Compare Mifid with non-Mifid
Clare_Weight
Member
Hi all,
Doing a pension switch from Royal London pension to a platform + partly passive model. I've presented it like this:
Comparison of charges
The total costs of the recommended arrangement are detailed on page 20. You will see the total of 1.39% per annum includes our ongoing advice fee of 0.5% per annum (which you are currently paying in your Royal London pension) and transaction costs of 0.14% per annum.
Transaction costs apply to all funds, but the relevant disclosure requirements (from ‘Mifid II’) don’t apply to your Royal London pension. Therefore, it makes more sense to compare the arrangements without including transaction costs:
Arrangement Cost of product / platform & funds
Current Royal London pension and funds 0.67%
Elevate pension and WYP 7 Blended portfolio 0.75%
Difference resulting from the switch + 0.08%
It has been changed to this:
Arrangement Cost of product / platform & funds
Current Royal London pension and funds 0.67%
Elevate pension and WYP 7 Blended portfolio 0.89%
Difference resulting from the switch + 0.22%
With the feedback:
'The comparison should be made on the basis of what he is actually going to pay going forward, we shouldn’t omit the transaction charges.
Ultimately he could stay where he is and pay a total charge of 0.67; by switching, it will cost him more. '
Backround is I had to explain dozens of times previously that transaction costs are not a new cost just newly disclosed. My view is that client is not going to pay 0.22% p.a. more just because going from a product without mifid disclosure to a product with it.
I have two questions, please feel free to answer either or both, I'll be very grateful:
1. How would you approach this comparison in your firms?
2. How would you go about resolving this matter, that's if you actually would? Is this NOT A BIG DEAL and I've lost all perspective? Client will probably agree to the recs whatever.
Thanks in advance.
Comments
I agree with everything you are saying but we compare as per your second scenario showing the new transaction cost. We know its not like for like and unfair but this is the world we live in (and what a mess it is). As you say, the transaction costs are 'unlikely' to make it unsuitable. Costs are obviously important but not the most important aspect.
Stupid thing is the report will probably be out of date tomorrow and by the time you even transact the business with underlying costs changing constantly!
I agree with @Nath and would compare WITH the transaction cost. I see exactly where you're coming from and it's such a headache keeping up with what to disclose and how best to disclose it.
Echoing what Nath said, cost isn't the be all and end all. You're probably transferring providers for other reasons, whether it's retirement options that suit the clients needs better via Elevate, or increased fund options compared to RL etc. I would just focus on justifying the small increase.
Provide the difference in monetary terms and separate the mifid transaction costs in the Elevate plan.
"based on a constant value of £xx over a full year, you will pay £xx for your Royal London plan. This compares to £xx for the recommended Elevate plan. The cost of the Elevate plan includes £xx of estimated transaction costs.
Whilst you will also pay transaction costs in the existing plan, the disclosure rules for that type of pension means that we aren't told what they are. Ignoring the transaction costs in Elevate, the annual increase /decrease following the switch is £xx "
I agree with the other responses. Cost shouldn't be an issue unless its the only reason. If that's the case you're keeping the less expensive plan based on what you have to disclose ie scenario two.
Hi all,
Not the answer I was hoping for but I didn't disappear in a strop honest! I had a nice long holiday and I am really grateful for your responses. It's much easier to accept having had it confirmed by peers.
Clare
For anyone in a similar boat considering Royal London Governed Portfolios or Governed Retirement Income Portfolios, I forgot to mention this (though my case wasn't a GP or GRIP).
https://adviser.royallondon.com/globalassets/docs/adviser/investments/sa5pd0004-transaction-cost-sales-aid.pdf