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The unbundling rule
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The product governance rule
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The digital transformation
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Here’s what else to consider
MIFID II, or the Markets in Financial Instruments Directive II, is a set of regulations that came into effect in the European Union in 2018. It aims to increase transparency, efficiency, and investor protection in the financial markets. But how has it changed the way you approach institutional sales, especially as an asset manager? In this article, we will explore some of the key impacts and challenges of MIFID II on your sales strategy and practice.
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1 The unbundling rule
One of the most significant changes introduced by MIFID II is the unbundling rule, which requires asset managers to separate the costs of research and execution services from the fees they charge their clients. This means that research and trading commissions can no longer be bundled together, but have to be negotiated and disclosed separately. This has several implications for your sales approach; you must demonstrate the value and quality of your research to your clients and justify the price you charge for it, while also monitoring and reporting on how it benefits them. Additionally, you must find the best execution venues and brokers for your trades and show that you are achieving the best possible outcomes for your clients, while also complying with MIFID II’s reporting and record-keeping requirements. Furthermore, communication with clients should be clear and transparent about the costs and benefits of your services, with client agreements and policies needing to reflect the new rules.
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2 The product governance rule
MIFID II has brought an important change with the product governance rule, which requires asset managers to design, distribute, and review their products in a way that meets the needs and preferences of their target market. This necessitates conducting a thorough analysis of the target market, identifying its characteristics, objectives, risk profile, and knowledge level. Additionally, asset managers must define the distribution strategy and channels suitable for their target market and ensure that their products are compatible with the interests, needs, and characteristics of their target audience. Furthermore, clear and accurate information and disclosures about products must be provided to clients and distributors. It is also important to monitor and review products regularly to assess whether they are still relevant and appropriate for the target market, as well as collect and respond to feedback from clients and distributors. Any necessary changes or improvements should be made to products accordingly.
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3 The digital transformation
MIFID II has had a significant effect on sales approaches, particularly through the digital transformation of the financial markets. This requires adapting to changing client preferences and expectations, leveraging data and analytics to understand clients better, and embracing opportunities of new technologies. Additionally, you will need to invest in digital capabilities and skills, develop a digital sales strategy that meets your goals and client needs, and foster a culture of innovation and collaboration. By understanding MIFID II's impacts and challenges, you can improve your sales performance and competitiveness in the market.
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4 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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I've spent years immersed in the financial industry, specializing in regulatory frameworks like MIFID II. It's a set of directives reshaping how asset managers operate in the EU, emphasizing transparency, efficiency, and investor protection. Now, diving into the concepts highlighted in the article:
1. The Unbundling Rule: This requires asset managers to segregate research and execution costs from client fees. It transforms sales approaches by demanding transparent demonstration of research value, justification of prices, and meticulous reporting on benefits to clients. Compliance involves finding optimal execution venues while adhering to rigorous reporting and record-keeping rules.
2. The Product Governance Rule: This rule mandates asset managers to tailor product design, distribution, and review to meet their target market's needs. It involves in-depth analysis, defining distribution strategies, providing clear information about products, and ongoing monitoring and adaptation based on feedback.
3. The Digital Transformation: MIFID II catalyzes a digital revolution in sales approaches, demanding adaptation to changing client preferences. This involves leveraging data and analytics, investing in digital capabilities, crafting a robust digital sales strategy, and fostering innovation.
4. Additional Considerations: This space allows for sharing anecdotes, insights, or examples that might not neatly fit into the prior sections. It's an opportunity to add context or depth to the discussion on MIFID II's impact on institutional sales.
These directives fundamentally alter the landscape of institutional sales within the financial industry. Adapting to these rules isn't just about compliance; it's about redefining strategies, communication, and approaches to better serve clients while meeting regulatory demands.
