It must also be reported when further tiers of 10 per cent loss are experienced, such as 20 per cent, 30 per cent etc. Also, a portfolio may break the 10 per cent depreciation barrier then regain ground and break the 10 per cent barrier for a second time.
Opinions differ on whether the portfolio should be reported a second time or not, but many believe it should.
The result, however, is that results must be recorded so that they can be considered the next day in order to determine whether an investor is to be reported.
Industry Reaction to this Regulation
This particular regulation invokes the scorn of many and is the subject of many irritated comments for any online article on this topic.
One line of argument is that this would happen so rarely that it just will never happen (clearly wrong).
Another line of argument is that all this regulation does is invoke a panic in the retail investors which would, in turn, likely cause them to want to sell out of assets at the bottom of the market.
This has not been the case in data analysis we performed on the last depreciation event during Q4 2018.
Because of the perception that this is a rare event, many participants who perform the 10 per cent depreciation reporting are poorly prepared for a significant market correction such as we are experiencing now.
Many reporting routines do not consider the performance position on the prior day and so newly reportable cases need to be identified manually.
Many reporting routines have been implemented to simply list any investors who have experienced a 10 per cent depreciation event and all of the generation and delivery of investor reports and communications have been left as manual tasks.
When all is said and done, the regulation has been enacted and must be complied with.
The spirit of the regulation is to ensure that investors who do not make their own investment decisions are aware of losses in falling markets.
That intention seems reasonable to me since it is their money that is eroding.
It is, of course, the role of the financial adviser to present the message in a manner that promotes calmness and focuses on long-term investment goals.
What Is Happening Right Now
As I sit here observing the FTSE at just over 5200 after breaking into 2020 north of 7500, that means this quarter the local equity markets have fallen like the walls of Jericho a monstrous 30 per cent.
The MiFID II 10 per cent depreciation reporting regulation for discretionary accounts comes to front of my mind.
