MIFID 2 is finally here and it will have a drastic impact on how European and UK registered brokers can market. Brokers that were reliant on IB’s for marketing to EU and UK clients are going to have issues because the new rules make working with IB’s a bit more complex.
This series of articles will address how the new rules will affect brokers working with IB’s and what brokers can do to modify their marketing strategies in light of these new rules. This article will also discuss the MIFID 2 rule change as it relates to IB’s as well as its pros and cons and some basic suggestions.
Moreover we will touch on the different types of affiliates that exist and how brokers can or can’t work with them based on the new rules.
MIFID 2 changing the way brokers get clients
There are three key components of the MIFID 2 rules that affect brokers working with IB’s:
- All IB’s that bring European clients to brokers have to be MIFID or FCA registered as well.
- In order to qualify to receive an IB payment, the IB must provide an on-going service to all European clients that they bring to a broker.
- The amount that the IB makes will be disclosed to clients.
Getting FCA and MIFID registered is not very easy for brokers and requires a bit of work. Plus it will cost at least $20,000 in legal fees. Additionally there are yearly audits and regulatory requirements to follow. If that’s not enough, the IB must qualify and receive formal approval from MIFID or FCA to prove their ongoing value added service.
All this is especially challenging for IB’s that are not located in Europe. Also there are IB’s whose specialty is lead generation and marketing. This process is really not an ‘ongoing service’, and IB’s will have a hard time proving that they are providing an ongoing service.
How this will affect brokers
These new rules will certainly have an impact on brokers that are reliant on IB’s to bring EU and UK clients. However, there are some pluses to the rule change and there are some minuses. There are certainly some adjustments that brokers will need to make.
Here are a few benefits of the rule and ways that brokers can take advantage of the rule change.
Because IB’s will be regulated and will have to do their own compliance and will be more careful in their marketing efforts, thus mitigating the risks for brokers. Instead of bringing on thousands of IB’s in order to weed out a few good ones, brokers will also have some reassurance when a registered IB comes through – they are more serious and likely to deliver.
Get rid of stale IB’s
Brokers can use this rule change as an excuse to terminate IB’s that are not actively producing. When IB’s had to become regulated in the US, many decided to leave the business and just walk away. Brokers can take advantage of this and clean up their IB programs.
But what if brokers want to work with IB’s and generate new business? Some brokers like IG or Plus500 have huge marketing budgets and marketing departments. But many brokers are reliant on word of mouth, referrals and IB’s.
If you are a semi-successful broker it goes without saying that that you are consistently being approached with new business opportunities. Some are duds but many have merit and can become great sources of revenue. It’s the 80-20 rule (where 80 percent of your revenue can be attributed to 20 percent of the customers).
Now especially with the popularity of cryptocurrencies, marketers are getting affordable leads and prospects at astounding rates. By making relationships with crypto info product marketers smart brokers can get tremendous market share.
Just a handful of large affiliates can really make a brokerage. And before this rule change, the IB agreement was a great way that brokers could work with affiliates. Now this is going to be a lot more challenging.
Adjustments based on new rule
As with any industry change, those that get ahead of it can gain market share while those that ignore it can get hurt. Brokers who rely heavily on affiliate business may be able keep their momentum going with some key adjustments and even use the rule to their advantage to GAIN market share.
Here is a quick list of adjustments that you can make and questions that you should ask in light of the new rules. Please keep in mind that with any regulatory related stuff it is a very good idea to consult your legal counsel before doing anything.
- Make sure that you are not overusing the IB agreement. Are all your affiliates true IB’s. Are some just lead brokers? Are some there more in a consultative role? Are some only dealing with sophisticated ECP type of clients?
- Create and optimize a proper lead capture and conversion funnel. There are cost effective ways to accumulate leads and you can automatically convert them into accounts without the involvement of phone sales. Nekstream has connections with some of the best Internet marketers in the financial space. We can help you improve your conversion and help you accumulate leads efficiently.
- Consider working with a proper registered master IB that you may be able to send certain marketing affiliates to. Your relationship will be with the master IB and he can see if he can deal with the affiliates that you may not want to take on directly.
We will be dissecting the above recommendations in much greater details in subsequent articles in this series. The next article will talk about ways that you can create a marketing process that will make you less reliant on IB’s.
This includes how you can accumulate leads cost effectively and set up, while also optimizing a conversion funnel that will allow you to convert the leads to accounts automatically without calling them. Using this new approach you will be able to work with the booming info product marketer industry to gain tremendous market share.
Disclaimer: Please keep in mind that we are a consulting firm and these are some creative ideas that we have of the adjustments to your marketing strategy that you can make in light of the new rules. We are NOT lawyers or compliance professionals. So if you like any of our ideas PLEASE check with your legal counsel or compliance officers before acting on any of them.
Alex Nekritin is the Managing Director of Nekstream Global, a liquidity and technology consulting company helping brokers, HFT traders and money managers to find proper liquidity and tools for their ventures. Alex has over 10 years of experience in the financial space. For any inquiries or questions, email us at firstname.lastname@example.org