Fulfilling the letter and spirit of MiFID

The implementation of MiFID, the Markets in Financial Instruments Directive, into German law has brought significant changes to the market and new obligations to market participants to ensure that investor interests are protected. These include, in particular, new provisions for post-trade transparency, implemented into section 31 of the Securities Trading Act (Wertpapierhandelsgesetz) and section 31 of the Exchange Act (Börsengesetz).

Although much in the news headlines, and despite its importance, MiFID remains poorly understood by investors. This is indeed unfortunate because it is the interests of investors which MiFID expressly aims to serve, helping them to better understand and compare investment opportunities and investment providers in what has until now been a "financial jungle".

Do you, as an investor, actually know what your bank currently earns on the commissions and other fees (particularly “hidden” fees) which it charges?

Are you aware that your bank may earn other income, not only on its securities positions but also on the orders which it handles on your behalf, particularly when acting as dealer?

If you are like most investors, you do not know – nor, until now, have you even in a position to make any true and fair comparison of prices and services being offered to you from many different kinds of investment providers.

The introduction of MiFID has brought transparency to the way in which orders are executed and to the disclosure of prices. Commissions must now be stated openly, thus providing a new and much fairer relationship between investor and investment provider.

The new MiFID rules touch upon a wide range of areas in securities and investment, of which the most important are as follows:

  • Trade transparency
  • Best execution
  • Rules of conduct
  • Burden of proof (which is now shifted to the bank, i.e. in favour of the investor)
  • Conflicts of interest (which must now be specified, along with measures to protect investors)
  • Investment advice
  • Classification of clients


Because of its orientation around long-term client relationships, SCHNIGGE already fulfilled the spirit – and to a large extent, the letter – of MiFID long before these regulations were introduced. Nevertheless, SCHNIGGE has, as is now required, formalised these principles into a Best Execution Policy.

You may read our Best Execution Policy for retail brokerage clients by clicking here.

In today’s world, we also deeply concerned about investors becoming the victims of dubious or even fraudulent investment schemes. Despite more stringent legal requirements regarding investment information, investors continue to be drawn to questionable investments which promise impossible yields. All too often, this money somehow disappears, leaving investors with a total loss of their investment capital.

SCHNIGGE therefore urges all investors to inform themselves about risks and to exercise healthy scepticism about any investment schemes that seem too good to be true.

We advise you to heed this advice as a protection against fraud by dubious financial advisors who attempt to sell questionable financial products.

 

One more piece of advice to investors: Beware of strangers peddling investment schemes over the phone. Don’t even get into a discussion with them! These salespeople, often located in call centres, are trained in psychology and know how to manipulate you into buying products that, on any rational basis, are not worth the paper which they are printed on. Again, if it sounds too good to be true – if it sounds like a magical solution to your most pressing personal problem – it probably is! And even if the investments or financial products which they are pushing on you are legitimate, telephone salespeople are invariably pushing these because they are loaded with excessive fees.

 

In sum, our advice to you, the investor, is to choose your investments and your investment partners carefully. We want you to protect your assets as we would protect our own.