MiFID II: retail investment advice firms

A summary of some of the key changes that will have an affect on retail investment advice firms. This page was published in 2018.


The scope of MiFID II is broad. Its requirements apply to:

  • firms providing investment services (such as investment advice) to clients relating to MiFID financial instruments (such as shares, bonds, units in collective investment schemes, and derivatives). Some requirements also apply to firms when they sell, or advise clients in relation to, structured deposits
  • venues where financial instruments are traded

Many financial advisers (who do not hold client assets or money and do not do business outside of the UK) are currently classified as exempt from MiFID. These advisers are known as ‘Article 3 firms’ and are referred to as ‘MiFID optional exemption firms’ in our updated rules. MiFID II has the same exemption, but Article 3 firms are now subject to a number of requirements derived from MiFID II including a range of authorisations, conduct of business and organisational requirements - but not the whole range of requirements to which MiFID investment firms are subject. The requirements summarised in this webpage are among those which are applicable to Article 3 firms.

For a comprehensive view of the MiFID II changes to the conduct of business and product governance rules, please refer to our MiFID II policy statement: PS17/14, Markets in Financial Instruments Directive II Implementation – Policy Statement II. For further background to the changes set out in that paper, you may also find it helpful to refer to our MiFID II consultation paper CP16/29. The full suite of FCA policy publications relating to MiFID II transposition can be found here. Note that the European Securities and Markets Authority (ESMA) also provide Q&A on various MiFID II investor protection topics.

Disclosure of costs and charges

Advisers need to disclose all costs and charges that relate to their retail recommendations. Indications of expected (ex ante) costs and charges need to be provided pre-sale, and details of the actual costs and charges need to be provided post-sale (ex post), where applicable on at least an annual basis. These need to be aggregated, and expressed both as a cash amount and as a percentage.

In broad terms, therefore, the following must be disclosed: all one-off and ongoing charges, and transaction costs, associated with the financial instrument; all one-off and ongoing charges, and transaction costs, associated with the investment service; all third party payments received, and the total combined costs of these three categories. These disclosures must also be accompanied by an illustration that shows the cumulative effect of the overall costs and charges on the return.

The RDR rules on adviser charging continue to apply alongside MiFID’s costs and charges requirements. In particular, firms are reminded they should confirm the details of any ongoing services provided alongside disclosure of the relevant charges as set out in COBS 6.1A.24 R and 6.1A.26 G (5).

Product governance

We currently provide domestic guidance on the Responsibilities of Product Providers and Distributors – RPPDMiFID II introduces new rules on product governance. These rules apply to both manufacturers and distributors. There is a lot of detail and more information can be found in CP16/29 and PS17/14. The new MiFID II product governance requirements are included in the new Product Intervention and Product Governance sourcebook (PROD) that took effect from 3 January 2018. Generally, manufacturers are required to assess their target markets, to ensure Board-level accountability for the process, and to monitor existing products to check they function as expected.

Advisers (as distributors) will need to consider, amongst other things, the rules around information sharing between distributors and manufacturers. For example, advisers will need to gather information from manufacturers on the products on which they intend to advise; and they should consider how best to feed information back to manufacturers on how the product is meeting the needs of the target market in order to help with the manufacturer’s regular product reviews. These information flows may be made more effective by contractual provisions between advisers and manufacturers covering the exchange of relevant information.

Describing advice services

We have adopted the MiFID II concept of independent investment advice. This means that firms describing their advice as independent must assess a sufficient range of relevant products that are sufficiently diverse in terms of type and issuer to ensure that the client’s investment objectives can be suitably met. For firms providing investment advice to retail clients in the UK, this will generally mean being in a position to advise on all types of financial instruments, structured deposits and other retail investment products.

Structured deposits

Firms that wish to carry out certain regulated activities, such as advising on or arranging investments, in relation to structured deposits will need to add this new investment type to their permissions. If you have not previously notified us to add structured deposits to your permissions, then you are not permitted to carry on these regulated activities in relation to structured deposits. More information on how to add structured deposits to your permissions can be found on our webpages on structured deposits.


There are a number of changes to the suitability rules for advice on MiFID financial instruments and structured deposits provided by MiFID investment firms and Article 3 firms. One of the changes is a clarification that a recommendation to hold a MiFID financial instrument is subject to the suitability rules and will require a suitability report. Another change is that where firms are offering a periodic assessment of the suitability of their advice, this assessment must be carried out at least annually.

Firms must also ensure they assess whether equivalent investments or services, including less complex and those with lower costs, can meet their client needs.

Recording conversations

All MiFID firms must record all telephone, and keep a copy of electronic, conversations with a client that relate to the reception, transmission or execution of an order, including those that are intended to result in transactions. Article 3 retail financial advisers have the option of either recording the telephone conversation or making a contemporaneous note.


MiFID II introduces new inducement bans for firms providing independent investment advice and portfolio management services. The FCA has implemented these new bans alongside, and in such a way as to broadly reflect the application of, the existing RDR adviser charging rules. This means, for example, that for firms providing advice to retail clients in the UK, the new ban applies both in respect of the provision of independent and non-independent (restricted) advice, and in such a way as to prevent rebating. Firms to which the new MiFID II inducement bans apply may only accept certain minor non-monetary benefits. These may include ‘hospitality of a reasonable de minimis value’ (provided that certain conditions are met). However, we note that the list of potentially acceptable minor non-monetary benefits does not include ‘sporting and cultural events’.

See also our pages on legal entity identifiers.

Page updates

: Editorial amendment Page layout updated