A requirement for clients to receive personalised data about their funds will be the main source of problems for advisers seeking to comply with the incoming Mifid II rules, FE has warned.
The research and ratings firm said the need for clients to be given “post-sale” data, such as fund costs and charges, would be more problematic than previously criticised requirements such as the need to inform clients in the event of a 10 per cent portfolio drawdown.
In a white paper covering the Mifid II and Priips regulations, both of which are due to come into force next January, FE regulatory specialist Mikkel Bates said: “The post-sale reports will cause most problems, because they are client-specific and it’s not simply a case of taking generic fund data and passing it on.”
Annual reports given to clients by advisers after the January 2018 Mifid II implementation will need to show costs, purchases and sales of funds, as well as client withdrawals or additions.
“Clearly, this can only be done by a client’s adviser,” said the report, entitled ‘Preparing for your client report obligations under Priips and Mifid II’.
“Fund groups will be expected to provide the data that will be used to calculate an individual’s costs and charges.”
FE reiterated that the need for a comprehensive disclosure of costs and charges under Mifid II would create additional work.
“The costs and charges reports require data not currently made available – and in some cases not currently recorded – so they add a significant burden that can realistically only be satisfied by automating the collection and distribution,” said Mr Bates.
“To do that, the data needs to be available in a standard format that can be read and used by all recipients and free-form narrative needs to be minimised or removed completely.”
Addressing the need to inform clients in the event that a portfolio drops 10 per cent, the report author said meeting this demand within a short timeframe could prove difficult.
“The ad hoc report…is less problematic in terms of the data, as advisers should be able to produce a valuation easily, but may be troublesome in respect of the monitoring required and the need to report to clients by the end of the business day,” Mr Bates added.
“An alarm needs to be built in to make sure it is not missed.”
Earlier this year Investment Adviser reported confusion among advisers, discretionary fund managers and platforms over who must take responsibility for communicating news of a 10 per cent fall to clients.
Asset managers themselves have other Mifid II-related problems.
Last week Investment Adviser reported that regulatory specialists believe some fund firms will not be able to finalise approaches to new rules on dealing commission before 2018.
With regard to both Mifid II and Priips, FE suggested that minimising the burden of collecting data, and relying on specialists, would serve fund firms well.
Mr Bates said: “In the case of Priips’ key investor documents there are several calculations to be carried out and monitored for any changes. This is not part of financial services companies’ core business and should be left to specialists in the field.”
Required pre and post-sale reports under Mifid II
| Reporting requirement | Details |
| Pre-sale cost disclosure document | Details of costs and charges “within good time” before a sale is concluded |
| Quarterly portfolio valuation | Provided to clients who do not check valuation online during the quarter |
| Annual personalised costs and charges disclosure | Summary of all product and service costs throughout the year |
| Alert any drop in excess of 10% of a portfolio’s valuation | Clients must be informed of such an event on the same business day and this must be repeated for every 10 per cent fall thereafter |
IN NUMBERS
January 3
2018 – start date for regulations
4
Number of FCA consultation papers on Mifid II
