No, though the IDWG recommends using the templates, they are not mandatory.
The recommendations of the IDWG are clear that the templates are not to be made mandatory; instead, it offers alternative approaches for encouraging the adoption of the templates.
Because it is the right thing to do. Asset managers are not required by law or industry regulations to use the templates, but it is considered a best practice. At a recent corporate adviser event attended by a mix of consultants and trustees, 95% of the audience responded “YES” to the question: “Do you think a trustee would be in breach of their fiduciary responsibility if they failed to collected data using the IDWG Templates?”
We use the IDWG Templates for two reasons:
At this time, we primarily use the Collection Templates developed by the IDWG and released to market in October 2018. Apart from using the IDWG Templates for cost data collection, we also accept submissions via the ILPA Template.
Yes, and they always will be. If the Recommendations evolve over time due to the changes introduced by the new IDWG (to be convened in autumn 2018), we will adapt our templates accordingly.
MiFID II (Markets in Financial Instruments Derivatives 2) requires all costs and charges, both direct and indirect, to be aggregated and provided to each client at least annually, with an itemised breakdown being provided on request.
The aggregated statement must include all costs and associated charges, including the following:
An illustration showing the cumulative effect of the costs on the returns must also be provided, along with a description.
Product regulations for funds (UCITS) and packaged retail investment and insurance-based products (PRIIPs) must provide a breakdown of product costs in a manner consistent with MiFID II.
The costs correspond to the IDWG account-level template sections as follows (please refer to the Account Template):
All the details need to be provided, except for Section 4 (ongoing charges), for which only the sub-totals (4.1, 4.2, 4.3 and 4.4) are compulsory. However, as transparency is often seen as a plus point, providers who submit more detailed information may be considered more favourably.
Existing regulatory standards require only summary information by default—forcing providers to adopt a system with a higher degree of granularity adds complexity and may cause potential delays in its adoption. The IDWG Templates aim at an intermediate level of granularity.
Within the Account Template, data is to be submitted at the following level of detail:
However, some argue that such reduced granularity may lead to reduced honesty and may hinder optimal negotiation on all services.
No. Such costs are effectively charged to institutional clients through management fees.
Such costs are effectively charged to institutional clients through management fees. However, expressing such costs may allow clients insights into a provider’s business and their service provision model and quality. This is not considered fair by the IDWG (and also ClearGlass) for two reasons:
If the investing fund and the underlying funds are all operated by the same asset manager, then all data as required by the Account Template should be collected and submitted for all sub-funds.
If the investing fund and the underlying funds are operated by different asset managers, then the summary data is to be presented in the “pooled fund” column within the Account Template. The costs and charges incurred by the underlying funds will also be reported under the various categories in the Account Template.
Pooled funds and fund of funds are complicated in both the mainstream/listed environment as well as in private equity. In a perfect world, it is desirable to have the same “Account Template” details for all funds within the pooled fund or fund of fund structure.
In practical terms, at the current time, this is extremely difficult and, in some cases, potentially impossible for three reasons:
The pragmatic decision is to waive, for the time being, the need to submit a full Account Template that looks through all the underlying funds within a pooled fund and/or fund of funds structure. Instead, the Account Template requires summary data to be presented in the “pooled fund” column. The costs and charges incurred by the underlying funds will be reported under the various categories in the Account Template.
However, if the investing fund and the underlying funds are all operated by the same asset manager, all data for each fund as required by the Account Template should be collected and submitted.
Once a solution for data collection is available with wide adoption, there will be a contracting pool of underlying funds for which automated collection is not available. The process described above is to be reviewed at the first reset point of the new IDWG (Autumn 2019). The proposed review criteria is the degree of automation of the collection mechanism.