What is the point of the MiFID II “10% fall” disclosure?

We’re in the middle of a coronavirus pandemic, news headlines talk of the possibility of up to one in five UK workers being off work, the virus is likely to have a significant negative impact on global growth this year and the US Federal Reserve has announced an emergency rate cut of 0.5%.

On top of all that, if your investments are managed on a discretionary basis, you have received a notice from your manager that your portfolio has fallen by over 10% since the start of the year. What do you do?

More importantly, what do the regulators expect you to do?

Hopefully, your relationship with your portfolio manager is such that you won’t do anything without contacting them first, or, better still, you will read the letter, put it down and carry on with what you were doing.

After all, with huge swings in equity markets high on the news agenda, you shouldn’t be very surprised that your portfolio has fallen 10%. And by the time you received the notice, it may have bounced back up again anyway.

As a long-term investor, would you panic at the short-term volatility triggered by the coronavirus? Or would you hope that there was enough cash in your portfolio for your manager to bag some bargains?

Which brings me back to my question about the point of the report. Already, under MiFID II, you receive quarterly valuation reports, some of which may be lower than the one before, probably accompanied by a market report to explain what is going on. But nobody will have forecasted the coronavirus and its impact.

Transparency is good in principle, but only good transparency.

Telling you how much you are paying for your investment to be managed is good as it lets you decide if you are getting good value. Telling you whether the costs you have paid over the last year are what you were told they would be before you invested is also good. Disclosure to show that firms are acting in the best interest of their clients cannot be bad.

But do the regulators know what they expect investors to do if they are told by their discretionary manager that their portfolio has (maybe temporarily) fallen by 10% since the last quarterly valuation? Hopefully, they expect no action, in which case, what is the point of it?