New Disclosure Rules

New rules mean investment companies and wealth managers must provide more information than ever before about the entirety of the fees paid to them to manage money.  The impact of these costs on investment returns also needs to be spelt out in detail.

Since the start of the year an EU directive has forced financial institutions to declare a range of charges in granular detail.  Wealth managers need to give this information only to new customers – existing investors must wait until next year to receive it.

In one example, it was apparent that annual investment growth would fall by more than 50pc as a result of fees and charges.

These costs have always been borne by investors, but the new rules force fund managers and wealth management firms to show in intricate detail the impact that fees have on customers’ wealth.

In recent weeks the Markets in Financial Instruments Directive (Miffid II) rules have thrust fund charges levied by investment houses under the spotlight.  For many of the most popular funds, charges were found to be as much as 80pc higher than previously thought.

The rules have two parts.  The initial requirement is for firms to provide new customers with “point of sale” documents showing how much investments could grow by with and without fees.

Existing customers will get annual statements that must show the actual costs incurred over the previous 12 months, but only from January 2019.  Firms must state fees in pounds and pence, not just percentages, which can sometimes mask the effects.

John BaxterComment