Regulator and industry must work to reduce data overload for investors
22 January 2020
The introduction of MiFID II two years ago has boosted transparency in the investment industry, but the sheer level of data risks overwhelming investors, BNY Mellon’s Pershing has warned.
Investors now receive around 140 pages of data a year, as wealth managers provide investment performance and custody reports on a quarterly rather than bi-annual basis.
Matt Lonsdale, relationship manager, Pershing (pictured), says there is a danger that advised investors may not be able to see the wood for the trees.
He says: “The regulator needs to work with the industry to reduce the volume of data sent to investors and improve its clarity. A framework is needed with clear, fair and not misleading information that makes it easy for investors to clearly compare cost, performance and derive value for money.
“For example, one industry-wide measure for ex ante and ex post costs and charges would be a progressive step.”
Lonsdale describes the detail of mandatory costs and charges disclosure required under the new regulation as a “huge ask” for the industry and argues there should be greater focus on educating investors to make more informed decisions without the direct cost to firms.
He explains: “It makes complete sense that ESMA is reviewing whether an opt-out for non-retail clients from mandatory disclosure of costs and charges is required. The costs and benefits of delivering a MiFID-compliant solution were underestimated and the industry is grappling with several challenges in delivering ex-post costs and charges, mainly due to the complexity of its scope and requirements.”
Until this happens, the true impact of costs and charges will remain unclear, according to Lonsdale.
One of the most successful areas of in terms of transparency has been around research and execution costs, with the latter falling as a result of buy-side firms deciding to shoulder the cost of research.
Michael Horan, head of trading, Pershing says: “We are now in an era where there is far more transparency over the quality of research than ever before, which should drive better investment decisions for the buy-side.
“However, for investment banks, the new transparency that unbundling has ushered in has unfortunately led to a reduction in revenues for the provision of research, which has fallen considerably over the last two years.”
But while the introduction of MiFID II reporting was designed to help regulators monitor for market abuse and insider dealing, a recent freedom of information request found that 68.4% of firms have received no feedback on the accuracy of their reporting, making it difficult to know whether the significant uptick in reporting is meeting its objective.
Impediment to MiFID II achieving objectives
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