Regulation  

MiFID II forces firms to reveal total cost of investments

The Markets in Financial Instruments Directive II, which runs to 482 pages, requires investment and pension fund managers to reveal all costs and fees – including hidden costs and underlying fees – to consumers in one figure.

It also requires them to issue investors with clear, itemised statements at least once a year.

According to the document, MiFID II applies to financial advisers, investment managers, discretionary managers, private client wealth managers, platforms and all other financial intermediaries.

Costs must be disclosed in an understandable format and include all advice, platform, product and investment costs that affect the amount returned to investors.

The EU started work on MiFID II in October 2011. According to a statement from consultancy Deloitte, while MiFID I aimed to increase competition, improve investor protection and EU passporting, MiFID II has been implemented to tackle “a range of measures to address issues raised by the financial crisis, such as improving investor protection”.

It also aims to help implement commitments made by the G20 to improve the transparency and regulation of more opaque markets, such as derivatives.

The introduction of the directive coincides with two years of campaigning in the UK for an end to hidden costs and fees.

Gina Miller, co-founder of asset management boutique SCM Private and founder of the True & Fair Campaign, said: “This is a fantastic result for UK and European investors.

“While the UK’s trade bodies remain determined to produce empty rhetoric and ineffective voluntary codes, the EU has taken the lead and brought in regulation set to end the shameful anti-consumer practices that have prevailed for decades in UK financial services.

“This is conclusive evidence of the growing levels of support for the principles we have been fighting for in the True & Fair Campaign.

“We have been calling for higher standards of investor protection and the full disclosure of fees and underlying holdings over the past two years.

“These new requirements will result in a new total cost of investing that becomes a trusted, consumer-friendly cost number.”

MiFID II key changes

• Investment companies must disclose the total costs of investments.

• Costs and fees must include hidden costs and fees in one figure.

• Itemised statements must be issued at least once a year.

• Costs must be presented in an understandable format.

• Costs must include all advice, platform, product and investment costs that affect the investment return.

• MiFID II covers financial advisers, investment managers, discretionary managers, private client wealth managers, platforms and all other financial intermediaries.

Adviser view

Tom Dean, chartered financial planner at London-based Plutus Wealth Management, said: “This is something that we’ve been practising for some time. Anything that includes transparency can only be a good thing.”