Advisers can continue to sell complex products to 'intermediate' clients after MiFID is introduced b...
Advisers can continue to sell complex products to 'intermediate' clients after MiFID is introduced because of a loophole created by the FSA.
Law firm CMS Cameron McKenna said the latest proposals from the FSA allow individuals classified as 'intermediate' customers to be 'grandfathered' into the 'professional client' bracket of MifID without having to meet any of the new criteria.
Intermediate customers include individuals with enough expertise - measured by net worth and size of portfolio, for example - to be afforded less protection than 'private' customers have.
The FSA's paper states: "In our preliminary view, where a firm has correctly classified and currently treats an existing client as an intermediate customer, this would be an 'adequate assessment of the experience, knowledge and expertise' of the client for the purposes of Article 71(6), permitting firms to grandfather intermediate customers over to professional clients."
Without this proposal, individuals would only fall into the professional client category if they satisfy two out of three criteria: have a cash and investment portfolio of at least E500,000; carry out at least 40 trades a year; and/or have worked in the financial services industry for at least one year.
This means riskier financial products would be off-limits to those not satisfying the criteria and would place them into the lower-tier bracket of 'retail client'.
Ash Saluja, partner at CMS Cameron McKenna, said the latest FSA proposals mean individuals classified as intermediate customers pre-Mifid will automatically become professional clients post-Mifid, despite they fact they may not meet at least two of the criteria.
As a result, firms can continue to sell them complex financial products and Saluja predicts there will be a marketing scramble to take advantage of the loophole.
Our weekly heads-up for advisers
Former Neptune manager
27,000 transfers looked at
Consider risk capacity