The status of the investment wrap or platform as a distributor or a service used by distributors has been a point of contention for several months with relation to Mifid II.
Under the requirements of Mifid II, the onus on platforms will increase, in terms of the administrative burdens of disclosure of risk, remuneration and assets, as well as carry out enhanced reporting.
As early as January this year, discretionary management services were warning that platforms without proper, robust systems in place for managing this administration and fee disclosure could be in for a tough time when Mifid II comes into force.
However, costs and charges will mean platform fees come under the spotlight. Heather Hopkins, head of Platforum, explains: “Clients will have a clearer view than ever before of all costs and charges, including the investments.”
She says while the Retail Distribution Review ushered in greater transparency about adviser and platform charges, it can still be “difficult” for clients to figure out what they are paying, so Mifid II should make this clearer.
However, there is another potential outcome from the increased disclosure on costs and charges: it could make investors more picky about what they pay for.
Ms Hopkins adds: “The other big difference is that disclosures will have to show the cumulative effect of costs and charges on investment returns.
“We think increased disclosure, at a time of low growth in financial markets, may make investors more cost-conscious.”
Sarah Lyons, head of marketing at Ascentric, believes platforms can do more to help advisers, particularly where it comes to the adviser having to provide the pre-sale illustrations.
This now has to show estimated costs for the fund, and now the cost of the platform, advice and even the cost of investment research. There will be a need for a post-sale illustration with actual and anticipated costs provided.
Ms Lyons says: “Investors will also need to receive valuations at least quarterly, and an annual statement of costs. On the face of it, this is more work for advisers but platforms are ideally placed to help advisers meet their new Mifid II responsibilities, as much of the data needed resides with the platform itself.”
Moreover, as Barry Nielson, business development director for Nucleus comments, providers and discretionary fund managers will still have to “ensure their products and services are reaching the right customers” – even if this is via a platform.
“They will have been doing this anyway, but will probably require more information than they do currently on who is buying their products.
“Firms offering non-advised services on complex products will have to check the product is appropriate for the customer, based on their knowledge and experience.”
The 10 per cent drop rule
Under Mifid II, there is a requirement for those running a discretionary managed portfolio to notify clients quarterly every time there is a 10 per cent drop in the value of that portfolio.
