Back in January 2018, the framework for European Union (EU) legislation, known as the Markets in Financial Instruments Directive (MiFID), was revised to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection.

MiFID applied to the UK from November 2007 and the revision, known as MiFID II, extended the requirements in several areas, including new and extended requirements in relation to transparency.

Since January 2017, MiFID II requires investment managers to disclose the additional transaction costs that are incurred, separately from the ongoing charge figure.  These additional charges were already being applied, but not previously disclosed.

At Wells Gibson we consider transparency to be of utmost importance when outlining the total cost of your portfolio, so we consider these rules to be a good thing.  However, the separation of the different types of charges could lead to some confusion so we feel it is important to explain the changes ahead of further mandated changes that require the recommended investment provider and/or platform, to disclose these charges to you on a quarterly basis.

Firstly, allow me to reassure you that in reality, the charges for your various investments have not increased, it is merely the level of disclosure that has been changed.  The additional charges to be disclosed are transaction charges and incidental charges:

  • Transaction charges are the cost incurred to acquire or dispose of investments such as broker commissions, foreign exchange fees and bid to offer spreads; and
  • Incidental charges are performance related fees, whereby a fund might take an additional fee it is meets or exceeds its stated objective over a specified term.

From 2019, each investment provider or platform will need to provide a personalised pounds and pence disclosure of all of the charges applied to your investments.

The rather confusing aspect of the update is the fact that these additional disclosure requirements do not apply to Pensions or Investment Bonds, which means that whilst these products will still experience these charges, they need not to be disclosed.  Since it makes little sense to differentiate between the different products, where possible, Wells Gibson discloses these additional charges across all products in order to provide some degree of continuity and to meet our own internal standards of full disclosure.

From our perspective, as your wealth planners, we are required to provide you with the annualised expected costs prior to making an investment decision, average annualised costs incurred over the last three years on a personalised basis, after having made the investment and the cumulative impact of the cost on your returns.

All of these changes we believe, whilst in the best interests of our clients in terms of full disclosure, might lead to confusion in a world that is already complicated.  As ever, should you have any questions, please contact Wells Gibson.