The Mighty Ongoing Charges Figure in the Quest to Fulfill MiFID 2

The way – our way, in our products, like Eximius – to keep Total Cost of Ownership under control is to compute and present the direct costs over a rolling period of twelve months, as we wrote weeks ago.

This is just one of the commitments to transparency we’re doing to honor the European requests inside the MiFID 2 regulation. Any investor has a right to exactly know how much her investment is costing and the software we make for our clients – that use it to cater to their investors pool – takes care of that. But, what about indirect costs instead?

Introducing the Ongoing Charges Figure

One of the requirements of MiFID 2 is indeed that indirect costs should be provided for all the securities carrying ongoing costs. For instance, an investment made on a mutual fund implies that a part of the security management fees, entry fess, transaction costs and the like are part of the share price of the security.

Ongoing Charges Figure: Construction of OCF

How OCF is made up.

All the indirect costs contribute to the Ongoing Charges Figure (OCF), a value that the fund provider must correctly calculate, either for its own funds and when dealing with funds managed by third parties. In the latter case, third parties are responsible for the correctness of the calculation. The problem is, the framework gives no methodology to calculate OCF. The Ongoing Charges Figure is anyway evolving towards a de facto market standard.

The Battle for the Correct OCF

We prepared a picture showing the typical structure of OCF: something that the consumer shouldn’t actually see according to some player, since it clearly depicts the nature of the costs and expenses. Some providers are trying to lower the total of OCF by transforming come indirect costs in direct costs and charging for them to the wealth management firms.

There is some good in this evolution, since going from indirect to direct costs improves the overall transparency. So said, we are constantly at work to ensure that our products and technologies work at maximum correctness and precision, showing real costs in the most understandable way for the consumer: the Ongoing Charges Figure is an excellent analytical tool to judge the cost effectiveness of an investment strategy and it is important it’s either well-defined and transparent in its making.

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