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.”
Behavioural finance found people were particularly prone to making rash decisions in periods of stress, he said.
“Investors might panic and bail out and crystallise a loss [when hearing about the drop],” he said.
“Anybody who doesn’t have to report it I don’t think should do. I don’t think it’s right and I also think the FCA has quite significant reservations about the effectiveness of the measure in general.”
He added: “The FCA recognises the limitations around disclosure and whether clients read it, their focus is more on the [governance] of firms and giving suitable advice.”
Chris Noon, partner at pension consultancy Hymans Robertson, said the alerts were suitable for people in investments as a way of keeping them informed of how their assets were performing.
But he pointed to problems with products like drawdown, where people were working towards a specific goal, which could be influenced by many more factors than market falls.
“If it’s not goals-based saving it makes sense but otherwise it’s quite blunt, especially in drawdown.
"[Instead] advisers should be alerted when the chances of achieving a client’s specific goals are at risk,” he said.
“What is the probability that you are going to be able to deliver that plan?”
Alan Turton, founder and managing director or Rowley Turton Private Wealth Management, branded the rule "counterproductive".
"A 10 per cent movement is to be expected virtually every year in an equity based portfolio.
“If we write to clients informing them the market is down it could result in clients moving their assets to more cautious investments at exactly the wrong time.”
Particularly where pension assets are concerned, “the problem is the new rule makes no distinction between what could be a short-term portfolio or a long-term portfolio where a 10 per cent drop means very little,” he added.
FT Adviser asked platforms whether they would report a 10 per cent drop on pension assets (as long as they sit within a discretionary managed portfolio) and who they would report to:
Platform | Alert on pensions | Who is alerted | Further comment |
Hargreaves Lansdown | Yes | Client | |
Novia | Yes | Adviser, DFM | |
James Hay | Yes | Adviser, client | |
Nucleus | Yes | Adviser, DFM | |
7IM | Yes | Adviser | |
Standard Life | Yes | Adviser, DFM | |
Old Mutual Wealth | Yes | Adviser | |
Fidelity | No | “The daily report is available across all our products apart from the pension as pensions are outside the scope of the MiFID II rules.” | |
Aviva | Yes | Adviser, DFM, client | |
Ascentric | ? | “As Mifid II regulations do not apply to insured pension, we’ve not replied to the second part of your question.” | |
Aegon | Yes | Adviser |
|
Zurich | Yes | Adviser, DFM, client |
