Gina Miller

Feature: True and fair

Gina Miller’s True and Fair campaign has put cost transparency under close scrutiny. She talks to Viewpoint about what that means for pension schemes.

Since you formed the True and Fair campaign, what have been its biggest achievements and challenges?

The biggest challenges have been to achieve real change in the UK beyond platitudes. We were close to bringing in change via our work with Greg McClymont and his team, which contributed to policies included in the 2015 Labour manifesto, but as Labour lost the election those plans never came to fruition. But since 2012 we have been lobbying in Europe, and we were also able to contribute to PRIPs and the Shareholder Directive.

What can pension schemes – especially trustees – do to drive better transparency and corporate governance in the companies they invest in?

They should insist that they are able to see all costs at all levels, including transaction costs; as well as be afforded 100% transparency on holdings as the optimum outcome is achieved by balancing cost and risk to achieve consistent returns.

Is MIFID II the solution to greater cost transparency in asset management?

When you consider that back in 2000 the earlier incarnation of the FCA, the FSA’s, own report found that as much as 50% of fees were being hidden from investors, it is a mark of shame for the industry that it has taken an EU Directive to bring in 100% fee transparency. But I fear it will not be the silver bullet it was meant to be.

This is due to a failure in the legal text’s technical guidance to specify a set format – a mandated template of how fees should be displayed, and a set place to show it. Research had found that the most commonly viewed places are websites and factsheets.

Transparency on its own will not create a robust solution unless consumers can make like-for-like comparisons, and thus make fully informed choices about the best products and services for their savings pots.

As the drafters and lobbyists for Article 24 of MiFID II – which requires total cost transparency, implicit and explicit, to be aggregated into one total cost of investing number, in pounds and pence as well as a percentage – we have a vested interest in ensuring the new regulation is followed. From a competitor perspective, SCM Direct also has a vested interest as we are at a competitive disadvantage: we show all our MiFID II costs in an easy-to-understand format, updated monthly, but few in the industry are doing the same.

Could you give us an idea of how the industry in general is approaching MiFID II?

Rather than just quote anecdotal evidence, we recently undertook research looking at 75 companies and if they were complying with Art 24 of MiFID II. This included 10 large fund management groups with total assets of £387 billion, 10 well-known online wealth managers (i.e. ‘robo-advisers’), 10 leading direct-to-consumer DIY platforms with total assets of c. £600 billion, and 45 traditional wealth mangers with £281 billion under management. The overall total AUM analysed amounted to £1,268 billion.

What we found was scandalous. Of the investment fund groups, only 40% of the firms disclosed their MiFID II cost disclosures (EMT) on their websites. The remainder required either an email or were only available via a third-party data provider.

Of the online wealth managers, none displayed the aggregated costs and charges (including an estimate of the full transaction costs within the funds in which they invested) on their website, prior to an account being opened/invested. And 90% of the sample had no estimate of the overall transaction costs either associated with dealing in and/or within the funds invested, in their website summary of overall charges. In fact, several websites claimed there were no transaction costs associated with their services.

Of the direct-to-consumer ‘DIY’ platforms, only 30% showed all the aggregated costs and charges (including the full transaction costs inside the funds) on their website prior to an account being opened/invested. Many firms showed the cost of a sample fund selected in prominent pages of their website as being 1.06% + performance fee, even though the total MiFID II fund cost including performance fees and transaction costs amounted to 3.38% pa.

Among the traditional wealth managers, only 22% showed all the aggregated costs and charges (including the full transaction costs inside the funds in which they invested) prior to an account being opened/invested. And only 14% revealed all their costs including the full transaction costs, within an illustration showing the cumulative impact of costs and returns as required by MiFID II.

It is shocking to me that so many firms appear to have chosen to flout legislation that was specifically brought in to afford retail investors more transparency and clarity, allowing them to know the true full cost of their investment for the first time in decades.

What can be done to increase compliance?

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. To date, the FCA has failed to provide firms with any technical guidance on how to comply with full cost disclosure or provide a mandatory template that would allow prospective retail clients to make genuine cost comparisons between investment products.

UK investors should expect to be protected, especially as the FCA could utilise its powers to fine firms for non-compliance. That could be up to 10% of their annual turnover or at least €5m, and at least twice the benefit derived. Furthermore, investors may be entitled to rescind their contracts and claim damages against firms.

Three simple measures could radically resolve the issue of potentially illegal behaviour by firms almost overnight.

  1. The FCA publicly states that it will be tough over the coming months (not years) on firms and individuals not complying with the rules regarding costs and charges within MiFID II.
  2. The FCA publicly states that it will use its regulatory powers including the temporary or permanent bans of individuals; and maximum fines of up to 10% of annual turnover or at least €5m for firms found to be intentionally avoiding disclosing their fees and charges, as prescribed by MiFID II.
  3. The FCA publicly states that it will work with consumer groups and the industry to quickly produce a suggested fees and charges template, compliant with MiFID II, which every single firm is encouraged to show within the most prominent pages of their website and/or within the most prominent communications sent to clients prior to account opening/investment.

If you could prioritise one single change to the asset management industry, what would it be?

For the industry to remember that it is not their assets, and that the lion’s share of returns should go back to the people who entrust us with their hard-earned money. The industry has a crucial societal responsibility and should be fit for purpose. Average 40% profit margins are obscene – should the average fund management company really make twice the average profit margin of the pharmaceutical industry?

There needs to be a clear-out of the costly, low-performing stodge which characterises much of the industry. Our main focus should be to meet the FCA’s overarching principle of treating customers fairly. Why can’t this vital industry behave with integrity and honesty so that clients can once again trust it?


Gina Miller will give a plenary speech at the PLSA’s Investment Conference on 9 March at 11.40am.