Commercial opportunities in MiFID II: A glib sign-off, or unexplored value for wealth firms?

MiFID II commentaries generally focus on the legislation itself, rather than the specific impacts to firms and solutions to address them.  These are our views on the benefits of a successful and thoughtful implementation approach. 

In the real world however, are such opportunities unicorns, or are they actually achievable?  Here we have tried to identify three, material examples to move Markets in Financial Instruments Directive (2004/39/EC) or MiFID II from a burdensome compliance cost to an investment in your business.

Transparency is one of the core tenets of the MiFID II legislation, especially around fees and charges.  This is one area seen as something to fear by most managers who face-off to retail clients.  A poor reaction to fee disclosure by most clients is often because historically, fees may have been bundled together or otherwise charged inexplicitly to clients.  The requirement to split out fees may alarm some managers.  However, with the right messaging, upfront and open dissemination of fees, alongside the rationale – read value – behind them, firms will find they win trust and loyalty in their client-base.  This does not mean a race to the bottom: clients in the UK tend to be pragmatic and do not necessarily want their hard-earned finances managed cheaply.  It’s about forming a partnership with clients and ensuring that firms are proactive in this communication, folding it into a broader conversation about their processes, skillset and unique capabilities that justify the expense and support their brand.

Efficiency gains are eminently achievable from one’s MiFID II implementation efforts.  Most inefficiencies across Wealth Managers stem from disparate systems, duplicated teams and processes, arduous workarounds and poorly executed M&A integration.  These amount to areas of one’s operating model which are all implicated, and oftentimes need re-vamping, as a result of MiFID II.  Beneficial opportunities differ between firms, but for example, a firm with investment operations relying on antiquated books and records systems, may choose to strategically outsource these functions to comply with the transaction reporting obligations of MiFID II.  Equally, this could reduce costs and errors while speeding up processing.  Not often will budget discussions be so straightforward as when needed to comply with regulation.  Use it, therefore, to consolidate your systems, focus your distribution efforts or outsource inefficient processes.  Use it as an investment.

Few firms demonstrate the real value of their investment professionals and understanding of capital markets as well as they could.  A reliance on a few clichéd sound-bites and pie charts is what many clients come to expect in pitch-packs.  Under MiFID II, there is an emphasis on understanding your client and ensuring this understanding – of their horizon, risk profile, objectives, liquidity constraints, etc. – permeates through the whole distribution and investment process.  This requires firms to undertake a full review of activities such as product manufacturing, suitability assessments and KYC processes.  Firms should be ambitious, however, and incorporate a framework to engage and educate clients properly on their investment process and expertise.  This will give clients confidence to explore other ideas and opportunities for their personal finances, while also bringing them closer to the client adviser who bothered to explain what fixed income actually is.

Note: This opinion piece was first published by Knadel Limited prior to the Catalyst-Sionic merger