'Drowning in data’: how six IFAs tackle Mifid cost disclosure

Ex-post disclosure rules introduced under Mifid II require advice firms to write to all of their ongoing clients setting out what they are paying by April 2019. We asked six firms how they are coping with this

Rohan Sivajoti

Director, Postcard Planning, and co-founder of NextGen Planners

‘If the way you add value is via investment growth, you’re hanging your hat on something you can’t control,’ said Rohan Sivajoti, director of Darlington-based Postcard Planning.

By making clear to clients the firm only focuses on what it can control – namely its fees, financial planning service and budgeting – and there will be years where portfolios lose value but fees will still be taken, Sivajoti says he ensures his clients are clear on where the value of advice lies.

Postcard Planning has included additional pages in its ex-post disclosure documents, which specify exactly what action the firm has taken and will continue to take on clients’ behalf over the course of the year.

Sivajoti said: ‘In those additional pages in the disclosure, we will say: “We’ve had x amount of meetings with you this year, we’ve sent x amount of emails on your behalf, we’ve contacted you this many times, we’ve spent this long on the phone with you, had this many calls”.

‘They can see the work we’re doing behind the scenes, the value add we’re having in terms of “we helped you go on this holiday, we helped you budget for this and that”. But clients tend not to care about the investment solutions and what is going up and down, as long as they are achieving what they want to achieve.’

He said Mifid II regulations would cause advisers problems, however, where the relationship with the client has not been framed correctly in the first place, meaning, for some, it is already too late.

He added: ‘You can’t suddenly shift from being investment-led to a client coming to a review meeting and the portfolio has gone down. So you start talking about other ways you’ve added value at that stage. It’s about how you’ve started the relationship with someone.’

Rohan Sivajoti

Director, Postcard Planning, and co-founder of NextGen Planners

‘If the way you add value is via investment growth, you’re hanging your hat on something you can’t control,’ said Rohan Sivajoti, director of Darlington-based Postcard Planning.

By making clear to clients the firm only focuses on what it can control – namely its fees, financial planning service and budgeting – and there will be years where portfolios lose value but fees will still be taken, Sivajoti says he ensures his clients are clear on where the value of advice lies.

Postcard Planning has included additional pages in its ex-post disclosure documents, which specify exactly what action the firm has taken and will continue to take on clients’ behalf over the course of the year.

Sivajoti said: ‘In those additional pages in the disclosure, we will say: “We’ve had x amount of meetings with you this year, we’ve sent x amount of emails on your behalf, we’ve contacted you this many times, we’ve spent this long on the phone with you, had this many calls”.

‘They can see the work we’re doing behind the scenes, the value add we’re having in terms of “we helped you go on this holiday, we helped you budget for this and that”. But clients tend not to care about the investment solutions and what is going up and down, as long as they are achieving what they want to achieve.’

He said Mifid II regulations would cause advisers problems, however, where the relationship with the client has not been framed correctly in the first place, meaning, for some, it is already too late.

He added: ‘You can’t suddenly shift from being investment-led to a client coming to a review meeting and the portfolio has gone down. So you start talking about other ways you’ve added value at that stage. It’s about how you’ve started the relationship with someone.’

Tom Morris

Chartered financial planner, Ovation Finance

Bristol-based Ovation Finance’s Tom Morris warned advisers who have relied on recent bull markets to demonstrate their value to clients could be challenged by the new rules when clients are confronted with what they are paying.

‘Those advisers who have been hiding behind bumper years of growth and have not been showing their costs front and centre will struggle,’ said Morris.

He has used ex-post disclosure as a chance to update and tighten the firm’s existing procedures.

‘We send out a bespoke end-of-year reporting pack to clients, which shows all their holdings and investments in one place,’ said chartered financial planner Tom Morris. ‘We’ve just included a really clear breakdown of charges in the last year from all areas, as some clients have pensions and investments from more than one source.

