The first Markets in Financial Instruments Directive (MiFID) has been in place in the UK since November 2007 and was launched to harmonise EU financial regulations and build a single, robust regulatory framework that increases competition and protection for investors.
MiFID II further improved the information fund managers, platforms and advisers provided to investors.
One of the most significant new rules is the ‘10% rule’ which requires investment firms to notify their customers if their portfolio drops by 10% or more over a three-month period.
And other rules on the information that investment companies communicate to customers are now having an impact.
For instance, the ‘ex-post disclosure’ requires investment service providers to send you an annual statement detailing the full cost of your investments over the previous year. This cost includes the platform fee, fund costs, advice fees and any other ongoing or one-off costs.
The statements also need to show all costs and charges paid to hold your investments over the year, for both the services and individual products.
While MiFID II rules don’t cover pension products, some providers are including this information in statements to help clients get the fullest picture possible across all their investments.
The overall goal of this level of transparency is to provide an awareness of the difference that fees can make to your investments over the long-term. We all know there’s a cost to investing, but rarely do we fully consider the compounding effect of those fees over time, which can have an impact over long-term investment growth.
For most investors, this will be the first time they see a detailed breakdown of the cost of investment services from a platform alongside charges for financial advice and fees to discretionary fund managers. While this may come as a shock, the benefit is that customers can make more informed decisions about whether the costs of new investments are worth paying - after all, the cheapest might not be the best if it sacrifices value.
Getting to grips with that value is crucial, and reacting to these statements by refusing advice could work to your disadvantage. A 2017 report by the International Longevity Centre-UK found that taking financial advice could add up to £40,000 to a portfolio over the long term. Instead, customers should use these statements as an opportunity to discuss costs with their advisers so that both parties can work together to work towards a better outcome.
Paying a little more can give access to a better investment strategy that utilises technologies to their fullest potential, thus achieving a better service with more assistance and enhanced platform functionality.
MiFID II therefore gives greater understanding of the full costs of investments, to help investors make more informed decisions and ensure they are paying the best price for advice, or if an alternative route to investment could offer better value.
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