From top to bottom of  financial intermediation cost disclosure is causing problems.

UBS and Goldman Sachs have been fined eye-watering sums for failure to provide the right information for others to disclose to their clients. They are not alone.

Those responsible for collective reporting to members of workplace pensions have not been able to get the information they wanted in a timely fashion. Almost every IGC Chair reports frustration at the quality of the information needed to calculate “value” and “money” metrics. The SIPP providers and the various wealth management propositions that sit on their platforms are also showing signs of stress.

Two pioneers of cost disclosure reporting, Gina and Alan Miller are outraged that the FCA has not hit non-compliance harder.

They have a point, it is over a year since MIFID II became a part of UK fund governance and the funds industry is still struggling to cope with the standard methods of reporting what it’s costing us to have our money managed.

A consequence of a fractured fund industry?

There are a number of initiatives afoot to ease the problems of reporting. Chris Sier’s Clear Glass offers a template that delivers the required cost data in an agreed format at a cost of £100 a mandate. It is currently only being marketed through investment  consultants and principally to DB Schemes . IGCs and Trustees are relying on the platforms on which funds are managed. Wealth managers and SIPP providers appear to be at the bottom of the food change and are having most difficulty with the new reporting standards.

It shouldn’t be this way. Funds have been given a relatively small amount of choice on how they report and MIFID is designed so that every customer gets full disclosure of what they are paying in a standard way.

This looks very much like the wood, brass and string sections of an orchestra rehearsing in separate rooms rather than together under a single baton.

If there is support for DB schemes, why can’t that support be available to the fiduciaries of workplace pensions and why not to IFAs , wealth and SIPP managers?

In the final analysis, the disclosure regime is about getting better pension outcomes accross the piece , fund reporting need not be this fractured, the whole orchestra needs a conductor.

Disclosure consistency accross plans and regulators

This is taken from the Investment Association’s website

In February 2018 the Department for Work and Pensions (DWP) made new rules requiring trustees to make costs and charges information relating to defined contribution occupational pension schemes publicly available on a website for scheme years ending on or after 6 April 2018.

In February 2019 the FCA published a consultation on proposals to achieve similar outcomes for workplace personal pension schemes.

There are separate rules on disclosures from MIFID which includes the retail investment management industry. You can read how they impact IFAs from Intelliflo’s report here. This is an interpretation of the FCA’s rules which are here

The reporting is no less onerous for the retail sector than for DB and DC workplace schemes. These are the instructions Intelliflo gives to IFAs

All identified costs need to be disclosed, and where post sale disclosure is to be provided on a regular basis it should also be provided on a personalised basis.

These figures need to include the following costs and are to be broken down into the following sub-sections:

Costs relating to the service:

• All one-off costs paid at the beginning or end of an investment service

• All ongoing charges paid to firms for their services

• All costs relating to transaction as performed by the firm or third parties

• Any costs and charges that are included in ancillary services that are not included in the above

• Incidental service costs Costs relating to the financial instrument:

• All costs relating to the management of the financial instrument

• All costs paid at the beginning or end of an investment

• Costs associated with the acquisition or disposal of investments (broker commissions, exit charges paid by the fund, stamp duty etc.)

• Performance fees

Consistency of delivery?

The fines received by Goldman Sachs, UBS and others relate to a period prior to the introduction of MIFID II but they indicate that the FCA is serious in enforcement.

So far we have seen little consistency in the delivery of disclosures at the institutional level (see my IGC reports) and occupational schemes are still organising themselves around the various services available to them.

I suspect that there will be similar problems for those non Article 3 IFAs already required to disclose. I hope that the supply side services from Clear Glass, Novarca and others will be made available to IFAs soon. We need consistency and templates do that.

Self selection

The capacity to disclose becomes a key determinator in product selection, whether you are purchasing on behalf of LGPS or other DB plan, a workplace pension or through a SIPP platform.

Fund Managers that can’t disclose will find themselves excluded and intermediaries who don’t disclose may face similar existential threat.

The MIFID II requirements are not going away, they are enforceable and expensive if found to be lacking.

Disclosure looks like reshaping the fund management industry and the work of those who advise upon it. Like ESG, it is either embraced or it brings you down.

Transparency is finally biting.

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