SCM Direct exposes MiFID II cost reporting ‘irregularities’

SCM Direct exposes MiFID II cost reporting ‘irregularities’

UK online wealth manager, SCM Direct, which was founded by Gina and Alan Miller, has released a dossier detailing how certain firms appear to be violating MiFID II cost and fee rules.

This comes after Miller recently threatened to sue the UK’s Financial Conduct Authority (FCA) for exemptions larger institutions received on MiFID II meaning effectively longer periods of time in order to be compliant, resulting in “an anti-competitive market.”

MiFID II , an EU wide directive, came into force in January this year and is designed to increase investor protection in financial markets. It also raises transparency and competition in the EU finance sector.

The regulation covers asset managers, banks, brokers, pension funds, stock exchange operators and retail investors.

While MiFID II is designed to increase transparency, SCM argues that firms may not just be breaking the law, as prescribed by MiFID II, but may also be guilty of ‘False Representation’ regarding their disclosure of costs and fees of investing.

“SCM Direct believes that many consumers will have relied on such ‘false representations’ about costs and charges in their decision to invest.”

And SCM Direct said any investor who suffered loss either from the investment having fallen in value or their performance being impacted by additional ‘hidden’ charges and fees, could be entitled to rescind their contracts and claim damages for any loss suffered.

Miller said it would be open for individual investors – either directly – or through a class action to take action against firms who have allegedly made ‘false representations’.

Findings focused on 10 large fund management groups with AuM of £387m, 10 robo-advisers, 10 direct-to-consumer platforms with AuM of approximately £600m and 45 traditional wealth managers with £281bn of AuM.

Under Article 24 of MiFID II , firms are required to inform clients about the total costs and charges, including exit and entry charges, transaction fees, broker commissions, stamp duty, before an investment takes place.


  • Only 40% of firms disclosed their MiFID II cost closures on their websites.
  • 60% of firms provided European MiFID II Template (EMT) information only when prompted by an email or through a third-party data provider.
  • None of the robo-advisers disclosed the full aggregate costs and charges of their services on their websites.
  • Some 90% of the robo-advisers had no overall estimate of their transaction costs on their websites.
  • Only 30% of DIY firms showed all aggregated costs and charges (including transaction costs inside the funds) on their websites.
  • Only 22% of traditional wealth managers showed their costs and charges before the account was opened.

The report also said that showing the effect of costs on returns just over one year rather than several years should not be deemed to be ‘cumulative’.

The report added that most firms choosing to show the impact of costs on returns over 5 years or more.

“Is this platform effectively saying that it expects its clients to hold a fund on its platform for just a year?” the research asked.

The report identifies three ways in which the FCA can rectify the problem:

  • The FCA publicly states 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.
  • The FCA publicly states that it will use regulatory powers including the temporary and permanent ban of individuals, and fine firms up to 10% of annual turnover or at least €5m for intentional non-compliance.
  • The FCA states it will work with consumer groups to produce a suggested fees and template, compliant with MiFID II.

Responding to SCM Direct’s dossier a FCA spokesperson told Private Banker International: “There are now more detailed costs and charges disclosure requirements for firms doing MiFID II business.

“MiFID II does not stipulate that firms are required to display costs and charges in a standardised format.  This gives firms the flexibility to develop disclosures to meet the needs of their target customers and their individual business propositions.

“If firms fail to disclose their costs and charges, the FCA will follow up and take appropriate action.”