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Aggregated costs and legacy trail commission disclosure

14 November 2020

While the aggregated costs and legacy trail commission regime remains far from perfect, some clarity can be gleaned, says Steve Bailey, director, ATEB Consulting

“Aggregated costs disclosure”. A phrase that, even nearly three years after it became a requirement under MiFIDII, probably still sends a shiver down the spine of those who are charged with implementing it.

Despite the passage of time, no best practice way of doing this has emerged and firms, wherever they are in the investment hierarchy – providers, fund managers or advisers – are probably approaching costs disclosure in a variety of ways. And it is probably reasonable to assume that some will not be getting it right, not least because of continued difficulties in accessing comprehensive and accurate costs data from third parties.

These difficulties are acknowledged widely, including at the FCA. Speaking at the PIMFA Annual Summit in London on 14 November 2017, Megan Butler, Director of Supervision – Investment, Wholesale and Specialists said, in a classic understatement:

“Broadly speaking, I think we can all agree that the disclosure regime under the new requirements is probably not perfect.”

Probably not perfect? Far from perfect more like.

Anyway, we were recently asked this question …

“If a firm is still receiving trail commission on a legacy pre RDR investment, for example an investment bond or a pension plan, does that trail commission need to be included in the client’s annual cost disclosure?

You might expect that to require a yes or no answer but, as is often the case around MiFIDII rules, the answer is a bit more nuanced.

What is commission?
When considering ‘trail commission’ – all commission is either ‘commission’ or ‘commission equivalent’. These terms are defined in the FCA Glossary but for present purposes we can ignore the distinction.
As for the post-sale disclosure rules, firms need to consider the following:

  • If MiFID or IDD applies, the total of all costs and charges (including commission) needs to be disclosed post-sale if incurred during the reporting period (this would include commission paid on products sold pre-RDR, i.e. pre- 31/12/12);
  • If MiFID or the IDD do not apply, such as in relation to a pension in accumulation (and pensions in decumulation at the moment – see below), firms must disclose at point of sale commission receivable by it in connection with the transaction. But there is no post-sale requirement on firms to disclose commission received post-sale, unless the client requests it.

New rule for pensions in decumulation

From 1/2/2021, the new COBS 16.6.10R applies, in relation to personal pension schemes or stakeholder pension schemes in decumulation. This introduces a positive requirement for firms to disclose actual costs and charges paid out of a pension fund/scheme in decumulation (e.g. drawdown); and state whether adviser charges (including commission etc.) is included in the aggregated figure.

Our View

Aggregated costs disclosure continues to be a ‘bit of a mess’ with different firms using different formats and the accuracy of underlying data perhaps suspect. But there can at least be clarity on the basics, i.e. what needs to be included.

Professional Paraplanner