InvestmentsApr 11 2019

Advisers face headache over cost disclosure

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Advisers face headache over cost disclosure

The rules, which stem from the The Markets in Financial Instruments Directive II, require an adviser to show the client their total cost of investing, including a breakdown of individual transaction costs.  

The majority of adviser platforms FTAdviser spoke to stated they would only be able to provide advisers with data for a set period of time, for instance a calendar year as defined by the platform, not a discrete time period chosen by the adviser.

This means advisers face an "onerous amount of work" trying to figure out transaction costs, according to Minesh Patel, adviser at EA Solutions in London, because advisers conduct annual reviews with clients throughout the year, and if a platform only offers the disclosure to the end of the previous calendar year, the information will not be up to date.

Mr Patel said: "I have thought for a while that platforms and others in the industry are not ready for the transaction cost rules, despite having had time to do this.

"Really we should be able to do this with just a couple of clicks, but if they don’t have discrete dates, then we need to go to different parts of their system to find [each transaction], and that really is an onerous amount of work for a small firm such as ours."

The two Standard Life-owned platforms Wrap and Elevate, Zurich and Nucleus are the only platforms who confirmed to FTAdviser they will offer flexibility around setting dates from day one.

A representative of Standard Life said: "Advisers will be able to create their own summary by selecting the end date to be reported on. The summary is automatically created covering the 12 months up to the date chosen (or since inception, whichever is the shorter.)"

Aegon confirmed advisers can receive discrete dates, but must request this information from the platform, rather than access it automatically.

An Aviva representative said it will not initially offer discrete dates.

The representative said: "Advisers will be able to view the disclosure documents via their clients’ platform correspondence library.  

"Our initial specification for the ex-post costs & charges disclosure document will use a fixed reporting period determined by client plan anniversary, but we recognise the benefit of enabling advisers to specify the period covered, and plan to include this in a later stage of development."

A representative of Ascentric said the company will monitor demand from advisers before introducing a discrete pricing structure.

Mike Barrett of consultancy firm the Lang Cat said transaction reporting was on the top of advisers' concerns when it came to Mifid reports and not facilitating flexible reporting could create problems for many.

He said: "If an adviser has a client with all of their assets on one platform then it might not be too bad, the report might be adequate, because the client is getting one report from one platform.

"The dates might not align completely, at least the adviser can say to the client ‘there is one report’. The problem comes when a client’s assets are on multiple platforms and they are receiving multiple transaction reports from different platforms throughout the year, and the adviser at annual review time has to contend with all of those different reports."   

He added: "From the conversations we have had with advisers, this is definitely an issue that is important enough that they would switch platforms. Advisers are slow to move, these things take time, but it will happen."

Philip Milton, who runs PJ Milton and Co, an advice firm in Devon, said this situation may create an element of "lip service" from advisers, putting only enough work in to create disclosures that are the minimum the regulator will accept.

The rules presently require providers to supply the client with an annual statement showing the total charges paid in the last 12 months. It is up to the provider or adviser to define exactly what 'the last 12 months' means, so in theory advisers could align this to the client review. However, there is no requirement to do so.

Passive investment funds are treated by the regulations in the same way as any other investment fund, so the transaction costs, which are likely to be very low, must be reported. 

Mr Milton added: "In theory the rules demand that the costs are shown for the period under review…how is that circle squared or more importantly, is anyone going to do anything about it at all.

"Then of course, how accurate are the charges really – and what do the figures truly show and do they really reflect what the future charges may be (eg on transaction costs) for an unknown quantity of underlying transactions."

Mr Milton said too much time was spent on the headline cost pointing to the adage of 'it is only a fool who knows the price of everything and the value of nothing'." This whole affair falls neatly into that basket and no, that’s no excuse for excessive charging or bad products," he added.

david.thorpe@ft.com