Mifid II, which has applied since January, introduces ex-ante disclosure. This requires some firms to report expected costs to investors before an investment decision is made. They will also be required to report actual aggregated transaction costs and charges annually for each customer in ex-post disclosure.
According to a Tisa guide on Mifid II costs and charges disclosure, under the rules costs related to investment services and investment products have to be disclosed.
Costs must be aggregated but should include one-off costs, such as deposit fees and switching costs; ongoing charges (including advice charges and platform fees), transaction costs and also costs for ancilliary services – such as research – and performance fees.
From January, fund managers were required to report additional transaction costs charged on top of the ongoing charges figure. The first round of reporting by fund houses caused a big bang in the market, with many investors and industry commentators finally getting a full picture of how much transaction fees were adding to the cost of investing.
Some commentators believe once platforms start reporting these charges, it will shine a light on lesser-known charges imposed by those businesses as well. It is understood some platforms charge for actions such as sending paper invoices or reports, ad-hoc withdrawals, rebalances or if a client opts to deposit funds by cheque. There are concerns that some of these additional charges may not be transparently communicated to investors through the headline cost.
Money Marketing contacted 16 adviser platforms asking them to respond to three client scenarios to find out more about the costs that might contribute to what will have to be disclosed under ex-post disclosure rules.
The scenarios detailed one fictional client scenario in the accumulation phase of saving, one for a client in accumulation and decumulation and one for a client in drawdown.
Platforms were asked to supply a total cost and individual costs for each scenario. These included actions such as twice-yearly rebalancing of portfolios, switching funds from another platform, sending quarterly statements, making a withdrawal in the middle of the year, making a deposit by cheque and sending statements by post.
They were asked to assume a 1 per cent adviser charge and a model portfolio made up of 12 funds.
The first round of reporting caused a big bang in the market, with many investors finally getting a full picture
Just five platforms responded with their charges. Seven acknowledged the request but did not supply data for a variety of reasons, including that they have not finalised their reporting systems for ex-post disclosure. Four did not respond at all.
Ascentric was one of the platforms that sent through its charges detailing a platform charge of 0.3 per cent plus the 1 per cent adviser charge for each fictional client example. No other charges are disclosed and an Ascentric spokeswoman says the responses underline the simplicity of its charging structure.
Ascentric moved to an all-in charging structure in February last year, when it scrapped fees levied through its stockbroking service and removed any additional charges for a Sipp, drawdown or ad-hoc administration service.
Transact also responded to the questionnaire, saying it would apply a wrapper fee and annual commission charge to all three scenarios and a buy-commission charge to both the accumulation and combined accumulation and decumulation scenario.
Transact applies a pension wrapper charge of £80 per year and an Isa charge of £12 per year. It does not charge for general investment accounts. The platform says it does not charge for re-registration, transfers in, additional premiums, starting drawing down, uncrystallised funds pension lump sum payments, income withdrawals, pension commencement lump sum payments, paper or electronic annual or quarterly reports, model portfolios or sales and encashment.
AJ Bell also responded to the survey. It says it does not charge for regular contributions, quarterly statements or PCLS payments. Other charges on the platform include a £60 plus VAT fee for a transfer of funds from another platform, a custody charge, annual drawdown charge, and dealing charges for rebalancing.
Zurich also confirms it does not charge any additional costs for ad hoc withdrawals, paper statements, rebalances, switches or when moving into flexi-access drawdown.
Head of platform strategy Alistair Wilson says: “Although ex-post disclosure will shine a light on all costs, I’m surprised most platforms are saying it’s too early.”
He adds: “Platforms know what their costs are but appear reluctant to provide overall pounds and percentages earlier than they have to. It certainly raises questions about why some are so unwilling.
“It’s important that clients are aware of all the costs before investing. With some platforms having additional costs for pension withdrawals, exit fees and charges for posting statements, the real overall cost may not be so obvious, and possibly far higher than it appears at first.”
7IM did not provide a breakdown of charges for each scenario but sent through its most recent charges information. A company spokeswoman says: “In terms of the platform, advice and wrapper fees, this is all standard and will be disclosed as it is today. We’re still finalising the calculation of the cumulative effect of the costs on growth.”
The 7IM platform does not charge for dealing, custody, tax vouchers or capital gains tax reports, valuation reports, VAT or exit fees. It also does not charge for Sipps or Isas. A platform fee is charged and is tiered depending on the size of the portfolio, and it charges for investing in its model portfolio.
The charges information sheet says investments in certain 7IM funds are not included in the platform fee and are subject to a platform fee of 0.25 per cent each year. Those funds include some multi-manager funds and its AAP range.