MiFIDisation of insurance-based investment products MiFID II will be effective as of January 2018. The Insurance Distribution Directive (IDD) has been adopted by the Council on 14 December 2015 and will expand relevant MiFID II provisions on competence, advice, remuneration and inducements to the insurance industry. The IDD covers all insurance distributors including insurance undertakings. The directive aims at a level playing field between all distributors and stronger investor protection, in particular with regard to life insurance products with an investment element. This drives the wealth planning industry to new business models.
Change of mind
The IDD, like the MiFID II, is nothing but a next step in an ongoing process of increasing product governance, greater transparency and stronger investor protection. The means to these ends are conduct of business and organisational requirements, appropriateness tests, adviser independence, remuneration requirements, revised inducement standards, cost and charges disclosure. The IDD is a minimum harmonising directive and member states will be able to gold plate it by adding additional requirements. Why wait for the inevitable and delay compliance?
Conflict of interest
The IDD sets out requirements for identifying, managing and mitigating conflict of interests with the client particularly regarding remuneration that is defined as “any commission, fee, charge or other payment, including an economic benefit of any kind or any financial or non-financial advantage or incentive offered or given in respect of insurance distribution activities.” Remuneration policies of insurance distributors may not impair their ability to act in the best interests of the clients and remuneration based on sales targets should not provide an incentive to recommend particular products. The wealth planning industry is trying to cope with these regulatory requirements in several ways. But why take unrewarded risks?
Distribution channels
There are various channels to distribute insurance-based investment products. The client can be approached by a direct sales employee of an insurance undertaking. Or he
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can be approached by a tied insurance agent that is under a contractual obligation to conduct business exclusively with one or more insurance undertakings. He can be represented by an insurance broker that is tied to a banking group. Or he can be represented by a truly independent insurance broker. Questions to ask are: Is the insurance distributor competent for the case at hand? Will the client be sold an insurance contract that suits his needs? Is he informed whether the advice is independent or not? Is there a conflict of interest between the distributor’s offer and his remuneration? Will the client get the best possible terms and conditions? Is there capacity and commitment in place to follow up properly and consistently?
Trusted advisory role
Outsourcing the distribution to a truly independent intermediary is the best way for the wealth manager to mitigate reputational, intermediation or other regulatory risks. Gatsby & White is an independent, privately owned firm that values its integrity and freedom to offer impartial advice. As trusted advisors, Gatsby & White guides the clients’ wealth planning according to the family office model: it introduces the most suitable providers, co-ordinates the various professionals involved, supervises the implementation of the strategy as a whole and conducts periodic suitability reviews on an ongoing basis.
New business model
When Gatsby & White is mandated by the client, the legal and regulatory framework can eliminate potential distribution risk issues and remuneration conflicts for the wealth man-
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