‘Now we also need to show some future cost, so after every planning meeting we have with a client, we provide a summary of what the estimated cost will be in the next year.’

The new rules have led to some difficult conversations with clients, though, as some information has been presented in this way for the first time.

‘We’ve tried our best to embrace the Mifid II rules. But it has been tricky because not everyone has been quite ready for it, particularly when it comes to some of the fund fees.’

Morris said while advisers will sometimes need to settle for estimates if they are unable to obtain fully accurate costs from fund houses, they will likely be compliant providing ‘best endeavour’ to access the information can be evidenced.

Alasdair Walker

Director, Hunter Aitkenhead & Walker

In contrast to Sivajoti, Leicester-based Hunter Aitkenhead & Walker director Alasdair Walker said setting out everything the firm does to add value for clients could cause problems.

‘I feel like listing activities to show value is a dangerous trap. By comparing fees on a year-by-year basis to financial planning outcomes, we make the link that annual activity equals fees. Whereas (much like investment returns), the key is the value over the longer term.’

The firm has only made ‘minimal’ changes, as it has sent out cost disclosure to clients for the past six years, said Walker. However, issues have still arisen.

‘Our main challenge is how reliant we are on providers for the very detailed output of their charges, and very few providers (if any) have the facilities to provide this on demand. This leaves us needing to compromise from the “ideal” situation (all clients receiving full charge disclosure in detail at every annual review), to a more realistically achievable one, considering the limitations.’

Dominic McLoughney

Director, Becketts Financial Services

Poulton-le-Fylde-based Becketts Financial Services has turned to technology to meet the Mifid II ex-post disclosure requirements.

The firm manages its centralised investment proposition through DFM Parmenion, which has helped it collect charging information in one place.

‘We also use the FE Calculator, which does a detailed and clear job. We have toyed with an annual value-add document to tie in with the reviews, but have not perfected it,’ Becketts director Dominic McLoughney explained.

As with many firms New Model Adviser® spoke to, Becketts began contacting clients with information before Mifid II came into force. But ex-post disclosure has given the firm an opportunity to update how it does so. 

‘We are quite attentive and have been pretty strict with ongoing reviews and client contact for a few years now,’ McLoughney said. ‘So we feel we have been as clear as we can be with educating around costs. Hopefully this will feed through into a well-adapted Mifid II world.’

Andrew Elson

Managing director, Berry & Oak

Boston Spa-based Berry & Oak has plans to create a bespoke document intended to present clients with ‘something of value’ they will actually read.

However, given the timescales, the firm may have to present more rudimentary Mifid II compliant reviews initially.

Elson said: ‘We are still trying to get clarity from our compliance people about what is needed. It will be a faceless document to keep the regulator happy for now, rather than something the client might value and read. It will be compliant, but not the finished article.’

Berry & Oak plans to include breakdowns, not just of its own value for money and actions on the clients’ behalf, but also those of the fund manager and each part of the value chain.

But Elson also said with some DFMs and platforms sending data to clients directly, followed by a similar disclosure from their adviser, clients are likely to be overwhelmed and increasingly disengaged.

Rebecca Aldridge

Managing director, Balance: Wealth Planning

Clients are already ‘drowning in data’, meaning many tend to ignore the information in front of them. That is the view of Derby-based Balance: Wealth Planning managing director Rebecca Aldridge.

However, this means a lot of procedures have already been put in place to meet Mifid II requirements.

‘Clients are given so much data from the platforms: quarterly investment reporting, loss reporting, and now annual charge reporting,’ she said. ‘Every time they pay money in or take it out, or make a change to the investment, there’s a confirmation of advice and charges. There is so much data that they are blind to the information it contains.’

Aldridge added in some cases platforms and discretionary fund managers (DFMs) were already doing some of the work for advisers by sending out annual costs and charges disclosure directly. Balance: Wealth Planning charges a flat fee for financial planning, which Aldridge said means clients ‘know exactly what they’re paying’.

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