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Markets and Securities Services | Issue 46
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charges information. In addition, even when
dealing with professional clients and, in some
circumstances, eligible counterparties, funds
which embed derivative products will require a
more detailed costs and charges breakdown.
The requirements regarding costs and charges will
also require firms to aggregate them into different
categories. The categories are relatively broad,
but even so, retail clients will be able to request a
more detailed breakdown for each category. This
means that asset managers will need to consider
implementing systems and processes to identify,
categorise, calculate and report on relevant
costs and charges within the funds at a much
more detailed level. Asset managers could face
significant challenges in making some of these
disclosures, for example information needed may
not be readily available at the point of the sale of
a fund. Thankfully, the rules recognise that
on a pre-investment basis costs and charges
disclosures can be based on estimates, while
post-transaction costs and charges should
comprise an aggregate and a percentage amount
based on the client’s actual investment amount
and must be made at least annually.
As mentioned, the disclosures should provide
greater transparency and give clients the ability
to better compare multiple products. However,
where a firm is subject to the PRIIPs Regulation
and is relying on making disclosures through
the publication of a Key Information Document
(KID), clients will have distribution costs disclosed
separately. As a result, clients may still struggle
to compare charges on a like-for-like basis. The
implementation date for PRIIPs is set for 31
December 2016 so before then firms will also
need to consider whether they implement a
tactical solution for costs and charges disclosure,
or whether they opt for a full strategic solution
that also covers both PRIIPs and MiFID II
requirements. Potentially, this is an even bigger
challenge for distributors who deal with end
investors and who invest amounts across a range
of products and manufacturers. Distributors
should consider system solutions to obtain actual
costs and charges from manufacturers to be
aggregated on a client-specific basis for post-
investment reporting purposes. The logistical and
system challenges posed by these requirements
may be a further catalyst for distributors
to assess their current product suites and
streamline the number of product manufacturers.
In addition, for UCITS managers the UCITS KIID
does not contain all the information disclosures
required under MiFID II, particularly with regard
to the cost of transactions. Consequently,
asset managers should conduct a review of
their products and disclosure requirements
across PRIIPs, UCITS and MiFID II to identify
the most cost-effective and -efficient systems
and processes to produce and provide these
disclosures to clients and distributors.
Table 1
All MiFID II costs and associated charges levied for the investment service(s) and/or ancillary services provided to the
client that should form part of the amount to be disclosed
3
Cost items to be disclosed
Examples
One-off charges related to the
provision of an investment service.
All costs and charges paid to the
investment firm at the beginning or at the
end of the provided investment service(s).
Deposit fees, termination fees and
switching costs.
Ongoing charges related to the
provision of an investment service.
All ongoing costs and charges paid
to investment firms for their services
provided to the client.
Management fees, advisory fees,
custodian fees.
All costs related to transactions
initiated in the course of the
provision of an investment service.
All costs and charges that are related
to transactions performed by the
investment firm or other parties.
Broker commissions, entry and exit charges paid
to the fund manager, platform fees, mark ups
(embedded in the transaction price), stamp duty,
transactions tax and foreign exchange costs.
Any charges that are related to
ancillary services.
Any costs and charges that are related
to ancillary services that are not
included in the costs mentioned above.
Research costs.
Custody costs.
Incidental costs.
Performance fees.