“Damning dossier” claims wealth managers flouting rules over fee clarity

Alan and Gina Miller (Image c/o SCM Direct)

SCM Direct, the wealth management firm founded by Gina Miller, the campaigner who came to national prominence through her legal crusade to ensure the protection of the role of parliament in the triggering of article 50 to leave the EU, has presented the Financial Conduct Authority with a dossier revealing that only a fifth of wealth managers offering traditional face-to-face advice, and just under a third of DIY investment platforms and none of the 10 largest “robo-advisers” disclose the full cost of investing with them.

SCM’s findings were presented to the City watchdog last week, a month after the introduction on January 3 of rules designed to make such charges fully transparent.

SCM Direct has campaigned for years for greater fee transparency, and Mrs Miller, who runs the firm with her husband, Alan Miller, called the findings “scandalous”.

“Many firms are choosing to flout legislation that was specifically brought in to afford retail investors more transparency and clarity, and allow them to know the true, full cost of their investment,” she said.

The Millers believe that this may be contravening the new Markets in Financial Instruments Directive (Mifid II), but also the 1998 Competition Act, the FCA’s Principles of Business and the 1967 Misrepresentation Act.

Article 24 of Mifid II, which Mrs Miller helped to draft, requires that clients are told before they invest the aggregated likely total of all costs and associated charges – including broker commissions, entry and exit charges, platform fees, transaction price mark ups, stamp duty, transactions tax and foreign exchange costs.

Mrs Miller criticised the FCA for failing to ensure firms are complying, saying: “It’s not as if this is new to the industry. It’s had years to prepare.”

She continued: “Transparency is the holy grail to which Mifid II aspires, but it will only be delivered if the FCA polices how firms are complying with the legislation. We have sent our full report to the FCA, ESMA, the FSCP and relevant UK Government Select Committees, highlighting that clients may have redress in such circumstances.”

SCM’s research covered 10 large fund management groups with total assets of £387bn, 10 well-known online wealth managers (or robo-advisers), 10 leading direct-to-consumer platforms (such as Hargreaves Lansdown) with total assets of around £600bn and 45 traditional wealth mangers with £281bn under management.

Barclays Wealth Management, one of the sector’s largest, was among wealth managers that SCM’s investigation found to be ignoring the new rules.

When a person acting for SCM, posing as someone with £1m to invest, emailed the firm to ask for a rough estimate of the overall costs of using its discretionary wealth management service, he was sent an illustration of charges by a director of the company.

However, this showed only the impact of the company’s own annual management fee, excluding taxes, third-party brokerage fees and the cost of the underlying funds.

Meanwhile, not one of the robo-advisers or online wealth managers displayed their aggregated costs and charges, including an estimate of the full transaction costs within the funds in which they invested, on their website before an account was opened and invested. Several sites claimed there were no transaction costs associated with their services.

A further 90 per cent of the sample had no estimate of the overall transaction costs either associated with dealing in or within the funds invested in their website summary of overall charges.​

Only 30 per cent of direct-to-consumer platforms showed aggregated costs and charges on their website prior to an account being opened or invested, while many understated the cost of a sample fund displayed on prominent pages of their website by not pinning down the size of the performance fee which managers would take.

Traditional wealth managers were no better, with only 22 per cent revealing aggregated costs and charges prior to the opening of the account, while just 14 per cent revealed the costs by showing their cumulative impact as required by Mifid II.

By contrast, Killik, another traditional wealth manager, complied with the rules from the outset.

A “client cost summary document” sent to a SCM’s “mystery shopper” showed that, on a £1m portfolio, the customer would pay £12,917 as an annual fee to the company and £3,161 in transaction costs.

There would also be £4,408 to cover financial transaction taxes including VAT and stamp duty, and £1,300 as an external fund manager charge that includes its own transaction costs — giving a first-year total of £21,786.