Finding some clarity amongst the confusion
In January 2018, the Markets in Financial Instruments II (MiFID II) rules came in to force.
One of the outcomes was that all advisers must provide clients with a breakdown of the total costs and charges they pay for the investments they hold. These disclosures are required whenever we provide our clients with a new piece of advice, so that they can properly consider the full projected costs on their portfolio once the new advice is implemented.
This makes a great deal of sense in principle as it should better equip individuals to make well-informed decisions about their financial affairs.
Clients of Thorntons Investments already receive this information as part of the report our financial planning team issue when they provide advice.
In addition, aggregated costs and charges must also be confirmed to clients at least once a year, based on the actual costs and charges incurred. Again, we see this as a sensible requirement, providing clients with an opportunity to ensure the costs actually incurred within their investments have been as expected, or providing them with an opportunity to query the reasons why costs may ultimately have been higher or lower than initially projected.
The industry has in general, perhaps understandably in the context of significant regulatory uncertainty, been slow to fully adopt the new rules. The Financial Conduct Authority (FCA) our regulator, recently published a fairly critical report on the industry’s compliance with the disclosure of expected annual costs and charges disclosures, though noting that standards of reporting had generally improved in the second half of 2018.
The delivery of annual costs and charges disclosures is a significant logistical challenge for the industry. Information often needs to be extracted from multiple systems, across multiple products and across multiple accounts. Presenting this information in a single aggregated statement is therefore a complex undertaking. The industry is still developing its reporting systems and it is expected that these disclosures will start to appear within the next month or so.
There are a number of factors which investors should be aware of in order to avoid some potential confusion over the coming months. In particular, investors should be aware that :
- The disclosure rules apply to advisory firms, as well as platform firms and product providers. This means investors may receive multiple disclosure statements, and some accounts will be reported on more than once.
- There are some different interpretations of the requirements, and in particular some, but not all, platform and product providers will be reporting on pension arrangements, despite these currently not forming part of the reporting requirements.
Within Thorntons Investments, we are in the process of developing our own reporting processes and are working closely with our key partners to ensure we can deliver the relevant information to our clients when it becomes available.
For clients whose assets and policies are held on a single platform, we will ensure that appropriate annual costs and charges disclosures are provided to our clients by that platform. In these situations, we will avoid any duplication, and our clients will not receive additional reporting from us.
For clients who hold assets or policies with more than one provider, we will obtain the detailed costs and charges disclosures from each party, and provide clients with a single statement. It is likely that clients in this situation will also receive individual costs and charges disclosures direct from each of the providers separately. We will make it clear which policies are covered in our disclosure statements.
Overall, the aims behind this new reporting regime make a great deal of sense – though the implementation may be a little confusing at the first attempt.
We are here to help any of our clients who may require any guidance or explanations on this issue, and we encourage clients to get in touch if they would like some help in understanding or interpreting the disclosures statements they receive.