for the markets to rally shortly afterwards leading the portfolios to move above the 10 per cent drop limit.
Mike Barrett, consultant the Lang Cat said the approach taken by Mr Milton was "going above and beyond" the regulatory requirements, but "makes sense" as advisers who are also DFMs should want to give the "full picture" to clients.
According to the rules, financial advisers who do not have discretionary powers receive the information from the DFMs they use.
Mr Milton’s company acts as a discretionary investment manager so it is required to inform the clients of any drop.
Minesh Patel, an adviser at EA Solutions in London, agreed the 10 per cent drop rule made it less likely advisers would want to use multiple platforms, despite it being the stated aim of the Financial Conduct Authority to encourage advisers to use more than one platform.
In its 2014 thematic review the FCA said it was "rare" that an advice company could put all of its clients onto one platform and still be acting in the best interests of all its clients.
But Mr Milton said many smaller advice companies may not have a system to accommodate carrying out the calculations required by the rules if they placed client assets with two different discretionary fund managers or platforms.
