MiFID II Disclosure Article 3 – Aggregated Costs

MiFID II: Disclosure Article 3: Aggregated Costs

Important Note

This is a summary of detailed analysis that ATEB has undertaken of the disclosure requirements detailed in the MiFID II Policy Statement. Our full analysis will be discussed with ATEB clients as part of our ongoing service arrangements.

This article is one of a series. It is biased towards ‘typical’ ATEB clients. It is a very high-level summary and does not therefore cover every MiFID connotation. It does include our interpretation of the requirements, where there is a lack of clarity, and should therefore be used with discretion and read with a questioning attitude.

All firms should read the Policy Statement.

Accessing the FCA Handbook

We do not replicate FCA rules in this article, but refer to them. The made rules are contained in the annex to the Policy Statement but to access the relevant rules as they will be in their final context, you will need to forward date the FCA handbook. To do this:

  • Go to the FCA Handbook provide link ;
  • Click on ‘Show Timeline’;
  • Select a date well into 2018;
  • Access the relevant handbook.

Disclosure of aggregated costs

The requirement in this respect highlights how difficult it is to decipher what rules apply to what type of firm. A cursory read of the policy statement could suggest that there are no changes for firms that carry out non-MiFID business. However, a deeper dig into the rules makes it clear that the vast majority of advisory firms must comply with COBS 6.1ZA.2.7R and 6.1ZA2.8R, as well as COBS 2.2A.2R.

So, unless you are in the minority, the requirements are to provide appropriate information:

  • In good time about all costs and services – this is referred to as aggregated costs;
  • The information in question relates to the cost of investment services, ancillary services, investment advice and financial instruments*, as well as any third-party payments;
  • Aggregated costs and charges are to be expressed both as cash amounts and as a percentage;
  • A client must receive an itemised breakdown of the costs and charges:
    • When requested by the client; and
    • Where applicable, on a regular basis, at least annually, during the life of the investment.
  • The FCA has indicated that, whilst the rules take effect on 3rd January, they do not expect immediate disclosure of aggregated costs. It is acceptable for this to be made to existing clients throughout the year so that by January 2019 all existing clients have received their first annual disclosure.
  • You must also inform the client how they may pay.

Notes to the above

(i)  The terms in italics* are glossary terms but, basically, they cover all costs and charges;

(ii)  The only exception is costs and charges that are ‘caused by the occurrence of underlying market risk’ (market fluctuations);

(iii)  Regarding the fourth bullet point above, we read ‘where applicable’ to mean where an ongoing service is being provided.

The ‘at least annually’ requirement highlights a dilemma for those firms that provide an ongoing service where the service is not provided at least every 12 months. This is an issue that firms will need to consider carefully. Can the existing service be provided annually? Do you terminate such service arrangements?

Regarding increments, this will need consideration. Any changes in costs arising from an increment made post 3rd January will need to be disclosed. This may be dealt with by providers and platforms, but if you are involved in an advisory capacity, then it is our opinion that updated aggregated costs should be disclosed.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Although you have time to implement this change, we recommend that you do so now, as part of the wider disclosure review and document update.

 

 

Action Required By You

This will involve changes to the disclosure process and may affect a number of documents, such as:

  • Initial disclosure suite;
  • Fee agreements;
  • Suitability report;
  • Review reports/lets.

ATEB clients should speak with their account manager as necessary; otherwise contact ATEB here to find out how we can help.

About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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