SCM Private unveils investment platforms promising enhanced transparency
SCM Private, the investment firm, has launched three direct- to-consumer online investment platforms - SCMDirect.com, SCM50.com and MoneyShe.com - that aim to undercut rival platforms by up to two thirds on all costs and fees, and bolster transparency.
The service will provide an online simulator explaining to investors the impact of all of the costs and fees they incur on total returns. Such transparency over fees and charges is likely to bode well with European regulators who are introducing reforms on this very issue through the Markets in Financial Instruments Directive II (MiFID II).
The tool will give investors a comprehensive breakdown of fund manager charges, platform charges, product charges and adviser charges. “Our tool, among many other things, includes an itemised breakdown of investment service costs, which is aggregated both in Pounds Sterling and as a percentage. This lets clients understand the overall costs and their impact on investments,” said Alan Miller, co-founder at SCM Direct.
MiFID II, due to be implemented at the beginning of 2017, demands full disclosure to investors of all costs incurred by fund managers, management fees, performance fees, equity commissions and spreads. It will apply to all entities regulated under MiFID II, so captures a significant chunk of the investment management business in Europe.
“When MiFID II takes effect, fund managers will have no choice in what they can and cannot disclose to end clients. Our tool is the first one which is compliant with MiFID II. The argument that disclosure is going to add further costs to the industry does not hold. We developed this service using excellent technology in-house, and it is a shame fund managers are so hostile to calls for greater and genuine transparency,” commented Miller.
Miller added the technology had been shared with the European Securities and Markets Authority (ESMA), and the reception had been warm. The service could also be extended to fund managers should they wish to use it. “We are more than happy for fund managers to leverage the calculations we use to come up with the costs,” said Miller.
The Investment Management Association (IMA) said in August 2014 that while it supported ESMA’s objective that costs and charges be disclosed to end clients, it argued the regulatory body must distinguish between forward-looking costs and backward-looking costs. It said backward-looking costs can be measured precisely but the same cannot be true for forward-looking costs as they are yet to be incurred.
“The IMA made this intellectually bankrupt argument whereby it said it was too difficult to make future cost forecasts. This is the latest tenuous attempt by the IMA to scurry transparency in the fund management market. I think it is perfectly straightforward to come up with a reasonable estimate of future charges,” said Miller.
ESMA is following the line pioneered by the UK Financial Conduct Authority (FCA) which argued that equity commissions ought to be tightly monitored and the bulk of research not purchased through equity commissions but paid for out of the management fee.
After a consultation paper (CP 13/17), and a “thematic review” last winter, the FCA announced in a policy statement (PS 14/7) in May 2014 that fund managers should use equity dealing commissions to pay for “substantive” research only. Its definition of substantive research did not include corporate access.
In July 2014 the FCA published a further discussion paper on the use of dealing commission (DP 14/3) re-stating its view that fund managers in the UK were not doing enough to manage the conflict of interest inherent to using investors’ money to purchase investment research. The paper also noted the likelihood of MiFID II legislating on the same issue at the EU level.