Ah, December. Season of crisps and shallow mindlessness, or something like that. A season much beloved by columnists, who open 11 Word documents and start heroically cutting and pasting. Stick a ‘Review of the Year’ first paragraph on it and boom! In the pub by 11am.
So in an effort to try to be a little less predictable, I’ll spend much of this column musing on a couple of things that have got me stroking my chin(s) as 2017 fades in the rear-view mirror.
First, we need to talk about Mifid II. As I write, there are about 31 days left until its live date, and I don’t think I’m stretching the truth when I say I haven’t seen a single business – platform or adviser – that is properly ready.
Whether it’s the 10 per cent drop rule, data on target client suitability, quarterly statements, ex-post disclosure of costs, conflict of interest management or pre-switch cost illustration, Mifid II reaches right into the heart of advisory and planning businesses in particular, and attacks the back-room processes we have all grown used to over the years.
Not only that, what it delivers is something that adds precisely no value to firms. Arguably, it’ll subtract value as the industry tries to pick its way through the minefield and second-guess exactly what transgressions will end in a slap from the regulator, and which will be nodded at – for a while at least.
The most profound aspect of Mifid II is the one that’s furthest away – annual disclosure of the total amount of charges an individual is exposed to. That is what’s called ex-post disclosure (the industry uses Latin to try and exclude normal people in the name of inclusion again), and it could be absolutely critical in arming clients to get much more interested in what they’re paying for and what they get.
Even when people can do percentages in their heads, they don’t, and attributing ‘value’ to, say, a 0.75 per cent adviser charge on an amount of money you won’t access for a decade or two is pretty hard conceptually.
But if you know that your £200,000 self-invested personal pension cost you £1,500 for adviser service, £700 for the platform and £2,200 for the investment fund, so a shade over £4,000 for the lot, then you might start asking yourself some questions. Specifically, whether each bit of the chain was worth it, and what ‘worth it’ means.
To date we’ve had disclosure, but it has always been separated out in one way or another. This is a whole new ball game. I’m not saying it will cause clients to switch off – but it will make it easy for people to compare, easy for journalists to write about, and easy for troublemakers like my business to analyse.
That in turn leads to understanding, which leads to empowerment for clients – and that empowerment often comes with a new-found interest in negotiation.
I think we’ll see some pre-emptive moves from the more fully priced end of the market to bring things under control a bit. Multi-asset providers and advisers charging 1 per cent or more will probably be the first to feel it.