Are you and your clients entirely clear about what they are paying when it comes to investment?
It had been hoped that Mifid II would put an end to any confusion around costs and charges when it came into effect in 2018.
The rules aimed to make the cost of investing completely transparent and comparable, given the requirement to disclose to clients all costs and charges involved in an investment fund or portfolio of funds both before investing (ex-ante) and after investing (ex-post).
Mifid II was also very clear about the disclosure of transaction charges incurred when buying and selling underlying securities.
The directive states: “Disclosing transaction charges is not optional – just providing clients an ongoing charges figure is no longer sufficient”.
So what went wrong?
Yet despite this, advisers still don't always have all the information they need to communicate the true cost of investing to their clients.
This is because some costs, particularly some transaction costs, can be tricky to calculate in the first place and so are less reliable and harder to interpret.
Full charges are not usually shown on fund factsheets and are not always transparently provided by some investment managers.
They are also not always included in key features illustrations provided by some platforms because the FCA doesn't strictly require them to be. As a consequence, advisers can struggle to access all the relevant data.
However if you know what to ask for, the information can be specifically requested from investment managers who have a regulatory requirement to provide them, or can be sourced from specialist data providers like Trustnet/Financial Express.
We've seen how frustrating it is for advisers when they realise they're not able to get the full facts for clients, so we’ve recently put together a guide that aims to help.
The Portfolio Charges Explained guide is free to download and sets out:
- What each Mifid II charge category refers to
- What each charge covers
- How counterintuitive results can sometimes emerge (such as negative transaction charges)
- Why, when it comes to charges, lower isn’t always better.
The guide is designed to be a useful tool when trying to compare like-for-like on costs that are presented differently by different providers.
Hopefully, the more push-back providers get from advisers asking them for the full data, the more likely it is those firms will start being more transparent from the outset.
We can but hope.