Cost (sort of) disclosure…
We all know the general vibe of MiFID II was more clarity to the end consumer, particularly in terms of costs. In an ideal world, this would mean:
- Ex ante additional costs being clearly disclosed by all funds and investment managers (these are the expected additional and transactional charges that funds will incur)
- Ex post costs also being transparent, and disclosed by all (these are the actual costs that were incurred)
- All platforms and providers would be able to provide, at the touch of a button, a full summary of costs and charges, paid by a client out of their investments, over a specific timeframe.
Clearly, we are nowhere near this yet. In particular, the issues we are seeing are:
- Some fund managers providing some of these charges some of the time.
- Legacy providers being under no obligation to do so, and so choosing not to
- Making direct comparisons impossible, the majority of the time
- Platforms telling us they will have more functionality around summarising charges in 2019, but it not being there
- Platforms having transaction cost data on some funds but not others – and that not then being consistent across platforms.
So yeah; still a few issues to resolve. We have summarised below some of the good and bad practice we’re currently seeing.
One rule for one…
Pension and life plans do not have to disclose extra costs, but unit trusts / OEICs do – so moving from a legacy pension to a platform and funds will mean comparing apples with pears. This will also happen if moving from an investment bond wrapper to an ISA / GIA.
It’s bad practice on the legacy plan front not because they’re technically doing anything wrong – by the rules. But it’s just not in the spirit of MiFID II and putting the client in an informed position.
As an adviser your choices therefore are:
- Detail the limited costs you have available on the existing plans and compare with the full costs on the prospective new plan (apples and pears)
- Make an assumption on additional costs on existing plans, using market averages, and compare to the full costs on the prospective new plan (GM apples and pears)
- Strip out the ex-ante costs on the new plan, and compare to the existing plans and their limited cost disclosure (apples and part of a pear)
I appreciate I’ve stretched the fruit metaphors a bit far, but it shows that there really isn’t an ideal solution while the playing field is so uneven.
We saw an issue recently with a 7IM fund, showing transaction costs when running a quote on the Transact platform. But not showing those costs when running a quote on the 7IM platform. It turned out the Transact data was the accurate one – pulling the info from the 7IM fund, and the 7IM platform didn’t (at that time) have the functionality to pull it through.
So, a very unusual situation, but one that shows just how difficult it can be to get the accurate figures, and how much the same information can vary depending on the source.
I need a hero
We did an informal poll across our advisers and the paraplanning team across at Para-Sols, who get to see just about everything, and have awarded an unofficial Apricity star of awesomeness to:
FE Invest charges are broken down clearly, so you can make your own apples vs. pears decision! The feedback regarding Transact charges was that, for each fund, the client is given information on:
- The initial charge (if there is one);
- The ongoing costs;
- The transactional costs;
- The incidental costs; and
- The exit costs.
Which is clearly helpful and informative and enables comparisons to be made.
Until the technology catches up, and the legacy providers are either mandated to do something different, or have an attack of conscience, then things will continue to be a bit murky. As an adviser, you can only aim to show the clearest comparison, and document any inconsistencies or anomalies on the file, and to the client. This is important to show how the recommendations are made so it is fair, clear and not misleading.
Disclaimer: we have no affinity to any fund group / platform / pension provider, and these examples are simply from our experience to date