MiFID II: Costs and Charges – 90 days and the spotlight sharpens

It’s over 90 days since MiFID II came into force.  And the FCA’s coming. Arming itself with a new requirement for asset managers to publish annual assessments relating to the costs and value for money of funds, the FCA makes clear in its 2018-19 Business Plan, it will ‘closely monitor’ compliance.

Whatever you think of MiFID II, you can’t deny its ambition.  It seeks to boost investor protection and enhance market transparency, efficiency and oversight across all asset classes – from equities to fixed income, exchange traded funds and foreign exchange.  It impacts investment managers, banks, brokers, hedge funds, exchanges, traders, institutional and retail investors.

Largely due to MiFID II’s complexity (it runs to 1.7m paragraphs of rules), the FCA indicated some forbearance – with no early enforcement action likely, so long as firms were taking sufficient steps to comply.  But it is unclear how long the FCA will maintain such a position and it looks like it is signalling that firms have had long enough.  TCF’s view is that firms can expect to see a tightening of approach and increased regulatory interest from H2 onwards 2018.

For Investment Managers, one area that has been consistently challenging to implement is aggregated costs and charges, both ex-ante (forecast, pre-sale), as well as an ex-post (actual, incurred costs)[1].  Firms are faced with the difficult task of extracting information from many sources (across multiple platforms, or a combination of platform-based and directly held investments) – with the distributor being the one who is ultimately responsible for disclosing and presenting this information to clients.

It is no comfort to firms that costs and charges is likely to be area of early regulatory scrutiny.  The FCA’s 2017 Investment Management market study – which tightened approach to ‘all-in’ fee disclosure and fair fee comparisons – explicitly highlighted that firms needed to take these findings into account when preparing for MiFID II.

So, we thought we’d take a look – and ask ourselves, how well do the changes seem to be embedding?

In short, our conclusion is, it’s patchy.  There are some areas of good practice.  However, it’s very apparent that many firms are not yet meeting requirements.  This is surprising.  Compared to other areas of MiFID II, which can be clouded in some level of ambiguity, the costs and charges requirements are very specific and clear.

One Investment Manager, SCM Direct recently published and presented to the FCA a ‘damning dossier’ on this subject. They researched 75 firms – ranging front large fund investment groups and traditional wealth managers to online “robo-advisors” and DIY platforms.  Their findings were alarming:

  • Only 10% robo-advisers had separately disclosed an estimate of their transaction costs
  • Only 30% of DIY firms showed all aggregated costs and charges (including transaction costs inside the funds) on their websites.
  • Only 22% of traditional wealth managers showed their costs and charges prior to an account being opened

Moreover, SCM Direct (itself an Investment Manager) suggested that firms may not just be breaking the MiFID II rules, they may be accused of ‘false representation’.  The implication being that should a client suffer a loss – with performance being impacted by additional ‘hidden’ charges and fees – then such a client could be entitled to rescind their contracts and/or claim damages for any loss incurred.

Whilst this is an arresting claim, it reverberates somewhat.  Particularly given the FCA’s recent action on “closet trackers” – where firms were ordered to pay £34m in compensation to investors who had overpaid for funds (which were more accurately defined as index-tracking funds)

The real concern here is that some firms do seem to be falling short of requirements – whether through misunderstanding, or the practical challenges they are facing in implementation.

We urge firms not to delay further in moving to accurately disclose their costs and charges. Realising that help is needed can be very sensible. If you would like to talk, talk to us at TCF (info@thecompliancefoundation.com) or an expert who can help.

April 2018



[1] MiFID II requires investment firms to aggregate and disclose “in good time” all costs and charges relating to any financial instruments that a firm recommends or markets to clients.  This includes the cost of:

  • Any investment services provided, such as adviser charges or investment management fees;
    •    The financial instruments themselves
    •    Any ancillary services, such as platform fees and charges.


This aggregated cost information must be disclosed on an ex-ante (forecast, pre-sale) basis as well as an ex-post (actual costs incurred) basis.  Investment Managers must also provide their clients with an illustration showing the effects of these charges on their overall investment return and utilise all available data to accurately present forecasts.