MIFID II – Ex-Post

Image result for postbox cartoonMIFID II, is it over with yet?! Like a guest at a dinner party overstaying their welcome, MIFID II is still absorbing the resources of regulated firms throughout Europe. One of the remaining hurdles poses quite a challenge and, of all the changes under MIFID II, the one which will most likely create the most questions from clients. I am, of course, referring to the Ex-Post Costs & Charges disclosures.

From January 3rd, 2018, at the point of investment, clients captured under the MIFID II regime, will have received an estimate of the charges they’ll incur over the year in the form of an Ex-Ante Costs & Charges disclosure. This disclosure is to be followed, a year later, with an Ex-Post Costs & Charges disclosure report pertaining the charges the client has (or a close estimation) incurred throughout the year.

Various industry bodies are offering some guidance on the format of these disclosures, with Investment Services Charges split from Investment Product Charges, so it’s clear to the client how much they’ve paid for advice and/or discretionary investment management services vs the costs from the Investment Products (Assets) they hold. Charges will be broken down into categories defined below;

One Off Charges

Ongoing Costs

Transaction Costs

Incidental Costs

Ancillary Service Costs

In the absence of a flux capacitor, it’s extremely hard for firms to provide clients with accurate Ex-Ante costs and charges disclosures, owing to several varying factors (like performance!). That brings into question the relevance and these Ex-Ante reports. One thing we’re sure they’ve done, is to raise awareness as to the amounts clients are being charged. This awareness will be fixed on Q1 2019, when clients will receive their Ex-Post Costs & Charges Statements, providing a breakdown of the charges they’ve actually (or a close estimation!) incurred over the year.

With that in mind, clients will be looking at their Ex-Post Costs & Charges disclosures, with great interest. It’ll be the first-time clients see their charges laid bare in this format. Furthermore, and arguably the most important factor, investors will see the impact these charges have had on the performance of their portfolio. All in a PDF, once a year?

Seeing this type of information will no doubt raise questions in the Client’s mind.

  • Why am I paying this much in ongoing charges?
  • What has contributed to these charges?
  • Are there cheaper assets I could invest in?
  • Is my adviser worth these charges?

These are valid questions, and one’s that should be easily answered by advisers or wealth manager, or better, proactively investigated on a regular basis. If a client does object to the level of charges and wants to see evidence of a reduction in these fees, by way of different asset types etc, are they expected to wait another 12 months to see the results? We don’t think so…..

Our new MicroService, CoCa, tackles these challenges. It produces MIFID II Ex-Post Costs and Charges disclosures with a choice of outputs to produce PDFs and an innovative web portal with a look through function. Uniquely, this module has been designed to produce these PDFs at any point throughout the year, with the option of a drill down function so clients can see exactly which transactions have contributed to transaction costs and which assets have produced the most charges in the Ongoing Charges, under the Investment Product costs. Something, I’m sure will be hugely interesting given the ongoing active vs passive debate..

  • Ad-hoc production of PDFs at any point with a YTD summary if requested by clients
  • Detailed breakdown of each charge category to see which transactions and holdings have contributed to the calculations
  • Highly accurate performance reporting figures including Modified Dietz and Internal Rate of Return
  • Seamless production of yearly PDF statements with no impact on core back office technology

Tim Williams

Business Development Director – FinoComp

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