InvestmentsFeb 22 2019

Advisers not yet using Mifid II to quote fees

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Financial advisers have not yet adapted to quoting charges under the Mifid II regime, Marcel Bradshaw has said.

The head of UK retail at Orbis Investments said the costs and charges rules introduced under Mifid II had benefited his firm and its unconventional charging structure but advisers had yet to conform to the new method.

Orbis does not charge its investors when its funds underperform their benchmark and offers refunds instead, though it charges half the outperformance when its funds do beat their benchmark.

Since the introduction of Mifid II last year, advisers and fund managers have had to break down their costs and charges and aggregating them into a single amount - both in cash and a percentage.

Mr Bradshaw said: "I never thought I would say that, but actually Mifid has been working very well for us. Mifid is giving us the opportunity to actually compare our charges with that of the fixed fee funds, so the plus of Mifid for us is that it is an apples to apples comparison.

"However the problem is that financial advisers are actually not using the Mifid charges and charging method when quoting to clients yet. They are still very much based on the old way of quoting charges which is the annual fee."

Mr Bradshaw said fixed fees remained popular among fund managers because it was easier to do and simpler for advisers to understand, and revenue streams were less volatile.

He said: "If we look at all the funds charging a percentage of assets, what you find is there is quite a bunching of the fee around the 75 basis points. Now one may ask why.

"We believe these asset managers have found there is really no benefit charging a bit less, there is no competitive benefit charging 70 or 60. What they have found is there is more competitive benefit if they spend their money on more marketing, sales teams or even buying distribution.

"We are very much in favour of the growth of passive, but with that growth active managers need to align their fee model a lot more with the interests of the end customer and, very importantly, they need to assume more risk."

damian.fantato@ft.com