“If the platform is going to issue the notification for you, you will still keep the liability for it unless they provide you with an indemnity, which I imagine is unlikely,” he says.
“Wouldn’t you want to see the list of people the notification is to be issued to for double checking?”
In cases where platforms plan to provide advisers with the information needed to notify clients, he again warns that preparation is necessary.
“Do you have email addresses for clients or just postal addresses?” he asks. “If postal, do you have the ability to export and mail merge data and issue a letter in a day?”
Disclosing time
There are other challenges to be addressed. Under Mifid II rules, advisers must provide individuals with a presale cost disclosure comment, setting out an annual forecast of costs and charges, as well as the impact these have on investment returns. Table 1 sets out the fees in question. If an investment is bespoke, these reports must be tailored accordingly.
Table1: Product costs to be disclosed to clients under Mifid II
| Type | Description |
| One-off costs | One-off costs include entry and exit costs |
| | One-off costs are applied to the gross investment amount |
| | |
| Ongoing costs | All fund costs and expenses, including the annual management charge |
| | |
| Transactions costs | Transactions costs can be divided into explicit and implicit costs |
| | Explicit – the brokerage, tax and commission charges added to the transaction settlement amount.These costs can be clearly identified and quantified |
| | Implicit – the ‘arrival cost’ or slippage, ie bid/offer spreads |
| | |
| Incidental costs | Performance fees |
| | If historically a performance fee has been charged but has subsequently been eliminated, then you should show n/a |
| | Performance fees apply to the net investment amount (after entry costs) |
| Source: Tisa. Copyright: Money Management |
Firms must also provide a quarterly portfolio valuation for those clients who have not checked this online in the past three months, and a summary of all product and service costs throughout the year. In the case of the latter, clients can demand a more detailed breakdown of such costs.
Importantly, all these charges must be displayed as both a cash amount and a percentage. In some cases, that is likely to mean clients get a clear sense of what they are paying for each part of the value chain for the first time. As the Lang Cat’s Mark Polson points out on page 20, this could result in further price pressures.
A further difficulty arises from the fact that the FCA has insisted it will not provide a template to illustrate how charges should be displayed. It has said a “one-size-fits-all” approach would not work, given the range of different business models that exist.
Nonetheless, the Tax Incentivised Savings Association (Tisa) has produced its own template for both providers and distributors, advisers included. Table 2 displays one example of possible presale disclosure, explaining the effect of charges on cumulative returns.
But the demands on firms extend beyond client reporting. Because they can count as ‘distributors’ of investment funds, intermediaries must be prepared to assist asset managers on various fronts. This includes assessing whether products are reaching the correct target market, and which offerings should be dubbed ‘complex’, a designation that requires prospective investors to complete an appropriateness test.
Table 2: Example breakdown of charges' effect on £500,000 investment
| Investment period | One year | | Five years | |
| | £ | % | £ | % |
| What you might get back without charges | 526,000 | 5.2 | 642,000 | 28.5 |
| What you might get back after charges | 515,000 | 3 | 579,000 | 15.9 |
| Cumulative effect of costs and charges on returns | 11,000 | 2.2 | 63,000 | 12.6 |
| Assumes no entry or exit charges at portfolio level and a net growth rate of 3 per cent. Source: Tisa. Copyright: Money Management |
