Gina Miller, the campaigner who successfully fought for parliament to vote on the initiation of Brexit, has released a "damning dossier" detailing how investment firms are breaking rules designed to protect investors.
The research, conducted by Miller and her husband Alan Miller through their own investment firm, SCM Direct, shows that a number of large fund managers and well-known wealth advisers do not make fee disclosures obviously available and understate costs.
Miller believes that this may be contravening the new Markets in Financial Instruments Directive (Mifid II), but also the 1998 Competition Act, the Financial Conduct Authority (FCA)'s Principles of Business and the 1967 Misrepresentation Act.
"It is scandalous that so many firms appear to have chosen to flaunt legislation that was specifically brought in to afford retail investors more transparency, clarity, and allow them for the first time in decades, to know the true full cost of their investment," said Gina Miller.
"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."
Miller has previously told City A.M. that she would pursue legal action against the FCA were it not to set out firmer guidelines and prescriptive models on how it expects firms to comply with legislation.
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.
Article 24 of Mifid II, which 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.
According to the Millers, only 40 per cent of the investment fund groups they examined make these disclosures on their website. The others required either an email or were only available via a third-party data provider.
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 either. Only 22 per cent revealed 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.
Why this is important
Across the UK and the rest of Europe, there has been an increasing drive to boost transparency in the investment management sector to cultivate a savings culture.
Mifid II was a huge step in this direction, forcing managers to set out their costs more clearly. But in the run-up to the implementation of Mifid on 3 January, several firms were complaining that it would be too hard for them to show all the relevant information in time.
The FCA has said it will be lenient in enforcing Mifid II, to allow firms to get to grips with the new legislation. But for Miller, this is not enough – she believes firms who have made the effort to reveal all their costs will be put at a competitive disadvantage.
Kay Swinburne, one of the UK's members of the European Parliament who was a key player in the drafting of Mifid II, told City A.M. that she supports the "softly softly" approach of the FCA since the UK has made much more progress with enacting Mifid II than other EU countries. By being too harsh on UK firms, she believes the whole of the UK's asset management industry could be put at a disadvantage.