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The FCA used its recent Dear CEO letter to wealth managers and stockbrokers to remind them that they must include implicit transaction costs (known as slippage) when they make their ex-ante and ex-post disclosures of aggregated costs and charges to clients. Debbie Gupta, Director of Supervision for the wealth management and advice sector, made the same point when she spoke at a recent PIMFA Compliance Conference.
‘Slippage’ is the difference between the price at which an asset is valued immediately before an order (the arrival price) and the price at which it is actually traded (the execution price). Disclosure of ‘slippage’ as part of aggregated costs is controversial, due to its potentially distorting impact on total costs disclosed by different firms. There has been a lot of industry resistance to it, both on the grounds that it is difficult to obtain the data and that it’s of dubious value to clients.
However, MiFID II requires implicit transaction costs to be disclosed, and the FCA is adamant that firms need to comply, however valid their objections to the concept may be. We suspect that lots of firms aren’t currently including implicit costs in their ex-ante or ex-post disclosures – if you’re one of them, you need to find a way of doing so as soon as possible.
