Navigating the labyrinth of investment fee charging
By Dave Chessell - March 8, 2021
Back in 2018, the MiFID II directive looked like it would put an end to any confusion around what investors are being charged. Its aim was to seek to make the cost of investing in products completely transparent and comparable, requiring the disclosure to clients of all costs and charges involved in an investment fund or portfolio of funds, both before investing (ex-ante) and after investing (ex-post).
For the first time, this included disclosure of the transaction charges incurred when buying and selling underlying securities. The directive’s effect can be summed up quite simply: “Disclosing transaction charges is not optional – just providing clients an ongoing charges figure (OCF) is no longer sufficient”.
Sadly, confusion still occurs and advisers do not always have all the information they need to communicate the true costs to their clients.
This is because some costs, particularly some transaction costs, are hard to calculate in the first place and so are less reliable and trickier to interpret.
In addition, full MiFID II charges are not usually shown on fund factsheets and are not always transparently provided by some investment managers. They are also not necessarily included in Key Features Illustrations (KFIs) provided by platforms as the FCA does not strictly require them to be. Consequently, they are not always easily accessible to advisers.
That said, if you know what to ask for, they can be specifically requested from investment managers who have a regulatory requirement to provide them, or they can be sourced from specialist data providers like Trustnet/Financial Express.
We are aware that there is a fair amount of frustration among advisers when they realise that they are not getting the full facts for their clients, so we’ve recently put together a guide that aims to demystify these charges.
The Portfolio Charges Explained guide is free to download and details:
What each MiFID II charge category refers to.
What each charge covers.
How counterintuitive results sometimes emerge (for example negative transaction charges).
Why, when it comes to charges, lower isn’t always better.
Hopefully, the guide is a useful tool for any adviser who finds themselves scratching their heads when trying to compare like for like on costs that are presented by different providers.
If you are an adviser and this is an issue you’ve encountered, I’d love to hear your views and what you think of our guide.