langcat has published research on what platforms are doing for ex-post reporting here. We'll be discussing this at this month's online Howwow and you can sign up for that here.
Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern. Republican.
Some really good research, just a shame the one platform I wanted hasn't responded!
There's one missing from there that I was hoping would respond too.
Thicko here: Are they referring to the disclosure of platform costs only? Or will platform costs incorporate what funds are held on it too?
In other words, are we expecting similar disclosure from the underlying funds managers too?
These should include platform, advice and investment costs.
oh wow, that's pretty helpful!
Here's an example
I like it.
Seems like an adviser would be encouraged to take an OAC from the platform rather than invoice the client for fees, so that you could just lift off this report and use it yourself?
I'm thinking the same as you there Aron. It's a much easier way to comply.
@richallum those are some chunky service charges on that example!
@benjaminfabi that's a sample provided by a platform but I agree. One of the issues I have with these so far is that the total value of the portfolio isn't shown. That would give context to the charges.
The other broader issues (we've encountered and shown here, i think):
We're using the real £ and p to show the client, and that's all good. But then we're dividing that figure by the end of period fund value to convert it into a %.
The percentage is misleading because, if you're charging 0.5% pa OAC, for example, and the fund value increases/decreases over the period, it looks like you've actually charged less/more than the agreed terms.
In @richallum example it shows 2.74% based on a static fund value and 2.36% as an 'effect'. Client and me (I don't mind admitting) find it confusing to have 2 different values, effectively showing the same thing.
I say: Only use £ and p and not percentage equivalent.
Perhaps a stand alone comment separate from the table which says: "Based on the current OAC of 0.5% , platform fee of 0.25% and OCFs of 1%, this is what has been paid from your investment to cover those costs"
That's a big issue we're thinking about. Money in/out during the year doesn't help either.
The bit i'm still struggling with is the level to which we are aggregating the costs. For example we have clients holding ISA, GIA, SIPP, VCT and Investment Bonds, some accounts on platform and some off. In the past we have provided clients with total platform, fund and adviser costs across all accounts in a consolidated annual charges table.
From what I've read so far i don't see how this is going to be possible (at least in the short term) as platforms will be providing the data on different dates. Does breaking the cost down to wrapper level have the potential to hide the total costs that clients are paying?
That example isn't helpful in explaining that the charges of 2.74% are constantly applied to a fluctuating fund value, hence 2.36 effect.
Parmenion has opted to disclose only monetary figures for the effect of charges element of the calculation, for precisely the reasons you highlight @arongunningham. Its statement is the best one I've seen and the example is at this link ***
***edit link deleted, file attached in the post below
I have been fully disclosing all costs for years, and the only way I have found you can do it (especially in light of MifidII) is to pick a static figure. As an IFA firm, we annually write to clients and inform them of the actual advice charges that they have paid over the last 12 months. For any new business we detail what the 12 month portfolio charge would be on the figure being invested and the cost of investing on that platform with their suitability report.
As aron and other mention above the figure will fluctuate daily and thus the only way to discover how much the platform charge and fund charges have been is for each provider to detail this in a statement to each individual client. Thus their responsibility, not that of the IFA, as virtually impossible to orchestrate for each client.
These disclosures are all well and good, however what I find extremely difficult to understand are the projected figures/provider illustrations. I have questioned these with various providers over the last 12 months, and with external compliance. My statement to them was that the figures are made up and therefore an irrelevant reporting requirement deemed crucial by the regulators. Each of these discussions included the provider etc laughing at my theory that you could pluck a number out of thin air as there is no real performance measurement involved. However no one could explain why each figure selected in their illustrations were used and also confirmed that the charging structure attached to the quoted future performance figure did not make any sense. Hence my theory that they were made up.
The closest I got to an answer was from Old Mutual who confirmed that they do not know what fund managers will charge over the next year and therefore the projections are estimated. Therefore the issue lies in how to explain, should a client ask, that the projected costs can be "ignored" because they are made up and the only thing to consider is what they have paid over the past 12 months.
Additionally not all providers include the full transactional costs involved with investment on their illustrations. For example, Old Mutual disclose any spread on a fund in their incidental costs, however ARC and Nucleus do not even though they have acknowledged that they are aware of them. In my view this is not providers fully adhering to the full disclosure proposition.
Hopefully with the ever increasing transparency in the industry these fund managers will be targeted next and then the issue regarding provider illustrations can be resolved.
An issue that is concerning our investment team is the data sources platforms are using to disclose transaction and incidental charges on funds. We've ended up using a combination of FE, Morningstar, and going direct to the fund managers to get a reliable figure. All three sources (in many cases) are quite different from each other. There is a strong probability that the ex-post disclosures from some platforms will be incorrect as a result...
Hi Ben, just tried opening your Parmenion stmt and got
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here you go
You can watch the MiFID II Howwow playback here.
We'll upload examples of charges documents shortly.
There were a few questions we didn't get to or you might want to discuss further...
From Janeen: We like many IFAs have a split of clients across Platforms and many clients with Bespoke DFM Portfolios (externally managed). Platforms are incorporating Adviser fees as part of their charges disclosure, DFMs are not. We are responsible for informing the clients of the Aggregated Costs and Cumulative Effect. I'm keen to understand how others are approaching this and any tips/calculators available. Thanks :-)
From Rebecca Tuck: How are people planning to include ongoing charges in annual reviews now? We've always tried to disclose this (as best we can) but without being able to bespoke the time frame, the client is just going to end up with two different sets of figures, which is only going to confuse matters more.
From Stuart Edwards: Are there any changes planned in respect of the FCA mandating that the OCF/TER is used on provider illustrations? Recall we had the contradiction of one being required for the core quote, then the cost and charges statement needing to disclose expected costs including transactional (i.e. for Lifestrategy, 0.22% on illustration for RIY purposes, but the 0.44% in the Costs and Charges section)?
From Elaine Warner: Hi, I work for myself and have around 6 clients from networks to IFA's. I am seeing many different approaches and therefore I have devised my own cost calculator to take into account all fees (transactional, incidental etc) - This of course all relies on the provider issuing the information to us as many of my clients have a multitude of policies. I too, am very interested to see what others are doing and very happy to share any info/documents I have done.
From Hannah Newbery: I am getting very mixed messages regarding non platform tax efficient investments such as VCT, EIS and ITS. Any guidance welcome.
From Kim Bendall: Some transaction charges being disclosed for certain funds is disproportionately high - for example when Absolute Return funds are required to disclose high levels of performance fees, which would only be payable by clients if their fund produced massive returns - e.g. 35% or more in a year. The result shows that they are charging up to 8%pa in some cases, which makes it hard for advisers to justify recommending them. Is this reasonable, and how do you explain this to clients (if at all)?
From Jonny: From a clients point of view, surely this is all missing the point as there's going to be no consistency between what they get from different providers, advisers etc. Plus what they get, might have been calculated slightly differently so they can't do apples vs apples comparisons.
From Lisa Stephens: Has anyone tried using Intelligent Office's template for aggregated costs yet?
And in case you missed it first time round, here's the lang cat research.
Mike from langcat has posted a good summary of the discussions on the Howwow here.
I've attached the example statements we talked about below. Ascentric has dummy numbers in - they were very happy to show the format of the statement in the Howwow and we're grateful for that. They all have fictional clients in. Lots of our platform friends tuned in yesterday and hopefully took a lot from the constructive comments shared. if you have anything else you'd like to share, add a comment below and I'm sure they'll see it.