CONDUCT AND GOVERNANCE

This page is intended for advisers and is updated as more information becomes available.

Listed below are certain areas where we have developed solutions to help advisers and discretionary investment managers (DIMs) meet their regulatory obligations under both PRIIPs and MiFID II:

• Costs and Charges
• Product Governance
• Trade Execution
• Discretionary Investment Manager (DIM) periodic reporting.

We have also developed Key Information Documents to satisfy PRIIPS requirements for our Onshore Bond and Offshore Bond and have made PRIIPs KIDs and UCITS KIIDs for third party investment products available on Transact Online.

Costs and charges

MiFID II creates an obligation for distributors (such as advisers) of investment products and investment services to disclose costs and charges to clients both pre-sale (ex ante) and annually post-sale (ex post). The required disclosures include costs and charges applied by the adviser firm, the investment product provider and other third parties, where linked to the service (e.g. the platform).

Ex ante

To help you with this disclosure, costs and charges are aggregated and expressed both as a cash amount and a percentage, via our Transact Personalised Illustrations available on Transact Online. Our Transact Personalised Illustration is an online tool available 24/7. The videos below demonstrate how you can create an illustration for a switch and a template rebalance.

• Example of an illustration for a switch
• Example of an illustration for a template rebalance

The post-sale disclosure, which must be personalised and reflect those costs and charges actually incurred by the client, is disclosed in our Annual Statements issued to clients in April each year.

Ex post

The post-sale disclosure should reflect those costs and charges actually incurred by the client. This is disclosed in our Annual Statements issued to clients in April each year. Detailed versions of the reports are also sent to your adviser Pickup Page so that you can manage your conversation with your clients and clarify the advice and guidance you provided surrounding the investment decisions made.

From the end of July 2021 you will be able to run a new, bespoke Costs & Charges Summary on Transact Online (TOL) for the last tax year, calendar year, or for the last 12 months ending at a date of your choice. This will allow you to generate the report to fit with your clients’ annual review period.

To help advisers explain the detail included within the reports, advisers can use our:

• Costs and Charges Reporting Adviser Q&A
• Client Ex Post Costs and Charges Reports User Guide
• Purchase and Sale Costs and Charges Explained

Product governance

MiFID II product governance rules place a requirement on investment product providers to ensure that their products are distributed to the correct target market. As a result they are required to provide a target market and distribution strategy for all investment products they manufacture. A target market specifies groups of clients with common characteristics, needs and investment objectives as distinct from the obligation for advisers to assess suitability before making a personal recommendation in relation to an investment product, which applies specifically to individual clients. Once defined, the target market and associated distribution strategy must be reviewed regularly or when there is a significant change in the risk or return of the relevant investment product.

Defining a target market is a key obligation for manufacturers (investment product providers) and the final distributor in the distribution chain (you) rather than for platforms. To assist you with obtaining information about target markets for investment products and supplying investment product sales information to investment product providers under MiFID II we display information from manufacturers regarding target markets on Transact Online and pass target market sales information back to manufacturers when we supply them with other sales data.

We have taken steps to capture whether you categorise clients as either ‘retail’ or ‘professional’. We are capturing this information in new Portfolio applications from clients, and as you know we have asked you to confirm the categorisation of your clients as part of our Investor Data Confirmation exercise via Transact Online. We have categorised clients as retail by default, however you can switch this to professional as necessary and submit any changes to us via secure email.

We have produced our own generic target market fact sheet (a PDF) called Target Market by Investment – Non-Collectives designed to provide generic target market details by investment type for types of investments which do not have a target market established due to their nature or because there is no manufacturer or investment product provider associated with them. Further information on the investment risk associated with the types of investment can be found in the Transact Guide to Investment Risks on Transact Online.

The PRIIPs KIDs we have created for our Onshore and Offshore Bonds and the PRIIPs KIDs and UCITS KIIDs for third party investment products on the platform include target market information and are available on Transact Online.

Trade execution

The requirements set out a series of factors that we must take into account to demonstrate that sufficient steps have been taken to obtain best execution for clients. These factors are more or less identical to the factors we already take into account when executing orders, therefore we have not made any significant changes to the way we go about obtaining best execution for clients.

Details regarding our execution venues and quality of execution are provided annually via our annual Best Execution report published on our website at the end of April each year.

Periodic reporting

We have introduced a DIM Reporting Service which provides the following:

• 10% Depreciation Report – generated automatically within 24 hours when the value of a ‘discretionary’ wrapper reduces by 10% (and multiples of 10%) in a quarter from its starting value.
• Quarterly Report – if you opt in, provides a valuation including portfolio performance, management activities and any benchmarks. You can also select this report to be sent to the client’s Pickup Page.

To comply with MiFID II we provide quarterly client statements showing Portfolio Valuations as at the end of June, September and December as well as within our client Annual Statement which includes details of post-sale costs and charges. The reporting service is available via TOL > Housekeeping > DIM Reporting Settings and is described in the DIM Reporting Service User Guide available via Information > User Guides.

MiFID II also specifies that DIMs, and advisers using investment management permissions, must provide reports within 24 hours where the value of a client’s assets falls below 10% of its starting value at the beginning of the relevant quarter. We will alert you where the overall value of a client’s investments you are managing on the platform drops by 10% from the value at the start of the relevant quarter.

The 10% drop in value is calculated based upon the accumulated value of the client’s assets net of all charges i.e. platform, product wrapper, adviser and DIM fees after VAT.

More information is available in the guide MIFiD II – 10% Reporting Requirement.