Fidelity breaks platform ranks over 10% drop rule

Fidelity breaks platform ranks over 10% drop rule

Fidelity will not alert clients when their pension assets fall, breaking ranks with a number of its investment platform peers and calling into question the appropriateness of a new rule which says investors should be told about paper losses.

Under the second Markets in Financial Instruments Directive, or Mifid II, rules, platforms holding assets in discretionary managed portfolios have a duty to alert discretionary fund managers or advisers, or indeed their clients, when a portfolio falls by 10 per cent or more in the quarter.

Strictly speaking the rule only covers investments, not pension assets, even if they are held in a model portfolio.

FTAdviser asked 12 platforms whether they would nevertheless alert on assets held within pension wrappers, which the vast majority pledged they would do.

In fact, only Fidelity told us outright it would not alert on pensions, while Ascentric did not answer the question.

A spokesperson for Fidelity said: "The daily report is available across all our products apart from the pension as pensions are outside the scope of the MiFID II rules.”

Zurich, Aviva, Standard Life, 7IM, Novia, Nucleus, Hargreaves Lansdown, James Hay, Aegon and Old Mutual Wealth all said they would alert, most writing directly to the pension investor's adviser.

Alistair Wilson, Zurich's head of retail platform strategy, said: "Advisers may find it strange if pensions are excluded from a platform's MIFID II solution. 

“The growing volume of pension pots being accumulated on platforms means that, for many clients, these assets will represent their largest investment and shouldn’t be ignored.”

Research from Zurich showed if the new requirement had been in place for the past five years, a client wholly invested in the FTSE 100 would have been alerted of a 10 per cent drop within a three-month period on merely one occasion.

Going back to 1984, there would have been 25 notifications since the start of the year, most of those activated around the 2001/02 and 2008 financial crises, according to the insurer.

Despite this, Mr Wilson said he was pleased most platforms had identified the gap in Mifid II rules and decided to go beyond what is required of them in order to ensure “advisers and their clients get a clearer overall picture of their investments”.

But he said platforms could go further still and could notify advisers if there is a fall in their own portfolios.

He said: “The 10 per cent drop applies to portfolios run on a discretionary basis. Billions of pounds are also invested in adviser led models which aren’t caught by this legislation.” 

But not everyone shares the view notifying clients is a positive thing.

Rory Percival, former technical specialist at the Financial Conduct Authority (FCA), now head of his own adviser consultancy, pointed to flaws and potential unintended consequences stemming from the reporting rule.

He said: “Advisers need to recommend the investment that is appropriate to the client’s risk profile and attitude to risk.

“If an investment is right for them it’s right for them and [drops are] just the way markets behave.”