Mifid II ‘well intentioned’ but a ‘mess’ so far

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Nov 21, 2019

Cost and charges disclosure regulations were “well intentioned” but are yet to deliver “positive outcomes” for the end client.

That was a view shared by panellists at the Lang Cat’s DeadX event in London yesterday as they discussed the effectiveness of Mifid II.

The Verve Group founder and director Cathi Harrison said: “Mifid II was well intentioned and I think if what it was trying to achieve had happened that would have been a positive thing.

“But, so far, it’s just been a mess. It’s caused more headaches and I’m not seeing any actual positive outcome for the end clients.”

She added: “I’m seeing a whole lot of extra work for advisers, for paraplanners, for administrators, presumably for providers as well.

“They are doing all this work to get transparency and disclosure but there is a risk of going too far the other way.”

Harrison suggested it would be more beneficial to “cut through all of that” and get “absolutely clear” on one all in total charge that would mean something to the client.

Fidelity FundsNetwork’s Jackie Boylan said: “It’s quite ironic that a lot of this legislation and regulation is trying to unbundle these hidden costs while the client doesn’t actually understand ‘unbundled’ and they want it to be simple.

“It’s a real challenge for all of us.”

Responding to the point, Harrison referenced one of her favourite stats which she uses in presentations.

She said: “The draft legislation of Mifid II – which is legislation all around clarity and transparency was 1.4 million paragraphs long.

“And that was the draft.”

Speaking in an earlier session the Lang Cat’s consulting director Mike Barrett explained the charging and transaction statements have created a “nervousness” among advisers.

He suggests advisers are concerned about clients seeing a 12-month picture through Mifid which shows them they have lost money in that year.

“With clients investing for the long-term the danger is they frame it under that 12-month period and potentially make some stupid decisions off the back of that information,” he said.

“Mifid was well intentioned – it’s never been easier to see or get hold of some of this information.

“Even with our friends at St James’s Place you can get hold of an illustration – although you’d probably need to go and sit in a dark room afterwards – that clearly shows the amount they are charging around all that.

“You can’t accuse them of being opaque in any way.”

Barrett added: “But without any context to these figures it is completely meaningless. It allows advisers to hide stuff in plain sight in some cases.”

“The information needs to become more meaningful for the end consumer.”

Research from the FCA published in September highlighted the unbundling rules are “working well for investors”.

The regulator said the rules have improved asset managers’ accountability over costs and has helped save millions for investors.

It said: “A key principle of the Mifid II unbundling reforms is to ensure that portfolio managers act as good agents in the best interests of their clients and that their investment decisions are not unduly influenced by third parties.”

From 3 January 2018, asset managers have been required to pay for research separately from execution services, and either charge clients “transparently” or pay for research themselves.

“Prior to Mifid II, research costs were often ‘bundled’ into opaque transaction fees borne by investors’ funds, with many firms not adequately controlling how much of their clients’ money was being used to pay for research,” the FCA said.

Its review found most asset managers had chosen to pay for research from their own revenues.

The regulator said investors in UK-managed equity portfolios saved around £70m in the first six months of 2018 across a sample of firms.

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