Despite Esma guidance, advisers are highly likely to see that different assumptions have been made by different providers and also by the different illustration tools. With different basis for showing how the costs are comprised and calculated, illustrations, as well as the calculations, will look very different depending on who is providing them. This makes it complicated for advisers and investors to make any comparisons.
We anticipate that during the next 12 to 18 months, industry and the regulator’s thinking on best practice will evolve and illustrations will become more standardised.
● Target market identification
There are two aspects to this. The first part is the ‘downstream’ provision of target market information from the fund manager to the adviser. It is important to note that target market information is not aimed at the investor, though it can of course be provided to them, the information is intended to inform the adviser. This includes details, such as the type of client (for example, retail or professional), the client’s knowledge and experience, their financial situation, risk tolerance and, finally, their objectives and needs.
Advisers should take note of this target market information and build this detail into their suitability decisions. It would seem wise for advisers’ record-keeping to make clear that they are aware of the target market information and that the detail is used in their advice processes. If advisers demonstrate a robust process that includes target market information as part of establishing client suitability this is likely to be acceptable to the Financial Conduct Authority (FCA).
Fund managers have spent the past year or more identifying the target markets for all open products in their ranges and this work is well advanced. They are making this data available to data aggregators, platforms and advisers, for example via the European Mifid template.
Here again there is expected to be some gaps and inconsistencies in the way details are presented. So, as part of the roll-out of the target market information during 2018 there may be situations where advisers and platforms will have to say that they can no longer deal with certain assets if the target market information has not been clearly defined.
The focus so far has been on getting the fund manager target market data in computer-ready format for dissemination, as mentioned above. We expect fund managers to produce user friendly narrative that is, versions of the target market information, either within existing documents, such as the prospectus or, perhaps as new stand-alone documents in their literature suite.
