The Financial Markets Authority (FMA) recently reviewed how fees, incentives and commissions are disclosed across managed investment schemes (MIS), discretionary investment management services (DIMS), and financial advice providers (FAPs). It examined whether internal procedures, processes and controls help investors and consumers understand these costs associated with their financial products, and assessed disclosures against the Financial Markets Conduct Regulations 2014 (FMCR) and relevant FMA guidance.
The FMA’s media release is available here and its findings are available here.
Who needs to read it? Why?
We strongly recommend that MIS managers, DIMS providers, and FAPs review the FMA’s findings, assess their disclosure practices against its recommendations, and address any gaps. We also encourage anyone with an interest in fee disclosure to read the findings.
What does it cover?
The FMA’s review of fee disclosure practices across MIS, DIMS and FAPs found that while disclosure was generally satisfactory, there were some issues with clarity, completeness, and consistency. The review highlighted good practices such as clear upfront fee summaries and simple explanation of tiered fees, but it also emphasised the importance of clear disclosure for investors and consumers to understand the costs associated with financial products and services.
The review covered 55 managed investment schemes run by 37 managers, along with a range of DIMS providers and a selection of financial advice providers. The FMA’s findings and recommendations aim to support clearer, more consistent, and more transparent
We set out the FMA’s key recommendations below
MIS managers
The FMA found that while most MIS complied with disclosure requirements, some fee disclosure was spread across multiple documents or locations without clear cross-referencing, and there was insufficient explanations for fees attached to complex arrangements. The FMA acknowledged the constraints in preparing certain documents (such as PDSs) but reinforced that fee disclosure should be clear, consistent and transparent.
The FMA made the following recommendations for MIS:
- where additional fee disclosure is provided elsewhere (for example, in an OMI); accurate cross referencing is required;
- use the prescribed FMCR wording; and
- clearly distinguish between estimated and actual fees, and where possible explain assumptions used for any estimates.
DIMS Providers
Although the FMA findings acknowledged positive examples of fee disclosures However, we also observed instances where Fee Disclosure lacked sufficient detail for investors to clearly understand the fees and charges associated with the service, or where descriptions of fee components or fee structures were unclear, contradictory or confusing. There were also cases of inconsistencies across investor-facing documents and instances of non-compliance with regulatory requirements.
The FMA made the following key recommendations for DIMs providers:
- include clear information on the total percentage-based charges, and total other charges, to assist investor decisions;
- clearly disclose rebates, non-monetary benefits and other remuneration arrangements affecting the costs incurred by investors, where these may influence the service provided, including how and when they are received.
FAPs
The FMA conducted an on-site review of FAPs and intends to undertake targeted follow-up reviews where required. The FMA also identified weaknesses in record keeping for substantiating fees charged and instances where fees, incentives and commissions were not disclosed proactively or at the appropriate time.
The FMA noted that some FAPs only stated the maximum amount that may be charged if advice does not proceed, without explaining the likely amount payable. The FMA made the following key recommendations for FAPs:
- where appropriate, advisers should proactively discuss fees and commissions with clients rather than relying on the client reading written disclosures;
- ensure fee disclosures clearly explain any fees that may arise if the financial advice product is closed early, or the client does not proceed with the advice, including how any clawbacks are calculated; and
- disclose commissions as a dollar figure.
Our view
The FMA’s findings are a timely prompt for providers to review their fee disclosures and address any gaps. The focus should be on both compliance and clear, consistent information that helps investors and consumers understand what they will pay and why.
We recommend making this an ongoing priority, supported by effective governance and controls to keep disclosures accurate and up to date.
What next
If you have any questions about fee disclosures and the FMA’s review, contact one of our experts.
This article was co-authored by Sarah Waller, a Solicitor in our Financial Services team.
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