In short, the new rules are as follows:
- The investment firm must provide a total overview of all the expected costs to the client before providing any services. All costs are defined as: the costs of the services (investment services and ancillary services) and the costs of the financial instrument, for example the transaction costs that a fund incurs when buying and selling securities.
The cost disclosure requirements for financial instruments are applicable when an investment firm recommends or sells financial instruments, or has an obligation to provide a PRIIPs KID or UCITS KIID.
- The investment firm must make use of an illustration to give its client insight into the cumulative effect of the total costs on the return.
- The investment firm must inform its client about the manner in which the costs are charged.
- The investment firm that has an ongoing relationship with a client must provide information about the total costs charged to the client at least once a year. This information can be included in the regular periodical reports.
ESMA has published several Q&A’s about the cost disclosure requirements. These Q&A’s give further information about the calculation and presentation of costs.