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Global Trustee and Fiduciary Services News and Views | MiFID II Special Edition 2016
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Overall, the costs and charges disclosure
requirements under MiFID II are likely to
pose significant organisational and logistical
challenges for most firms. Whether they result
in increased competition based on fees within
the industry remains to be seen. Nevertheless,
the increased transparency should enable
investors to make better informed choices,
and over time less competitively priced product
offerings should become less attractive.
Reporting to investors: quarterly reports
MiFID II will require portfolio managers to
report portfolio losses exceeding 10% to
clients. This will likely require asset managers
to develop and implement systems that can
monitor client holdings and trigger such
notifications. Naturally firms will want to avoid
any potential client panic and/or overreactions
arising from such notifications and so firms
should consider whether such notifications of
portfolio decreases should be accompanied
by appropriate explanations of the loss in
capital value, including the advantages and
disadvantages of holding on to the investments.
Asset managers should look to work with their
fund administrators to develop solutions for
such notifications, which may also require
upskilling and additional resources within
investor communications functions.
Inducements
Under MiFID II, asset managers will be barred
from receiving third-party inducements for
their portfolio management services and firms
providing independent investment advice
will also be prohibited from receiving such
inducements. The UK’s Retail Distribution
Review (RDR) already imposes bans on
inducements for firms providing investment
advice to retail clients (irrespective of whether
this is independent or restricted). However,
MiFID II broadens this ban to portfolio
management services, irrespective of the type
of client. For those UK distributors who do not
provide investment advice and are therefore not
subject to the UK’s RDR regime, MiFID II requires
such distributors who can receive inducements
from asset managers for the marketing of their
funds, to evidence how each inducement would
enhance the service provided to their end
clients. All inducements that do not pass the
quality-of-service enhancement criteria should
not be accepted by distributors.
Moreover, the FCA’s publication of the key
findings from its Inducements and Conflicts
of Interest thematic review re-enforces this
emphasis on being able to evidence specific
enhancements to quality of service and an
appropriate assessment of all aspects of
Table 2
All MiFID II costs and associated charges related to the financial instrument that should form part of the amount
to be disclosed
4
Cost items to be disclosed
Examples
One-off charges.
All costs and charges (included in the price
or in addition to the price of the financial
instrument) paid to product suppliers at the
beginning or at the end of the investment in
the financial instrument.
Front-loaded management fee, structuring fee,
distribution fee.
Ongoing charges.
All on-going costs and charges related to the
management of the financial product that
are deducted from the value of the financial
instrument during the investment in the
financial instrument.
Management fees, service costs, swap fees,
securities lending costs and taxes, financing
costs.
All costs related to the
transactions.
All costs and charges that are incurred as
a result of the acquisition and disposal of
investments.
Broker commissions, entry and exit charges
paid by the fund, mark ups embedded in the
transaction price, stamp duty, transactions tax
and foreign exchange costs.
Incidental costs.
Performance fees.