MiFID II Updates & Support

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.

New disclosure requirements were introduced in January 2018 to provide the investor with the total costs of buying financial instruments, including wrapper costs and the costs of advice. These must be disclosed to the investor pre sale (known as ex-ante disclosure) in good time before a transaction is entered into, or when a product or service is bought. This disclosure must also incorporate a forecast of the impact of all the costs on the performance of the investment.

Another new requirement was the issue of the total aggregated costs and charges that the investor has actually paid in the form of an annual summary of charges (known as ex-post disclosure) which is be issued annually and on the closure of a product wrapper. The first reports were generated in quarter one of 2019, for charges incurred in 2018.

Ex-ante costs and charges

Ex-ante costs and charges disclosure for non-advised transactions

For non-advised transactions into funds purchased within ISA, GIA or Offshore Bond via our Investment Centre, James Hay will issue an ex-ante costs and charges disclosure statement to the investor.

Please note that for non-advised buy transactions within SIPPs, James Hay will not be issuing a ex-ante costs and charges disclosure statement.

Ex-ante costs and charges disclosure for advised transactions

For advised buy transactions of investments into funds within our Investment Centre, the financial adviser will be given the option as to whether or not they want to produce am ex-ante costs and charges disclosure statement using James Hay Online. While technically not required for SIPP investments (as previously explained), this option is also available for SIPPs. The ex-ante costs and charges disclosure document shows aggregated costs associated with the fund, our own costs and adviser charges shown in £ and % terms.

In addition, advisers have the ability to produce an ex-ante costs and charges disclosure statement in relation to our managed portfolio panel (MPP). The above process will not occur for transactions which form part of portfolio rebalances or a change to the construction of a model portfolio. If you feel it is appropriate to re-issue ex-ante disclosure where there has been a material change to a model portfolio, this can be facilitated through James Hay Online.

Click on the links below to access the user journey guides for accessing the new costs and charges tool within James Hay Online.

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 requirement has been introduced where an investor holds a discretionary portfolio and/or leveraged instruments, that the service provider notifies the investor of any drop in value of 10% or more since the last formal valuation statement. This has to be done by the close of business on the day the drop occurs.

Where an investor makes an investment on a discretionary basis through the James Hay managed portfolio panel (MPP) service, we provide a mechanism for the calculation and reporting of the 10% portfolio depreciation. This shows the depreciation level since the last formal statement when the portfolio initially falls by 10% or more, and also any further falls in increments of 10% (eg 10%, 20%, 30% etc) in the current reporting period. The reporting period and portfolio valuation is reset when the next formal periodic report is issued.

We will provide the notification to the investor by first class post at the end of the day in which the fall has occurred. The investor’s financial adviser will receive a secure message containing a copy of the letter issued to the investor. A copy of the correspondence will be retained on the individual investor’s document store on James Hay Online. Please note that none of the discretionary portfolios on our MPP service hold leveraged instruments.

The regulations also introduced a new requirement to provide quarterly statements on discretionary managed portfolios and we are updating our statement cycle for MPP accordingly.

Where an investor has an arrangement with a discretionary investment manager outside of our MPP service, the 10% portfolio depreciation reporting and quarterly statements will be completed by the discretionary investment manager directly.

Where a financial adviser manages investor monies under a discretionary mandate, they will also need to be familiar with these regulations and their responsibilities for compliance to this requirement on the monies managed under such discretionary powers. Other than our MPP service, James Hay does not support any other on-platform discretionary propositions, so any investment managers or advisers using our platform for investment transactions under a discretionary mandate will need to ensure they have appropriate client reporting and notification processes in place to meet their regulatory obligations.

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.