Long-term investing has arguably never been more important for individuals – a fact reflected in the increasing levels of regulation around the world.

As government support for old age provision fades, the responsibility is being pushed on to individuals. In many cases, these investors do not understand their choices or have been fed bad information that, in Europe at least, has led to a series of mis-selling scandals.

Hence, the heightened interest of regulators. Among the biggest changes are: the Pension Protection Act, in the US; in Europe, the Markets In Financial Instruments Directive (Mifid); and in the UK, regulators are consulting on sweeping changes to the structure of the industry.

Mifid is the most current change, having been finally introduced at the beginning of this month. The directive, the latest in a far wider series of changes designed to create a single European market, aims to harmonise and improve investor protection across the 27-member European Union. It is also an effort to increase and level investment opportunities between countries by increasing transparency and opening the industry to greater cross-border competition.

For long-term investing, it is a mixed bag. Changes in investor protection rules have put strains on the industry, but it is questionable whether investors themselves will really notice any immediate change.

“Mifid is very much about trading in financial instruments and the average consumer is not going to see or understand that,” says Andrew Veal of Navigant, the consultancy. “It might contribute to lowering product costs and perhaps lead to more offerings, but I don’t see an enormous direct impact.” In practical terms, so far the impact has been a vast “re-papering” exercise.

“The real impact is loads of paper flying round the City as everyone redoes their terms of business,” explains one London-based senior banking executive. “It ranges from 20 pages of legalese from big firms to two pages from regional stockbrokers which essentially says, ‘Don’t worry, we’ll do our best, please sign here’.”

Classifications have changed, with investors now either “retail,” “professional” or “eligible counterparty”, with the highest protection given to retail.

Advisers can tag clients with different classifications depending on the product involved, but there are concerns that during the settling in of the new rules, more sophisticated retail investors could find it trickier to prove they have the necessary knowledge to invest in some complex products.

In the UK, the long-term industry, fatigued from Mifid, is nevertheless gearing up for more changes with the Retail Distribution Review, an ongoing consultation led by the Financial Services Authority. In June 2007, the FSA published a discussion paper with suggestions developed by the industry at the regulator’s behest, and next year it will collate the feedback and is expected develop more detailed proposals.

Sir Callum McCarthy, chairman of the FSA, has said that retail investing is “the most difficult task” facing the regulator. In an interview with the FT this year, he explained: “For a market to work, you need capable, competent customers, you need information that is readily accessible without an excessive search cost, and you need people who are behaving reasonably as producers of financial services. It is arguable that in this country, we have grave gaps in each of those areas.”

At the heart of this discussion rests a nagging problem for all jurisdictions: the basic asymmetry

between the ability to afford good advice and the

need for it.

“The very wealthy have always been able to get good advice and they’re the ones who need it least,” says Mr Veal. “The mass affluent and the lower end don’t have that and this is a challenge for regulators – making the lower end cheaper to deliver.”

One of the problems is the infrequency of people looking for advice on long-term investing, which puts a strain on advice models. “Having someone to talk to costs money. There is a need for a simple self-service type of offering for the lower end and more simple planning options for the middle market,” adds Mr Veal.

In the US, the Pension Protection Act was designed in part to meet some of these challenges by allowing companies to automatically enroll their employees in a 401(k) plan and offer them some advice on how to invest. The aim is to increase coverage of the US working population from 50 per cent with plans to nearer 80 per cent by using the human inclination towards inertia to mean people have to actively opt out of the long-term savings, rather than make the choice to opt in.

It was also a response to an advice vacuum, created when portfolio managers and distributors were barred from offering advice, leaving investors to their own decisions or facing pressure to follow particular paths, such as investing in company stock.

The new regulatory regimes

Markets in Financial

Instruments Directive

Mifid came into force on November 1 and is the latest step in the EU’s long-cherished goal of creating a single, integrated market. To do this, the directive standardises much financial services regulation across the 27-country region with the aim of promoting liquidity and increasing investor protection by introducing greater transparency and competition.

The main changes are freedom to execute equity trades away from traditional exchanges, greater ability to operate across borders and far better pre- and post-trade transparency, with brokers now beholden to prove that they achieved the best deal for their clients.

Although the word “sweeping” tends to be used to describe the legislation, the immediate impact is rather patchier since a number of states were not ready on time, including Spain, the Netherlands and Poland. Of the laggards, Spain, as the fifth largest EU economy and fourth largest equity market, is the most important.

The key financial markets – London, Paris and Frankfurt – were, however, prepared, meaning the effects of Mifid will likely creep into effect as they seep out from these centres.

The main winners and losers are not yet clear, but there is likely a “first mover” advantage for those who were ready on time. This is likely to mean benefits for the biggest centres and businesses to the probable detriment of small firms and bourses who could struggle against the added competition.

Pension Protection Act

The US’s Pension Protection Act, which was signed in law in August last year, contains a series of far-reaching provisions.

The main impact is to require companies with underfunded pension plans to pay higher premiums to the Pension Benefit Guaranty Corporation, which insures scheme benefits. It also forces companies to provide extra funding to their schemes if they terminate the plans.

The other main thrust is that it allows employers to automatically enrol employees into 401(k) retirement plans by switching the onus on to staffers to opt out, unlike the current system where they have to choose to opt in. Although companies do not have to take this option, the expectation is that many will, fulfilling the objective of extending scheme coverage to some four-fifths of the US working population from the current 50 per cent mark.

Employees will also benefit because the new regime will give them more control over what their plan is invested in, and allow companies to provide them with some advice.