Advisory Centralised Investment Proposition - portfolio change charge disclosure

Situation: Advisory CIP; Clients allocated to different portfolios based on their assessed & agreed appropriate risk / volatility profile.

Portfolio's reviewed etc by an investment committee.

A change to one (or more) of the portfolio funds is recommended.

A discussion has arisen as a result of some information from a handful of compliance support companies so I am interested in understanding what others are doing.

Do you:
1. Client portfolio charge comparison for each wrapper. So for each wrapper state OCF etc for the current portfolio (% and £) and then state the same for the new portfolio.

  1. Generic illustration stating what the fees for the revised portfolio would be (% and £) on a generic range of portfolio values.

Comments

  • I always give the increase or decrease in % and £ terms, with a breakdown per wrapper and an overall total for the £.

  • @TimMatthias said:
    I always give the increase or decrease in % and £ terms, with a breakdown per wrapper and an overall total for the £.

    Client specific figures or generic for each wrapper?

  • @richardgough said:

    @TimMatthias said:
    I always give the increase or decrease in % and £ terms, with a breakdown per wrapper and an overall total for the £.

    Client specific figures or generic for each wrapper?

    Client specific for me, but it is a bit of a pain.

  • @TimMatthias

    Thats what we have been doing. Being told that perhaps we don’t need to but at the moment there is a lot of ‘our interpretation’ and ‘we think’ behind that which I’m uncomfortable with.

    Want to see if anyone has a definitive view on generic approach.

  • benjaminfabibenjaminfabi Moderator
    edited January 26

    Hi,

    I would include an itemised difference in the costs per fund, per wrapper together with the recommendation text for the reasons behind the fund switch (obviously).

    Shouldn't be too hard to automate if you've got good back office data, can you just pull out a complete per wrapper holding report for that fund and create a mail merge?

    I wouldn't get too hung up on any variation in understanding of the technically compliant approach between compliance consultants. The FCA want to see that what's being done overall isn't to the detriment of the client. If the cost difference is a few basis points in one or two funds, and you're up to date with your mifid annual disclosures, then as long as you're explicitly warning them that it will cost more you should be fine. Ultimately, why you are doing it will justify the cost increase, and this will be evidenced in the IC meeting minutes.

    Generic illustration stating what the fees for the revised portfolio would be (% and £) on a generic range of portfolio values.

    This should be happening in the IC when the fund switch is being agreed, as costs should be a factor in the switch decision. And all of that should be available to the client in a document about your CIP and MPS that they have access to on demand.

    Benjamin Fabi 
  • Hi @benjaminfabi
    Thanks for your input - I was hoping you would :smile:
    Where the changes are more complex than a simple fund A to fund B switch I am now thinking that a generic 'current portfolio' cost v 'new portfolio' cost based on an appropriate value figure would also suffice along with using your suggested table wording regarding itemised breakdown etc.

    We have been doing client-specific exact figures based on exact current portfolio values at the portfolio level (pre and post change) in the letter along with a detailed new portfolio illustration for each wrapper - perhaps this is too much 'overkill' and we can use a more generic approach which would significantly reduce the administrative burden and increase the speed of getting review letters out to all affected clients.

  • benjaminfabibenjaminfabi Moderator
    edited January 26

    The thing is, technically, if you change a fund (including rebalancing an advisory MPS - unless you have very tightly worded and rigidly applied mechanical rebalancing processes) then you should be doing a 12 month ex-ante client specific costs disclosure for that fund/s when a change happens.

    I think anything less than that, but more than doing nothing, is going to be a best practice decision at firm level, taking into account a variety of other associated factors.

    For example, have you asked your clients in a satisfaction survey about the specific aspects of the CIP? Do they value the detailed costs explanations that you provide? Can you evidence that a practical decision to pare down the rules to suit the needs of your clients, whilst also reducing the staff workload and creating a better client outcome elsewhere, is perhaps a reasonable approach?

    We know that these costs disclosures are EU wide i.e. aiming at the lowest common denominator, which the users of this forum most certainly aren't. We know that clients' comprehension is worsened with more complexity in the information, even when presented in plain language. Assuming you have a table of current vs proposed funds in the letter, with the reasons for the switch, there is a strong argument that a simple statement, saying something like what's below, would be significantly better for a client than tables full of numbers.

    'this change/these changes will cost you more. On average each £10,000 invested will cost around £15 more in fund costs each year, based on a 5% growth rate. There is considerably more detail in the enclosed illustration and we welcome all questions you have on the costs of our service, which are disclosed in full every year, most recently in MONTH.'

    Benjamin Fabi 
Sign In or Register to comment.