Under Mifid II, discretionary managers have to inform clients about such a 10% fall in value, but Bentley, director of investment marketing consultancy gib2, said that adviser firms which are serious about their treating customers fairly (TCF) obligations should consider doing so too.
He believes firms which offer advised portfolios will face other strains too.
He said: “If I am running advised portfolios rather than discretionary – how easy is it going to be for me to contact all my clients and tell them, not only would I like to change your portfolio, but also to say what the net effect of transaction fees is on the portfolio. That is going to be a strain.
“Running advisory portfolios is going to be much more difficult in terms of the obligations you have to honour. Bearing in mind that discretionary portfolio managers have to report a 10% drop, it is a bit odd that advisory ones don’t. The more TCF-minded advisers will want to be reporting 10% drops on portfolios whether they are advisory or discretionary.”
He added: “When you are doing your survey of the market and are making sure your recommendations are meeting client needs – quite clearly the higher the intrinsic charges on a fund appear to be and depending where it is investing, the less likely you might be to recommend it.”
In a broad sense, advisers should be able to cope with the challenge.
“There has been a lot of grandstanding going on with transaction fees, which have always been there. Any investment adviser should understand how funds are priced. Anyone who has ever sold a unit trust will understand they have had a bid offer spread and should have been able to talk about why that is there. People should bear in mind that they should know this stuff already.”
At the same time, the first few weeks of the Mifid II regime have brought considerable confusion partly because most of asset managers’ project management and consultancy work has focused on the transaction reporting with distribution given a lower priority, while advisers themselves have not faced a cut-off date where if they did not comply fully they couldn’t operate as with the retail distribution review (RDR).
One challenge for now is that advisers may not be able to extract the trading cost information separately, but have to go through it on a fund by fund basis, though Bentley said the feature may soon be available from some fund research websites.
Asset managers are working on producing explanatory notes about the newly disclosed charges but have been slow off the mark.
Yet there remains considerable confusion for now. For example, transaction charges are likely to be different offshore, UK shares attract stamp duty and – related to this – there remains the puzzle of some well known funds showing zero trading costs and, in some cases, zero portfolio turnover.
Bentley remains unsure whether some funds have simply got the maths wrong and, in particular, if such numbers are possible given the need to pay and account for stamp duty in the UK over three years under the Mifid calculations especially in cases where a fund is adding large numbers of new investors and will be buying new stocks.
