MiFID II
MiFID II came into effect on the 3 January 2018, and we continue to keep our community of advisers, investment managers and fund managers informed on this web page.
Below you'll find information about our commitments to you, our interpretation of MiFID scope and some FAQs.
What is MiFID II?
Following the financial crisis of 2008, the European Union sought to enhance investor and market protections afforded by the original MiFID (implemented in the UK in November 2007) and also increase market transparency through further measures of legislative protection. This has been implemented via both a revised MiFID and new Markets in Financial Instruments Regulation (MiFIR). These are collectively being referred to as MiFID II.
Support and literature
MiFID II ex-ante costs and charges - process guides
MiFID II ex-post costs and charges
What provision has James Hay made to be compliant with MiFID II and how does it impact me?
As a result of MiFID II, updates in practices, reporting and communication are required across investment markets and regulated investment firms. These have a different impact on those engaged in activities relating to financial instruments (shares, bonds, units in collective investment schemes and derivatives) depending on their role and how they interact with the markets (venues) where those instruments are traded.
Product governance and reporting are among the key cornerstones of the changes highlighted by MiFID II to improve transparency and protect investors.
James Hay is committed to:
- Supporting investors, advisers, investment managers and fund managers through communication of our approach to implementation and considering the interactions needed between us with any solutions built;
- Continued exploration of efficiencies post implementation to ensure ongoing adherence of compliance does not create obstacles to investors’ needs, or ongoing business relationships; and
- Consulting with third party firms including advisers, investment managers, fund managers, product providers, service providers and investors both before and after implementation to ensure solutions deployed are and remain fit for purpose.
At James Hay we have reviewed the scope of MiFID II in respect of our business structures relating to our different wrapper propositions. As a result of this we have concluded that for our SIPP business, it remains exempt from the revised directive requirements because the financial instruments held within the pension structure are owned by the trustee of the pension scheme and therefore are specifically excluded under the legislation.
Consequently, James Hay Pension Trustees Limited, Union Pension Trustees Ltd and PAL Trustees Limited are non-MiFID companies and as such the SIPP products within the James Hay personal pension plan scheme, IPS SIPP Scheme and IPS (2008) SIPP Scheme, along with their FCA regulated SIPP operator firms, are exempt from MiFID II requirements.
For the revised transaction reporting introduced under MiFIR, James Hay falls outside of the scope of the requirements for a firm to report transactions as we do not execute or transmit orders in financial instruments that are executed on a trading venue as defined in the regulations. However, any investment managers or execution only stockbrokers transacting for SIPP accounts have their own transaction reporting requirements in the same way as they would for any of their other clients.
Products where assets are held within our nominee, James Hay Wrap Nominee Company Limited, are subject to MiFID II compliance. This includes ISAs, GIAs and Offshore Bonds. For these products, the investor may include an individual person and non-personal entities such as trusts or corporate structures.
While we are not bound by regulation to align our SIPP propositions to MiFID II requirements, we do recognised that for some elements of the legislation, such as ex-ante costs and charges disclosures, some advisers may wish to incorporate the SIPP in their overall disclosure to the investor. As part of our commitment to supporting our adviser community we made the decision to accommodate this where it was required from January 2018. With respect to ex-post cost and charges disclosures which become available during quarter one of 2019, we will not be providing these for SIPP due to the unavailability of the necessary information required for some investment types. Further details can be found within the costs and charges section below.
Key MiFID II changes
We have summarised the changes of MiFID II into key subject areas below.
A financial adviser will need to assess their clients against the target market information supplied by the financial instrument manufacturer. Please note this does not replace suitability reports or assessments.
James Hay will provide details of each fund’s target market as part of the investment centre trading journey for ad-hoc and regular purchases or switches within James Hay Online.
If target market information is not available for a fund, the adviser will need to obtain confirmation from the fund manager. James Hay will not assess whether the fund’s target market is appropriate to the needs of the adviser’s clients. It is worth noting that pooled pension fund target market information may not be available because this type of fund is exempt from MiFID II requirements regarding the provision of this information.
