Article 50 of MiFID II states that an adviser must “provide annual ex-post information about all costs and charges related to both financial instruments and ancillary services where they have recommended or marketed the financial instruments, or, where they have provided the client with the KID/KIID in relation to the financial instrument and they have or had an ongoing relationship during the year.”
All very straightforward, right?
Despite the MiFID II roll-out being delayed a year to January 2018, and a further 12 months having now passed, many providers, even those offering a platform, are still unable to provide the necessary data to help you keep your clients adequately informed.
So what can we do?
In absence of actual data, the next best thing is an approximation. Importantly, COBS does not say the charges can be approximate. However, if providers cannot, or will not, provide the correct data we expect the FCA will tolerate a ‘best endeavours approach’ until all the providers can provide the information.
What is a ‘best endeavours approach’?
If you have to approximate the clients incurred charges there are two key points that must be considered – consistency and clarity.
The FCA require all client communications to be ‘clear, fair and not misleading’.
In instances where the need for approximation applies it is vital that the client is informed that this is an approximation, based on the current value, and that the actual charges paid may be greater or lower than the figures quoted.
How do we calculate approximate charges correctly?
The FCA do not set rules, so there is not an absolute right or wrong way.
However, the approach we adopt is to use either the client specific charges or where these aren’t available the published charges for a product/service against the value. This provides an illustrative figure.
It is also important that the client is made aware of the impact that the charges have had on the investment return the client achieved over the previous 12 months.
Getting this naked in front of clients could be a scary thought, but we recommend using this as an opportunity to reinforce the value of your relationship rather than just letting the client focus on the cost.
We may take it for granted that we spend 50 hours a year on CPD, or studying for additional qualifications, or paying for insurance to protect the clients, or undertaking due diligence on all the providers or all the other things you do that put the client front and centre.
Spelling it out to a client helps them understand the value of what you do rather than just the cost.
It also stops the focus of the conversation being about linking your fees to performance, which is a really dangerous conversation and one on which you have no control over whether the client comes to the meeting with a frown or a smile.
‘Consistent and Clear’ – how does that look?
Technically, we are not required to confirm the charges paid as a percentage figure nor are we required to provide a breakdown of the charges, but they must be available upon request.
However, we firmly believe clarity is vital and as such provide £ and p figures as well as the % figure used to calculate their approximate charge.
In addition, breaking the constituent parts down to show them individual is useful as well as building them together into an overall aggregated charge.
Straightforward and Simple?
Whilst provisers make it hard to deliver the letter of the law, no-one can criticise you for following the spirit of the law. A consistent approach and a commitment to being as transparent with your clients as you possibly can is the right way to go.
As with a lot of the developments we have experienced as a profession over the last 20 years or so, there is no doubt that giving the client more information is a good thing.
The problem is the added work that comes from providing the information.
This is where a great collaborative spirit between support, paraplanning and advisers makes the magic happen.
If you would like to see examples of what we consider to be good practice, please feel free to get in touch and with so much going on, we have also decided to offer firms 60 minutes consultancy at our expense on your readiness for PROD.