How should the ex-ante costs and charges disclosure requirements be applied to the service of portfolio management?

Answer 24

In accordance with Article 50(5) and Recital 75 of the MiFID II Delegated Regulation, an investment firm must inform the client, in good time before the provision of the investment service of portfolio management, about the costs and charges relating to (i) the investment and ancillary service(s) to be provided (service costs) and to (ii) the financial instrument(s) in which the client’s portfolio could be invested in accordance with the mandate given by the client (product costs).

Due to the nature of the service of portfolio management (management on a discretionary client-by-client basis), no cost disclosure is due in relation to each investment decision taken by the firm. However, ex-ante information about costs and charges should be provided before the firm starts providing the service. The quality and completeness of the ex-ante information provided before the provision of the portfolio management service is thus critical.

ESMA is therefore of the opinion that ex-ante information relating to service and product costs where portfolio management is provided should be based on:

• the value of the assets (cash and/or financial instruments) under discretionary management (as disclosed by the client or prospective client before the firm starts exercising its discretionary mandate); and