James Hay’s target market explains who its products are designed for and also gives examples of the types of investors our products are unsuitable for:
"We design products for retail investors who are financially secure and looking to aggregate their investments in one place. Investors will require one or a combination of tax wrappers to maximise tax efficiency for both saving and managing income. Predominantly our products are aimed at advised investors, however, they may be appropriate for non-advised investors who have proactively sought out our products and are informed investors in that they have at least an average knowledge of investments and/or some financial services experience.
Our products are typically designed for investors with at least £200,000 of investable assets for use in the approach to and during retirement, enabling them to access a wide range of investments with flexibility to amend their portfolio to cater for their evolving financial needs over time. Our products are most suited to investors that are confident, investing for the medium to long term and willing to accept a level of market risk to increase potential reward (noting the actual level of risk an investor is prepared to take/can afford to take is based on individual factors). Therefore, we would expect investors to be proactively investing, rather than passively remaining in cash (via product bank accounts).
Our products are not suitable for investors who are looking to guarantee their investment value or their income, invest in non standard investments (e.g. unquoted shares) or who are looking to invest for the short term."
There will continue to be a need to identify where complex products are held. A complex product is defined as any investment outside of the non complex products definition. Non complex products are defined as:
- Units/shares in a UCITS qualifying Collective Investment Scheme;
- Shares, Bonds and other forms or securitised debt admitted to trading on a trading venue;
- Money market instruments;
- Structured Deposits; and
- Other non-complex products that meet certain criteria regarding liquidity and adequate comprehensive information on the investment being publicly available and likely to be readily understood by the average retail client.
Please note that from 3 January 2018, James Hay no longer permitted investors to purchase complex products without having been given financial advice in respect of the purchase.
The requirements of transaction reporting under MiFID II are an enhancement to those previously in place in the UK. For firms that execute investment transactions via a trading venue, this involves ensuring that they report the investor as the decision maker for the trade (unless the trade is under a discretionary mandate). This requires the executing firm to identify individuals, which are through a national insurance number in most instances or another national identifier. Where the investor is a non-natural person such as a trust, charity or other legal entity, a legal entity identifier (LEI) is required to be obtained from a local operating unit, which in the UK is the London Stock Exchange.
Transaction reports still need to be completed and submitted to the Financial Conduct Authority (FCA) by close of business the day after the transaction was made.
A new requirement of MiFID II is that firms who receive and transmit orders (without executing) to another firm to execute on a trading venue, now have a responsibility to ensure that either the executing firm has sufficient details to accurately report the transaction and does so, or they report directly themselves within the specified time period.
If the investor has given discretionary powers to another individual (or legal entity) such as a discretionary investment manager (DIM), it is the DIM (rather than the underlying investor) who is reported as the decision maker for the transaction.
James Hay falls outside of the scope of requirements for a firm to report transactions under MiFID II as we do not execute or receive and transmit orders in financial instruments traded on a trading venue. While we have stockbrokers and investment managers available for our investors, we give authority to the investor and/or their financial adviser to instruct the executing stockbroker/investment manager directly. We do, however, have responsibilities around record keeping and oversight.
Here at James Hay we hold LEIs for each of our trustee firms for our SIPP business, and these have been provided to stockbrokers and investment managers with whom our SIPPs hold accounts. Details of our LEIs can be found below.
- James Hay Pension Trustees Limited: 213800IYRU9MXF1IJB07
- PAL Trustees: 213800OY26HBQTS98271
- Union Pension Trustees:2138007EVBPEWBWTX110
However, for SIPPs, ESMA has provided guidance stating that the SIPP member should be reported as the decision maker and buyer/seller, rather than the trust (which is the case for all other trusts).
Where a wrapper such as a GIA or Offshore Bond is held by a trust or a corporate entity, the holding entity also needs to apply for a LEI. The holding entity should notify the executing stockbroker/investment manager and James Hay of the LEI reference once obtained.
A new MiFID II requirement has been introduced where all investment product providers must provide clients with a quarterly valuation of their investment products. Pensions (including SIPPs) are excluded from this requirement.
