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Do DFMs need to be more transparent in declaring VAT charges?

Close up Businessman hand holding pen and pointing at financial paperwork with financial network diagram.Discretionary fund manager charges have come under increasing scrutiny since the FCA launched its platform market study in July last year.

The regulator is currently looking at the role of DFMs in the value chain to see if their charges are justified, with the results expected to be revealed later this summer.

Money Marketing has taken a deep dive into DFMs’ VAT charges on models offered on adviser platforms, finding there is a lack of consistency between firms on how they present their VAT charges, which could make it difficult for investors to understand costs.

Clear labelling

For the research we randomly selected 20 DFMs and found 13 were clear in their literature about their VAT charges. For example, Brewin Dolphin clearly says it has an investment charge of 0.3 per cent plus VAT. The DFM publishes details of its charge in separate factsheets for each platform.

Caznove also includes details of its VAT charges in its literature, as do Smith & Williamson, Quilter Cheviot and Tilney.

Some firms, however, are less clear. While Morningstar Investment Management does not currently include VAT charges in the brochures on its website, the company says it is working with developers to put factsheets online to include these details. Morningstar EMEA chief investment officer Dan Kemp stresses the firm provides “clear and comprehensible information on all costs and charges” to meet Mifid II obligations before clients sign up.

He says: “We believe that transparency is essential. Documents are also provided to all prospects before they sign up and fees and VAT are also clearly disclosed in the order forms, which they review before signing.”

Thesis Asset management says it does not included VAT in its literature as it does not affect all of its clients and is subject to change.

A spokesperson for Thesis Asset Management says: “We are committed to being open and transparent with clients and look to remove any confusion.

“VAT is a tax that may not apply to all clients and is often subject to review and change. Consequently we do not include it in our literature but do ensure we fully disclose the tax to the clients it affects.”

Other asset managers are extremely vague in their information on VAT and it is not clear if they have included it. Brooks MacDonald makes a generic statement about charges and does not show any actual figures, but declined to comment why.

P1 Investment Management includes VAT for its investor visa and bespoke investment services but not for its managed portfolios. Money Marketing contacted P1, but the firm was unable to provide a response at the time of going to press.

Rowan Dartington Intermediaries is also imprecise about its VAT and only mentions it as a footnote that is charged “where applicable”.

A spokesperson from Rowan Dartington says: “We run our portfolios on a number of platforms, as do many DFMs, therefore it is very much a case of us working with them to ensure that the pricing and VAT implications are consistent.

“In respect of our own website, this is a guidance for services and we don’t publicise any tariffs as these are very clearly explained on our rate cards.”

Waverton Investment Management shows details of charges in its literature, but it is not clear if VAT is included. The company tells Money Marketing this is because funds that have the management fee built into them do not have to charge VAT.

Waverton head of managed portfolio service director John Bellamy says: “We build our models through the use of four internal funds which carry a management fee within them, which is where we take our charge from. So technically speaking there is no overlaid DFM fee that is VAT-able.”

Tavistock Profiles has an all-in investment cost of 1.2 per cent, but while it lists charges there is no mention of VAT. The firm says this is because VAT is not charged when DFM fees are 0 per cent.

Tavistock director Ben Raven says: “We do not mention VAT because our DFM fee is 0 per cent, so it is not applicable on our discretionary models.

“Our DFM fee is 0 per cent because our portfolios invest exclusively in our own multi-asset funds. This ensures clients are delivered a discretionary offering without overpaying.”

Tatton Investment Management says in its ethical investing brochure the AMC is 0.15 per cent including VAT. There was originally no mention of VAT charges in its literature for its managed portfolio service, but after being contacted by Money Marketing, Tatton updated its MPS brochure, which now clearly states the annual 0.15 per charge includes VAT.

Tatton spokesman Roddi Vaughan-Thomas says: “Our fee of 0.15 per cent is 0.125 per cent plus VAT – it’s on our homepage and is through all the literature. Our original brochure didn’t split the VAT out of the charge, so in that way wasn’t not disclosed.

“But since it is within the 15bps fee it is not like you’re buying a ticket online to watch a Take That reunion and find a non-negotiable £15 booking fee at the end. It is just 0.15 per cent including VAT – there’s no added VAT sneaking in.”


Discus director Gillian Hepburn says it is important firms are fully transparent regarding their VAT charges so investors understand what they are being quoted.

She says: “I’m not a tax expert, but clearly a majority of DFMs in the market are viewing this as a service and are therefore adding VAT.

“There is little consistency between firms on the presentation of charges, with some of them quoting VAT on top and some of them being inclusive.

“DFMs therefore need to make sure they are transparent and clear about charges to clients.”

Hepburn says that while the inclusion of VAT by firms is irrelevant, how the charge is worded in brochures and literature is highly important.

She says: “As long as charges are explicit that is fine, but companies that say VAT might be applicable feels a bit vague.

“At the end of the day it is about ensuring that the client understands what they are going to pay for and the total costs of the service.”

Under Mifid II rules all charges and costs have to be disclosed to clients, however this information does not have to be included in literature or on websites.

Planet 3 Wealth director Christopher Morgan warns clients would probably need the help of someone more knowledgeable to avoid being thrown off guard.

He says: “Clients could quite easily become confused. Advisers are unlikely to be tripped up by companies that don’t have detail of VAT in literature, but it does create additional time spent doing due diligence.

“Firms need to adopt a consistent approach so you can compare them in the blink of an eye – which clearly you can’t at the moment.

“In a perfect world there would be more consistency between firms, but it is just not going to happen. To do that you would have to have a regulator that regulates to the nth degree.”

Financial Inclusion Centre co-director Mick McAteer agrees. He says: “It sounds like there is a lot more work that could be done to make the cost transparent. If the cost of VAT is not being presented that prominently, it can mislead people about the cost of investing.”

TCC technical director Phil Deeks says DFMs will have a clearer understanding where the regulator’s mindset is and the role they have to play when it unveils its platform review later this summer.

He says: “Firms do not just need to be clearer about charges, it is also the whole proposition. Information needs are important – how firms engage with customers in a way they can understand the nature of the service and what they are being charged.

He adds: “It is not just about providing lots of documentation and expecting customers to understand it. It is about making sure the relevant key information is readily accessible.”



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