Concerns grow that rules to boost transparency are baffling for consumers.
Increased confusion around cost disclosure rules has led advisers to question how the FCA is communicating what it expects from Mifid II.
While the disclosure of any ex-ante and ex-post costs charges is covered extensively by EU regulator the European Securities and Markets Authority, last year the FCA ruled out creating a template that advisers would be able to work off.
Advisers tell Money Marketing that it is not feasible to expect the regulator to mandate a “one approach for every situation” rule. However, a steer on how to disentangle the jargon around cost disclosure has yet to be provided.
Meldon & Co director Mark Meldon says the lack of detail from the regulator on the exact requirements for documents and how they should be presented to clients is frustrating.
He says: “People don’t want pages of complex documents; somewhere in the midst of all this, the consumer is being forgotten. There’s no absolute clarity on how these things should be put together.
“It would be helpful to have clear guidance from the regulator on how to do it and how to access the information, so it’s not such a shot in the dark for advisers.
“Sure, some compliance workers can help, but they are really just opinions on what should and shouldn’t be done.”
Esma outlined within Mifid II that “full point of sale disclosure” will be expected from firms as to the cost of investments, as well as all ancillary services. At the point of sale advisers must run clients through the cumulative effect of costs on returns, comprehensive of market fluctuation, but must also detail the fees clients actually end up paying after the fact.
Transparency is the best thing for the market
Short of being economists, Page Russell financial planner Tim Page says advisers are trying their best to comply with the new regulations. The challenge for the FCA is communicating better with fund managers, who will in turn work with advisers.
He says: “At the regulatory level, transparency is the best thing for the market. The people responsible for providing us with the information in the first place are the fund managers, and they are still struggling with it.”
A Money Marketing poll from February found an almost equal split in responses as to whether the regulator should provide an adviser charges template. Forty-nine per cent said yes, 48 per cent said no, and three per cent were unsure.
Nigel McTear, Signpost Financial Planning director, says his firm’s five-year bespoke arrangement with discretionary fund manager Portfolio Metrix removes the need for advisers to create their own template.
This means what he describes as “the heavy lifting” is done by someone else, so advisers can focus on relaying information to clients.
He says: “It would be pretty helpful [for other advisers] if someone could collate all the information properly, and put it in a table and format it for the compliance, laws and regulation. It’s not just giving clients information about individual funds, it’s about providing information on the whole portfolio.
“That’s a challenge if you’ve got 20 different funds all with different charges.”
To simplify the multiple charges, Yellowtail Financial Planning director Dennis Hall says his firm wants to reduce the number of funds it holds to cut complexity for clients and confusion for advisers.
Hall says: “Ex-ante and ex-post charges disclosure means nothing to consumers. When you’re an adviser and you have to look it up, there’s no way you can use those terms with your clients. Why are we making things difficult?”
Not allowing perfection to get in the way of good
Hall says an overload of information can also be a concern, which Page puts down to the regulator taking its time to assess adviser conduct post-Mifid II before issuing further guidance.
Page says: “The FCA are not allowing perfection to get in the way of good. They’ve got something on the table, something is happening and they are having their chance at watching the market put things into practice.”
Hall says: “We already know the information is too much, but the situation hasn’t changed, just the information around it has increased. This doesn’t add to the conversation, it’s making things hard. Mifid II has brought all this in, but there should be push back and clarity from the regulator for the advisers.”
Zero Consulting managing director Phil Young says platforms also have a responsibility to help advisers, but the degree to which platforms accurately provide relevant disclosure varies.
A source says Fidelity has executed the process well, while Aviva, among its many recent issues, is “an absolute disaster” when it comes to providing the right key information documents.
Young says: “Correct charges disclosure is the number one bugbear, and because many advisers haven’t got their heads around what they’re supposed to do, lots of firms just aren’t doing things correctly, if at all.”
According to research from consultancy The Lang Cat, disclosure of transaction costs as part of fund manager charges under Mifid II has already made some funds appear twice as expensive.