Apples? Oranges? Orange apples?
A rule change that came into effect under MiFID II Wednesday is supposed to make it easier for investors to compare fees charged by investment funds and distributors. But a lack of consistent methodology means they may struggle to figure out exactly what they’re comparing.
Investors “will face a patchwork of contradictory information in 2018,” said Thomas Richter, chief executive officer of the German investment funds association BVI. “This will confuse consumers rather than making things clearer.”
For the first time, fund managers must disclose a breakdown of their fees to banks, insurers and other distributors. Investors will receive as many as four different documents for the same fund, depending on whether it comes from an asset manager, a bank, an insurer or a German pension product known as Riester, according to BVI. The way costs are disclosed is up to the distributors and the methodologies and estimates used to calculate transaction costs vary between fund managers.
“Until a common standard emerges, it may be difficult for investors to make like-for-like comparisons on cost,” said James Norton, senior investment planner at Vanguard Group Inc., which manages $4.9 trillion. “We have made the necessary data available to all of our distribution partners.”
Price Transparency
MiFID II seeks to protect investors with wider disclosure of product suitability and trading as regulators seek to get a better deal for investors as part of the biggest shake-up to financial regulation in the region in a decade. Costs can include ongoing management expenses and performance fees, as well as any retrocession or payments from asset managers to distributors.
While asset managers aren’t directly subject to the rules, they must make cost and fee disclosures across their distribution channels. Hargreaves Lansdown and BlackRock Inc. both started disclosing additional fee information in December at the request of clients.
“We are breaking up the production chain of asset management,” said Daniel Roy, chief executive officer at La Banque Postale Asset Management, which oversees 217 billion euros ($261 billion) in assets. “This is where hidden margins will disappear.”
New Discussions
Despite the initial imperfections, the change will allow consumers to take a closer look at fund costs -- especially commissions paid to distributors that account for more than half of management fees, according to Jean-Pierre Grimaud, chief executive officer of OFI Asset Management, which oversees about 70 billion euros.
“One of the first reactions of consumers will be to say it’s very expensive,” Grimaud said. “Then it will be a serious conversation between the distributor and the fund originator. Will the distributor be willing to lower its margins? Their first reaction will be to ask us to lower ours, but after a certain point margins will be cut to the bone.”
To contact the reporter on this story: Julie Edde in London at jedde2@bloomberg.net.
To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Ross Larsen, Andrew Blackman
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