MiFID Man's guide to MiFID II: Disclosing charges to clients
One thing the wonderful world of MiFID II is introducing is new responsibilities for providers like Zurich when disclosing fees and charges to advisers and investors.
Today, transparency looks like this: we disclose platform costs, adviser fees and fund management fees when a client invests with us, tops up an existing account, or switches between funds.
Zurich will continue to do the same, but using a new charges information document, or CID. And while our CID needs to change as a result of the new legislation, advisers’ obligations to disclose costs and charges upfront does not.
So what will our new CID look like? Zurich will break down each of the costs in pounds and pence, and as a percentage. In particular, the CID will show:
• Service costs to be deducted from the platform, including the platform charges, adviser remuneration and DFM fees (as appropriate).
• Product costs (i.e. fund charges) using a new template which breaks down these charges by one-off, ongoing, transactional, and incidental costs (our data will be provided by FE).
As a result, a new ‘costs and charges’ section will be added to our CID – including clear definitions – for all our product wrappers: ISA; Investment Account; Retirement Account. Not all providers may do this but Zurich believes it is vital to ensure a clear and consistent picture of costs.
The new CID complete with costs and charges will be available – as now – in all Zurich’s pre-sale customer journeys. It is worth bearing in mind that, in some circumstances, such as a phased investment strategy, we may bring forward the availability of the CID so that the adviser can disclose it pre-submission.
Impact of charges
Providing investors with a total of these costs and charges is a step forward for transparency, but the MiFID legislation rightly asks we go a step further and outline the impact of these costs on their investment. So Zurich will also be illustrating this effect in the CID. To help investors understand, Zurich will be assuming a zero growth rate on investments. For example, on a £50,000 investment, where charges are, say, £1,500, investors will see £48,500 remaining after the first 12 months.
As for valuations, MiFID also asks providers to provide investors with a quarterly valuation, instead of every six months. Zurich will produce its first quarterly statement in July 2018 (the April 2018 statement will still look back over the previous six months).
Finally, there is a new requirement to provide investors with an annual summary of the costs and charges they have incurred over the previous 12 months. It will include a breakdown at portfolio and fund level. Zurich’s first annual summary of costs and charges will be issued in April 2019.