As a result of this change, James Hay investment products which are not a pension, now have valuations issued to clients on a quarterly basis, with the investment product anniversary date used as the initial trigger (i.e. ISA, Investment Portfolio, GIA, Offshore Bond).
For each non-pension product held by an investor, they will receive a separate valuation pack issued on a quarterly basis. The covering letter will clearly reference the product that the valuation relates to as indicated in the example letter below.
Example client valuation letter
If an investor has a pension product such as a SIPP, the value of this will not be reflected in the quarterly valuations received, however, valuations for the pensions will continue to be issued separately on an annual basis based on the plan anniversary date.
To summarise, investment products that have moved to quarterly valuations are:
- Modular GIA
- Modular ISA
- Wrap Investment Portfolio
- Wrap ISA
- Wrap Offshore Bond
Please note: if your client holds a pension product with James Hay in addition to the above products, where this is a SIPP, the valuation can be obtained securely via James Hay Online.
Frequently asked questions
Below you will find our most commonly asked questions, the actions we are taking and the likely impact on different parties. This is not an exhaustive list and will continue to be updated.
Please see our 'What provision is James Hay making to be compliant with MiFID II and how does it impact me?' section which sets out what MiFID II is and the provision James Hay have made in respect of it.
Applies to adviser, investor, fund manager and product provider audience.
Recital 89 of the MiFID II Directive states “Individual and occupational pension products, having the primary purpose of providing the investor an income in retirement, should be excluded from the scope of this Directive, in consideration of their particularities and objectives”. The FCA have also confirmed in their Perimeter Guidance that financial instruments held within a pension scheme are outside the scope of MiFID II, as the FCA does not consider that a member of a pension scheme acquires a financial instrument purely as a result of having a financial instrument held for their benefit under the trusts of an occupational or personal pension scheme.
However, although not required by the rules, there are some aspects of MiFID II where we have taken a propositional view and included SIPPs, for example the ability for advisers to produce an ex-ante costs and charges disclosure document.
Applies to adviser and investor audience.
There is a tool within James Hay Online which financial advisers can use to generate the ex-ante costs and charges disclosure document to their clients for investment centre funds. For a non-advised investor we will provide this to them as part of the online trading journey where required. Please see our ‘costs and charges’ section within MiFID II changes, which sets out the provision James Hay will be making in respect of disclosing costs and charges to both investors and financial advisers.
Ex-post cost and charges disclosure statements will be issued annually on non-pension wrapper products where financial instruments are held and on the closure of a product wrapper.
Applies to adviser and investor audience
For ex-ante cost and charges disclosure we will provide the disclosure (in £ and % terms) as a PDF. This includes anticipated upfront and ongoing aggregated costs and charges associated with making the investment into our investment centre funds, including any James Hay charges.
For an ex-post cost and charges disclosure we will issue a paper statement (in £ and % terms) with the cost and charges aggregated to the product wrapper level. Please refer to sample statement for further details.
Applies to adviser and investor audience
The charges included in the statement include one-off charges and transaction costs, neither of which are included in the OCF or TER. The charges included in the statement also include incidental costs which are included in OCF but not in TER. In most cases, therefore, the charges on the statement will exceed both the OCF and TER.
Definition of charge types:
One-off charges - one-off charges including the entry and exit charges.
Ongoing charges - charges for running the portfolio, including but are not limited to the investment management fee, valuation fees, audit fees, legal fees.
Transaction costs - costs incurred for purchasing and selling securities within the portfolio, including brokerage commissions, stamp duty and spreads.
Incidental costs - includes performance fees paid if certain performance levels are achieved (over and above any levels set out in the investment objective) within a set time period.
Applies to adviser and investor audience
No, it is a separate document to our product illustrations.
Applies to adviser and investor audience
- James Hay Pension Trustees Limited: 213800IYRU9MXF1IJB07
- PAL Trustees: 213800OY26HBQTS98271
- Union Pension Trustees: 2138007EVBPEWBWTX110
Applies to adviser, investor, fund manager and product provider audience
James Hay provide fund target market information for funds that are available via the investment centre. Please refer to the 'Target market' section of this page for further information.
Applies to adviser, investor, fund manager and product provider audience