The Government scraps 10% portfolio letter rule – Hallelujah!

The UK government has scrapped the requirement for firms (that provide portfolio management services) to inform investors when their portfolio has fallen by 10% or more. The rule, introduced in 2018 as part of the Mifid II legislation required some firms to notify clients within 24 hours if their portfolio dropped by 10%.

During the Covid-19 pandemic, the Financial Conduct Authority (FCA) adopted a more flexible approach to the 10% (portfolio drop) rule to help firms support clients during market volatility linked to Covid-19 and during the transitional period around Brexit.

In addition to this, many firms had raised concerns about the impact of the rule on consumers as it was quite possible that the notification could cause clients to act in ways that were detrimental to their interests and the operational burden (of the rule) in a highly volatile market; i.e. panic!

As of 18th January this year, the requirement came to an end as part of chancellor Jeremy Hunt’s ‘Edinburgh reforms’, which aim to make more than 30 regulatory reforms to modify or replace retained European Union laws on financial services.

The chancellor’s reforms are intended to establish a smarter regulatory framework for the UK, aiming to be less costly, more responsive to emerging trends and to make the City of London more agile and competitive as a financial centre.

“Even though this requirement has ended, I strongly believe that firms need to continue to provide their clients, even in difficult times for investments, appropriately tailored advice that takes into account clients’ own circumstances and thoughts and the ongoing general economic, social and political situation” says Claire Davison, Independent Financial Adviser

“Firms still have to pay due regards to the interests of their clients, treat them fairly, look after their information needs and communicate information to them in a way that is clear, fair and not misleading” continues Claire “as a chartered firm, this is how we always treat our clients”.

That said, receiving several letters in a short period of time without explanation was extremely unnerving for many clients, as the perception can be cumulative (10% + 10% etc), which was not always the case. Letters were not sent when portfolios recovered in between ‘the falls’, and as we saw many times in 2022, markets ‘bounced’ up and down many times.

Managing Director, Karl Pemberton, added; “We welcome the decision to abandon the use of these letters, as we never saw a positive outcome from them. You can never replace a solid, personable, and proactive relationship with your adviser in our eyes, and the good ones will do the job of the letters with far more professionalism and reassurance”

#TheClearAdvantage

The content of this blog is for information only and must not be considered as financial advice.  We always recommend that you seek independent financial advice before making any financial decisions.

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