EU cross-border advice for expats

Regulations post Brexit in EU

Who is it most appropriate for: Advisers seeking to understand the EU rules for providing advice

One ‘Adviser’, Multiple Regulators and the law

When looking at rules post Brexit there is a lot of mis-understanding as to what is and what is not permitted, and what rules are meant to be followed. EU cross-border advice for expats appears to have got more complicated...Read on.

Since Brexit, providers and advisers often discuss the loss of passporting for UK based advisers into the EU or for EU based advisers into the UK. The common wisdom is UK advisers should look jealously across at advisers based in the European Union who can advise across borders.

Should they though, and is there a solution?

We have previously written about Brexit and British pensions and MiFID requirements for advice into Europe but how does this all affect the mobile international worker and his/her adviser?
The largest misconceptions lie around the fact that some networks, providers and firms in Europe think that somehow European “rules” apply to UK registered advisers. They do not, as MiFID and IDD are directives that countries apply under their laws to advisers and clients living in their country.

It may seem obvious as I write this, but a client living in France has no recourse to the Spanish regulator for investment advice provided by an IDD adviser. There is no European law, only a common framework that, in this instance, the French regulator would be responsible for imposing.

If we understand that EU directives no longer apply to UK based advisers (other than where adopted by the FCA) and that there is no such thing as European law, what can a UK adviser do to make themselves “legitimate” within the EU if they want to physically go there?
If advisers do not want to work in the EU then, unless a particular country has banned at arm’s length advising, the determining factors for UK advisers are their PII cover and what their compliance permits.

However, if they wish to give advice face to face or to market in the EU, then they need to follow the rules of the country that the Client lives in linked to that regulators product approvals. This is not specific MiFID or IDD rules, as countries have their own regulatory setups with additional rules.

Given that the expatriate market is largely currently based on advising those who are British, or who have lived and worked in the UK*, it is not uncommon for clients to cross regulatory borders and still wish to retain their financial advisers. For those with a MiFID licence, it is likely that the crossing of EU borders is not going to cause too much of an issue if their advisers have access to other advisers within the same organisation with specific EU qualifications and expertise in the new location.

Our own empirical evidence, and from those that have joined the OpesFidelio network recently, is that a lot of companies that offer cross-border services are relying on CII or CISI qualifications as the basis of their advisers’ expertise. Make no mistake, many of these qualifications may not be recognised as sufficient or relevant, however there is a way to obtain recognition.

Further, while many investors do take an interest in the investment recommendation and decisions made by their advisers, they do not always want to have to give permission for each change (buy/sell) and fill in fund switch sheets- with all the time that takes up for both client and adviser. For those firms that do not have MiFID, or those that do but do not have a DFM licence, the solution is often to nominate a separate DFM. While this may seem like a good solution for many advisers, we are not so sure it is always the best solution for every client.

Why? Well, a DFM on its own will not provide any financial planning advice and we have seen, particularly with pension planning, that separating the adviser and the DFM can lead to a gap in financial planning that could become costly for the client.
Likewise, Brexit has caused issues in both directions for advice firms that do not have a proper regulatory boot in both camps. An EU adviser is similarly disadvantaged with regard to lack of recognition in the UK, and could end up being frozen out by UK regulated providers; this leads to clients not being able to take advice from an EU based adviser. The common result is the EU adviser recommends a transfer irrespective of best outcomes for clients, this is merely about advisers taking control and get paid from a new product provider.
Advisers on both sides (the EU and the UK) with clients that move from one jurisdiction to another will often wish to continue to work with these clients, particularly in the areas of pensions and IHT for example.

So, what is the solution? OpesFidelio

OpesFidelio can now offer a solution to these UK advisers that allow them to continue to advise, while meeting the regulatory obligations, in the EU whatever the country and irrespective of IDD, MiFID or pensions-based business. Not only that, if and when the client returns to the UK, their FCA permissions take over.

For the EU adviser, advising in the UK is an absolute no – no, and there are specific FCA rules about this matter that also cover such things as the legal requirements to class yourself as a regulated adviser or to even live in the UK for more than 30 days. Is there a solution for this as well?

While the EU adviser cannot advise in the UK unless he/she meets the regulatory requirements and is registered with a regulated firm in the UK, OpesFidelio can provide an ongoing service for the client via their UK advisers- who will keep the original adviser informed.

And, given that the ex-EU client may have non-UK products and intend to return to the EU in the future, mutual cooperation between the UK and EU adviser could be important to the client. Alternatively, one adviser can act as both with OpesFidelio.

This form of dual authorisation allows UK based advisers to operate and advise in the EU without constraint and removes the risk of overstepping a law in a particular country. As for EU directives, well that is not really something that a UK adviser should be particularly concerned about moving forward. They should be only worried about their own FCA regulation, and the law in the country that the client lives in.

*Since receiving our Discretionary Investment Management licence for the EU, we are now able to offer competitively priced solutions to any resident in the EU and, of course, the UK.

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