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Amongst MiFID II’s many requirements are a number concerning disclosures. From 3 January 2018, two changes will result in clients receiving more frequent reports about their portfolios. The first change is the requirement for MiFID firms to report at least quarterly, where previously the standard was at least twice a year. The second is more controversial. It requires that investment firms providing the service of portfolio management, inform clients by the end of the business day if the value of their portfolio depreciates by more than 10% from the beginning of the quarterly reporting period. It also requires disclosure at each subsequent fall of a multiple of 10%.

Whilst the intention to keep clients better informed is laudable, this is likely to be one of those rules that actually hurts clients more than it helps. It is easy to foresee client composure being damaged by news of their savings having fallen by what they may feel is a significant amount. It is then easy to imagine some clients selling out of their portfolio as a result of this information.

In the first part of our paper we will show how history suggests selling out after such a 10% drop is likely to be a bad idea.

And in the second part we will show that, fortunately, reportable 10% drops as envisaged by MiFID II have historically been less common than you might imagine, particularly for more diversified portfolios.

This document is only for professional financial advisers, their clients and their prospective clients. The information given here is for information purposes only and is not intended to constitute financial, legal, tax, investment or other professional advice. It should not be relied upon as such and PortfolioMetrix cannot accept any liability for loss for doing so. Any forecasts, expected future returns or expected future volatilities are not guaranteed and should not be relied upon. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance is not necessarily a guide to future performance. Portfolio holdings and asset allocation can change at any time without notice.

PortfolioMetrix Asset Management Ltd is authorised and regulated by the Financial Conduct Authority (FCA No 564162) in the United Kingdom. PortfolioMetrix Asset Management SA (Pty) Ltd is an Authorised Financial Services Provider in South Africa. The information contained is given for information purposes only and is not intended to constitute financial, legal, tax, investment or other professional advice and should not be relied upon as such. Investments can go down as well as up and past performance is not a guide to the future.

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