Could one spreadsheet column solve the cost disclosure crisis for trusts?

Gravis’s Bill MacLeod explains how a FinDaTex tweak could prevent double-counting of investment company costs

Bill MacLeod
Bill MacLeod


The creation of a ‘zero value’ column in FinDaTex’s European MiFID Template (EMT) could ensure that costs for investment companies are accurately passed onto platforms, according to Gravis’s Bill MacLeod.

The managing director, who has long been campaigning for accurate cost disclosure for investment companies, says there is potentially a one-step solution to prevent inaccurate cost reporting as an interim measure, until the FCA devises a more permanent solution.

FinDaTex, or Financial Data Exchange Templates, is a European technical working group, which was founded by several European financial bodies in 2018, after MiFID II came into effect to standardise the distribution of information around the market.

See also: “Calls for judicial review into FCA as investment trust sector faces extinction

It supplies centralised fund data, through various templates presented as Excel documents, to data vendors and investment bodies. These templates, which include EMT spreadsheets, are free to use and accessible by anyone.

“Their introduction meant that the whole market would be conforming to a standard template, which could then be downloaded for free and completed by administrators before being distributed around the market to anyone who requires the information,” MacLeod explains.

“It is completely voluntary and it is there to serve all of our needs as an industry across Europe, which is home to tens of thousands of funds. The intention was to make it easier to share information.”

But despite the managing director describing FinDaTex as “a brilliant innovation”, he argues that investment companies have no place in the EMT, given investors buy into trusts as listed companies, and so all charges are already included in the share price.

“Funds upload their information and they do so as part of a collaborative process, which everyone adheres to. And in the case of the UK, there are two columns in particular, into which ACDs are gathering up the proportionate costs of both open-ended funds and listed investment companies and adding them into the EMT,” MacLeod says.

“An open-ended fund, which invests in other open-ended funds, should have all of those costs bundled up together, because their combined ongoing costs detract from the overall returns to the investor.

“The problem is that, investment companies do not have costs which detract from investor returns and yet within the EMT they are treated as if they do. These synthetic costs are effectively double counted. The EMT goes everywhere – to all the data vendors – and is passed onto the likes of Morningstar, Hargreaves Lansdown and AJ Bell. It then drops straight into their clients’ valuations; whether this is online or their printed quarterly copy.”

Cost disclosure and the Autumn Statement

In November last year, alongside Chancellor Jeremy Hunt’s Autumn Statement, HM Treasury announced it would replace PRIIPs with a new UK-specific framework called Consumer Composite Investments (CCI) and that, as part of this, it would enable the Financial Conduct Authority to reform cost disclosure rules for investments trusts.

The FCA subsequently published interim measures, allowing investment companies to provide additional cost breakdowns on their key investor information documents (KIIDs). Reaction to this was tepid, given it still did not solve the problem of double-counted costs being filtered through into data feeds.

According to MacLeod, shortly after the Autumn Statement, the Investment Association contacted FinDaTex to commence the process of changing its MiFID template for UK funds. In the meantime, it reversed the cost guidance it had previously issued to ACDs. A fund or trust’s ACD is the equivalent of a board of directors for open-ended funds. They are also responsible for ensuring each fund remains compliant including calculating and submitting their costs. Therefore, correct pricing appeared in the KIIDs of UCITS funds.

“This was really encouraging,” MacLeod said. “But the change only affects the paperwork. What needs to happen is a change to the data feed, upon which everybody relies; unfortunately and despite these changes it is likely to remain remain incorrect. KIIDs are rarely read or understood – everyone is far more dependent on the data.”


The managing director says FinDaTex is a voluntary outfit, which means there is “nobody physically there”. There are no contact details on its website, for instance, and there is no ‘FinDaTex office’. Therefore, changes are rarely immediate and requests for change are considered periodically.

As a result of the request from the Investment Association, and other bodies, FinDaTex is working on revisions to the European MiFID Template. The anticipated changes will add additional columns which separate out the look-through costs where funds hold other investment vehicles and real asset costs. These costs are to be extracted and added into separate columns.

However, MacLeod explains that when these additional columns are sent to data vendors, they are re-aggregated.

“It is difficult to see the point of this change. It definitely doesn’t provide the investor with any greater clarity and if anything, they will be presented with even more bamboozling figures. KIIDs now report the actual cost of ownership and rightly exclude investment companies whereas the data fed into the EMT will include and then split out some expenses which are not actually charged to the investor. Once published they will be recombined and published in investors’ valuations. The KIID and the data feeds are at odds with each other. I’m not sure how I’m going to explain these improvements to investors.”

FCA must act now

The discovery of an interim solution regarding the EMT comes days before the second reading of Baroness Ros Altmann’s Private Member’s Bill on Friday 1 March, which will call for the removal of AIFMD classification from investment companies. The regulation – known as the Alternative Investment Fund Managers’ Directive in full – first came into place for trusts back in 2013, and following the introduction of subsequent legislation (PRIIPs and MiFID) requires them to effectively double-count costs as they are categorised as Alternative Investment Funds (AIFs) as opposed to listed companies.

See also: “MGIM’s Parfect: Give damaging AIFMD regulations for investment companies the red card

329 signatories participated in the London Stock Exchange’s submission to HM Treasury’s consultation in January this year. The paper called for the removal of investment companies from the new proposed CCI (which replaces PRIIPs) and would resolve the issues with the EMT. MacLeod said industry participants have, for some time, been calling for intervention from the Treasury or the FCA, given the health of the investment trust sector continues to decline.

According to data from the AIC, an average of £9bn of capital was raised by IPOs and secondary fundraising for trusts per annum, between 2014 and 2019. Over the last two years, this has dropped to £500m in aggregate, and just £40m over the last year.

“Macro headwinds have played their part in slowing this growth to a near stand-still,  But because costs are now considered almost more important than returns, buyers have deserted the sector. If there are no buyers and everyone is a seller, what do you expect to happen?”

An interim solution

MacLeod’s proposal, therefore, is to create a ‘zero value’ column in the EMT, which would be entitled ‘investment company costs’. This would mean that, when the data is reaggregated, it would remain accurate.

“The reason for doing it this way is that, when the data is sent to the platforms  the costs data should require no further intervention. It must be accurate from the source when presented to the investor. It should show them what they are actually charged,” he explains. ”The campaign group is concerned about accurate transparency and has devised a new publication, referred to as a Statement of Operating Expenses which, as the name implies, extracts the company running costs from the report and accounts and presents them neatly as a supplementary document, rather than as a single figure in a data feed.

“Instead, what we will end up with is three additional columns, which have misleading values in them that aren’t zero, and we are adding them to the true cost of owning an investment company. I don’t see Vodafone or BP being treated this way, so why apply these rules to investment companies?”

“MacLeod adds that is it “important to flag that the industry is ready, willing and able to come up with solutions, rather than present the regulator with a series of problems and ask them to fix it”.

“Because this is the day job, we’re likely know the best way to create clear, easily repeatable and informative solutions which help investors, and which add meaningful information.”  

The FCA has been approached for comment.