FinoComp, an Australian technology business which provides so-called “micro-services software” to the UK wealth management market, has unveiled a tool for discretionary fund managers and platforms that it says is designed to help them meet certain of the new MiFID II reporting requirements.
MiFID II – a long-in-the-works updating of Europe’s Markets in Financial Instruments Directive – comes into force tomorrow.
The new FinoComp tool is called TierDrop, and it is described as a “performance calculation tool” that the new MiFID II “10% depreciation rule”, which states that clients are to be notified within 24 hours if a discretionary managed portfolio falls 10% or more during a specified reporting period.
In a statement, FinoComp said its performance calculator tool works by calculating the performance of a client’s discretionary managed portfolios, “taking into consideration capital movements, the movement of clients between models, between discretionary managers, and with support for assets held on platform outside of models”.
A choice of “industry-recognised calculation methods” are used, including, FinoComp says, Simple Dietz, Modified Dietz and the more complex internal rate of return (IRR) algorithm, which the company notes means that platforms and DFMs making use of its TierDrop product will have “the ability to compare and select a common calculation method to suit their businesses”.
It notes that because it is a distributed software module, TierDrop has no impact on the performance of the platforms or the core systems of the DFMs. The data compiled by the system is updated daily, with accuracy ensured by delivering it “through a suite of data hygiene checks”.
FinoComp chief executive Ray Tubman, pictured, noted that although the MiFID II rules state that it is the DFM, in collaboration with the client’s adviser, who is ultimately responsible for reporting information on the client’s portfolio, “in practice the provision of this data can also fall to the platform to provide”.
“History shows that the likelihood of a portfolio dropping by 10% in a single reporting period is an infrequent occurrence, but taking into consideration clients specific circumstances, and a lack of accuracy with some calculation methods, we believe that it may be more frequent than many are anticipating,” he added.
“[FinoComp’s TierDrop product] not only provides notice of clients with a 10% drop, and those approaching this level but provides a full performance overview across the entire client base.”
Based in Jamberoo, New South Wales, FinoComp has a European outpost in Finsbury Square in London.
‘Seven years in the making’
MiFID II has been some seven years in the making, and was originally due to come into force a year earlier than it now is. As recently as last month, some industry sources familiar with the efforts being made to comply with the new rules were saying that there were concerns that unforeseen consequences of the legislation could yet cause problems.
MiFID II was conceived as part of an effort to increase consumer protection while also increasing competition in the provision of financial products and services across the European Union.