Which methodology should an investment firm use when calculating the 'costs related to transactions initiated in the course of the provision of an investment service’ for its ex-post cost disclosure?

Answer 12

This question relates to costs involved when an investment firm buys or sells (or engages in any other transaction in) a financial instrument for its client. These transaction costs are different from the transaction costs incurred by a financial instrument’s manufacturer which result from an investment decision (e.g. a manager changes his fund’s asset allocation), and which should be incorporated in the costs of the financial instrument.

The requirements on total costs and charges require investment firms to incorporate both implicit as well as explicit transaction costs. For retail products, the PRIIPs RTS provides for a detailed calculation methodology for different financial instruments, which ensures that both explicit and implicit transaction costs are captured. Therefore, in that case, for the calculation of transaction costs on an ex-post basis, ESMA would expect the investment firm to use the methodology as covered in paragraphs 12 to 20 (and possibly other relevant paragraphs) of Annex VI of the PRIIPs RTS.