Bankhall is urging advisory firms not to delay embedding the new MiFID II aggregated costs and charges requirements where possible, ahead of anticipated regulatory scrutiny and amid concerns that some firms could be waiting for further industry guidance to emerge.
MiFID II requires investment firms to aggregate and disclose all costs and charges relating to any financial instruments that an adviser recommends or markets to clients, including the cost of:
- Any investment services provided, such as adviser charges or investment management fees;
- The financial instruments themselves, such as collective investments or shares; and
- Any ancillary services, such as platform fees and charges.
This aggregated cost information must be disclosed on an ex-ante (forecast) basis, and also on an ex-post (actual costs incurred) basis in instances where firms provide an ongoing service. Advisers must also provide their clients with an illustration showing the effects of these charges on their overall investment return.
ESMA (European Securities and Markets Authority) has provided answers to specific questions around the costs and charges disclosure requirements in their MiFID II investor protection topics Q&A. However, Bankhall’s Managing Director, Julie Sadler, said that practical challenges still remain for firms when providing aggregated cost information, particularly where clients have assets across multiple platforms or a combination of platform-based and directly held investments.
Julie Sadler, Managing Director at Bankhall, commented:
Aggregated costs and charges is undoubtedly one of the biggest challenges advisory firms face in embedding the new MiFID II requirements. The problem from the outset has been the lack of a prescribed industry method for calculating or presenting this information, with investment platforms, fund managers and other providers taking a variety of different interpretations and approaches. Advisers are faced with the difficult task of collating and distilling information from potentially many different sources, with the adviser being the one who is ultimately responsible for disclosing and presenting it to the client.
"It could be the sheer scale and scope of these EU-wide MiFID II changes, with high-level guidelines derived from ESMA, which is the reason why we have not seen this translate into the usual degree of practical working examples for our industry in the UK. But with aggregated costs and charges set to become a focus of the FCA’s supervisory work with advisory firms, it is imperative that firms press ahead and fully embed the new requirements where possible."
The need for practical guidance and support
Bankhall has responded to adviser appeals for more practical support with meeting the new MiFID II disclosure requirements, with the development and launch of a tool designed to assist advisory firms with their ex-ante aggregated costs and charges calculations and disclosures.
Julie Sadler added:
In response to advisers’ need for practical support, Bankhall has developed a solution to help advisers adopt a consistent, robust and repeatable process. It is part of the comprehensive support we are offering firms and which we will continue to develop further over the weeks ahead. It is important that we do not underestimate the challenge facing advisers in embedding the new MiFID II aggregated costs and charges requirements. Over time we expect more industry guidance and solutions to emerge, but in the meantime it is incumbent on advisers to take action now and embed the new changes. This will enable firms to respond to any regulatory scrutiny and MiFID II post-implementation reviews further down the line.
Bankhall has produced two versions of its costs and charges calculator for advisory firms, which reflects the differing approaches being taken by investment platforms:
- A version which helps to calculate the total cost of charges in year one and year two, allowing for an assumed user-defined growth rate; and
- A version which illustrates total costs and charges in the first year of the investment, and assumes no growth.
Advisory firms can choose the version which reflects the level of detail they wish to provide to their clients, with both approaches designed to meet the high level ESMA guidelines for these disclosures.
Firms who would like further information can email [email protected] or call 0345 300 5326.