However, at the same time, they believe the changes will aid transparency long term and are reasonably confident about educating clients.
Nexus IFA managing director Kerry Nelson says: “It can sound really brutal and it could put some investors off. But hopefully where investors are getting decent advice, they will understand if they are in good, long-term performing funds, then those charges are likely to be justified. But it could open the floodgates to more criticism of the industry.”
Nelson says advisers want to be in a position to say: ‘These are the charges, this is what we receive annually, this is what the fund management groups get, the portfolio cost, the platform charge.’ However at the same time, she notes some IFAs come from this protected bancassurer environment and may struggle.
“There are some well-known names, where they don’t have a great reputation for being open about costs,” Nelson says. “I am also a bit more cynical about where advisers take an ongoing fee and just hand all the money over to a DFM.
“Yet we shouldn’t hang ourselves out to dry. We do need to pay ourselves and pay others for their services. It is an education process to help clients understand better where those fees go.”
For Nelson, the Mifid II costs are not significantly more expensive than clients should have thought and says IFAs should have been explaining them.
“These charges have always been in the underlying cost, which is fine if the fund is delivering, though admittedly, it is going to be hard to pinpoint things to the nth degree. We do need to say there is a deliverable for that cost. Transparency is great, but let’s educate people so they understand it too.”
Some experts suggest that advisers who use a broad range of products and funds could struggle to compare like-with-like when it comes to disclosure.
Compliance consultant Phil Young, founding director at Zero Support, says: “For costs and charges disclosure generally, advisers know what they need to disclose. Firms that are up-to-date with this will have the relevant boxes to fill in and should be able to extract this information from illustrations. However, illustrations are completely inconsistent and interpretation of disclosure requirements are too.
“Some are following the TISA format, which seems to work well for disclosure, some have their own hard to follow format and some don’t seem to do it at all. I’m not sure any adviser using a broad range of products/funds is able to disclose easily and with confidence.
“Transaction costs are just a subset of this confusion – there is still inconsistency on how this is calculated and what is included. Some funds achieve a zero transaction cost by refunding the costs from income made elsewhere. Do investors care that there is a netting off to get to zero? I doubt it, but it does make the numbers look inaccurate and could trigger more questions. Either way, it’s good that a debate has been sparked off and questions are being asked about something which we were previously told nobody would be interested in at all.”