Mifid II came into effect over a year ago on 3 January 2018. It’s an acronym for Markets in Financial Instruments Directive 2 and, at over 30,000 pages, it’s far from a bit of light reading.

Mifid II was designed to offer more protection for investors and to inject more competition into the trading of all asset classes. A part of this was a drive for visibility. However, Mifid II is highly convoluted. This article should explain what it means for investment charges in the simplest possible terms.

One big change that Mifid II has meant is that investors should see an aggregated overview of all the service costs and charges on their investment funds. These charges were already applied, but investment managers weren’t obliged to disclose them. Mifid II hasn’t meant that any extra charges are applied to your investments, just that you have greater visibility of any charges on your investment funds.

Although extra visibility is a good thing, like most things in Mifid II, there’s a high chance of confusion. You will see transaction charges and incidental charges on your portfolio. These are nothing new, but it is now a legal requirement that you’re informed of them.

Service charges refer to initial advice fees, management fees, third party costs and any performance fees. Investment charges refer to the fees applied to an investment at the time of purchase, management fees charged by the fund manager, exit and entry charges on the fund, transaction taxes and foreign exchange costs.

From April 2019, each investment provider or platform will need to provide a personalised disclosure of all of the charges applied to your investments.

Another point of potential confusion is that these disclosure requirements don’t apply to pensions or investment bonds. The same charges apply to these products but for some reason or other, it wasn’t a Mifid II requirement to disclose them.

IFAs and wealth planners are required to provide you with an overview of the expected costs, based on the average annualised costs over the last three years, before making an investment decision.

If you haven’t seen this already, it should be introduced in the coming months.

If you’d like any more information on this topic, please feel free to get in touch with us directly.