FCA opts against fee disclosure standards

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FCA opts against fee disclosure standards

The FCA has decided not to standardise how costs and charges are disclosed by advisers and wealth managers under Mifid II requirements, in spite of “a great number” of industry firms wanting it to do so.

Mifid II, which is scheduled to come into force from January 3 2017, will require advisory and discretionary firms to provide a full breakdown of all fees, including the likes of transaction costs.

The European regulation does not prescribe how this information should be presented, but does allow member states to opt for a standardised format.

In March this year the UK regulator used a discussion paper on Mifid II implementation to moot the possibility of standardisation, noting this could help to “empower” consumers seeking investments and services.

The Investment Association (IA) was among those in favour of standardisation, even though Mifid II requirements do not make similar demands of Ucits products. The trade body’s retail markets specialist, Mike Gould, said last month the IA had “urged” the regulator to standardise disclosure “in order to assist consumers to make meaningful comparisons across all investment products and services”.

But Alexander Smith, manager of the regulator’s disclosure and promotions team, said the FCA had now decided not to press ahead with standardisation because of concerns this may not suit all parties.

In a video recording from the FCA’s recent Mifid II conference released last week, Mr Smith said: “Some of you will be aware that in our discussion paper published earlier this year we explored the merits of the FCA standardising the costs and charges disclosure, at least certainly in the retail market.

“A great number of you were in favour of [this], citing the fact that it enabled consumers to compare the costs of different products and services. It also gives you firms more comfort that you are doing the right thing.”

However, he added: “There were a number of stakeholders who expressed concern with [standardisation] as a potential approach. They were concerned we wouldn’t be able to develop a standardised approach that would work for all consumers and all different business models, and it could actually impair innovation in that market.

“We’ve considered those responses in great detail and have decided for now it’s not appropriate for the FCA to standardise that disclosure.

“Instead, we want to give firms the freedom and flexibility to design that disclosure, with information provided to your clients around your business model and the needs of your clients.”

The watchdog had said in its March discussion paper: “Standardisation across the market would ensure that the information firms provide empowers consumers to make informed decisions about the investments and services they are looking to buy or already hold.”

‘One-size-fits-all format could be unwieldy’

Mark Spiers, principal and head of banking, investments and lending for regulatory consultancy Bovill, said of the decision: “Obviously the idea of being able to compare costs between providers of the same sort of product in an easily understandable way is clearly of benefit to consumers.

“But the FCA has a good point that in the remit of Mifid II there are so many different types of product and business model that a formal one-size-fits-all format [for disclosure] could possibly be slightly unwieldy.

“It would end up not achieving the aim of transparency and easy comparison [of services].”