The clock is ticking on providing cost transparency documents and advisers are seeing the difficulties that lie ahead in acquiring the relevant information
When the Mifid II regulation first came into place in January 2018, it brought cost disclosure obligations with it.
Providers and advisers are being asked to show the real-life effects that costs had on their clients’ returns over the preceeding year. With little guidance from regulators, and conflicting data from various providers, advisers are left with more questions than answers on what to do.
How long post is ex-post?
Under the Mifid II disclosure rules, both investment firms and advisers have to provide cost statements to end clients. Intermediaries are asked to provide aggregated statements of providers’ and advisers’ charges. But that is proving difficult.
While there is no fixed deadline set in stone, the European Securities and Markets Authority has published guidance that indicates ex-post annual disclosures should be provided as soon as possible after the end of the reporting period to which they relate.
Guidance from the Tisa membership group recommends sending out disclosure statements by 30 April.
At the start of April, Money Marketing asked platforms if they had made the statements available. Most said they had already made the statements available, started to do so, or are on track to send them out this month, but some are lagging.
It is understood that advisers who have their clients’ assets with Aegon or Aviva will not have their reports available beyond the recommended date.
An Aviva spokeswoman says: “As we have already shared with advisers and the regulator, we are making changes in May to ensure we meet the latest regulatory standards for platform documentation, including post-sales costs and charges disclosures.”
She says the timing of these changes will allow Aviva to “focus on making the changes required for the new tax year”, before making the necessary improvements to platform documentation in May.
She adds: “In the interim, advisers can still access the relevant costs and charges information via the platform, and our online literature libraries.”
Some platforms have found producing the reports a relatively easy job.
Speaking at the Money Marketing Interactive conference last week, compliance consultancy B-Compliant founder Vicky Pearce said: “It’s actually not difficult for platform-based firms, it’s very easy to acquire this kind of information. It’s all coming from one platform, it’s all downloadable.”
But the same cannot be said for advisers, particularly those with client assets across multiple platforms.
Apart from reports from individual platforms coming at different times (and mostly without notifying the adviser), reports come in different shapes and sizes too.
Research by The Lang Cat shows significant variance between individual platform approaches. It looked at products included in the report and delivery (mail, email or made available online), the way an adviser can access the report and the ways charges are displayed and broken down.
Director, Shore Financial Planning
Firstly, disclosure highlights how much fund managers are charging clients and how disproportionate that is compared to how much advisers charge – will this force fund managers to start addressing their fee structure? I hope so.
Secondly, and this relates specifically to Fundsnetwork, they have adopted the Tisa interpretation of the rules. It is comparing returns the client has had to returns you would get if it didn’t pay any charges at all. Clearly this could never happen. Can you point me to any investment with no charges?
Fundsnetwork is not the only platform to have adopted the Tisa rules, there are others as far as I’m aware. I don’t think the original rules state you have to do this either. Tisa has interpreted them this way and Fundsnetwork has gone along with it. How can any investment have no charge?
To comply or go the extra mile?
Wingate Financial Planning senior paraplanner Mohamad Alrayees says the firm found that reports provided by platforms were unclear and had errors.
He adds: “It would surely be better for firms to use standardised templates for the charges section, so everyone is clear about what to do and what to include.”
Some advisers have been left wondering how they are supposed to produce a comprehensive overview for the end customer.
During the Money Marketing Interactive panel, HA7Consulting consultant Harry Katz said: “I have clients with two different providers – Octopus and Downing – and they are both providing reports at different times. The time is different. One platform is doing it at the end of tax year, the other is at the end of calendar year.
“It’s not like I can do some wonderful synopsis of all these different things. It’s a complete mess.”
Would simply referring clients to a date when they can expect their providers’ statements of cost of ownership be enough? TCC Group advisory service managing director Andy Sutherland thinks so.
But he points out that looking to do the bare minimum may not be the best approach. He asks: “Would you be happy with it?”
He recommends including a translation to help clients understand the rules, stating what compliance means in simplified English. Such translation could provide value for clients who are not savvy investors and may not be accustomed to investment jargon.
B-Compliant’s Pearce said at the conference: “Educated customers will be able to use this information [ex-post Mifid II reporting] and compare. But for your standard steel workers, it’s of no effect and all it does is confuse them.”
Just do your best
The FCA reviewed readiness for the ex-post reporting of 50 investment companies in February. It saw inconsistencies with the use of third-party data and found most of the firms were not sharing costs and charges with each other to meet their obligation.
The City watchdog also said firms “interpreted the rules for disclosing costs and charges in a variety of ways”.
For advisers who are waiting for their clients’ reports and who are worried about the recommended deadline, one way to solve this is simply to work with what they already have.
Sutherland says: “Advisers should consider what information they have and how this aligns with the needs of the customer. Then present the information and, where relevant, add a short note to explain any difference to what they are aiming to present.
“If they do this, they will be highly unlikely to face any issue from the FCA as the issue is not with the adviser but the fund manager.”
Alrayees says that where data from providers was incomplete, it was sourced elsewhere and a disclaimer was included. He says: “[Where the data was unclear], state the platform, fund and adviser charges – current and for the past 12 months – and say there might have been additional charges during the year. We know about these charges, but the issue is confirming the additional charges, and that’s why we cover this via a disclaimer.
“We will continue covering this section in our reports as clearly as possible using the details we know and have confirmed. We will chase the platforms to see when they can create better reports as this can save us time in the future.”