Mifid II  

Product governance post-Mifid and your clients’ investments

This article is part of
Guide to Mifid II implementation

Product governance post-Mifid and your clients’ investments

Product governance – making sure that funds are going to deliver what the manager claims the fund will deliver – seems like common-sense. 

For many investment professionals, Mifid II’s focus on product governance is a much-needed, sensible approach to making sure the client is at the heart of every decision in the investment process, right from the creation of the fund down to its distribution.

In practical terms, under Mifid II, manufacturers such as fund managers will need to define the target market for each one of their assets, and should have done so well before 3 January 2018.

For providers, this means they will need to be crystal-clear about what their funds are supposed to do, and at whom the funds are targeted. For advisers, they will need to make sure the product and the target market are in line. 

According to Richard Janes, spokesman for Brewin Dolphin, the responsibilities of product governance can be summarised thus: “There are requirements on manufacturers to identify the risks of their investments, and define the appropriate target market.

“There is an onus on distributors who will need to consider the target market alongside their overarching suitability obligations.”

Reason for better governance

“The over-arching aim for this work, as ever, should be to achieve best practice within these companies and to target positive outcomes for consumers in a transparent manner,” says a spokesman for AKG. 

The spokesman continues: “Mifid II is introducing significant product governance and hence, whether directly or indirectly affected, companies across the UK financial services sector should consider their approach and processes when designing and distributing products and funds in future.”

This approach will mean manufacturers of products will have to pay attention to the investor at every point in the process – from design to distribution.

Susann Altkemper, counsel for City law firm CMS, comments: “With a view to preventing any ‘reverse engineering’ of product development, whereby a product is created without prior consideration being given to the investment objectives the product is intended to meet, Mifid II seeks to apply requirements that govern the whole life-cycle of a product.”


For advisers, this is a question of education – and making sure the providers are giving them the right information.

Sarah Lyons, head of marketing at Ascentric, declares: “Advisers will need to know that target market definitions are being implemented and, if these do change, advisers will need to know how to assess these assets to make sure these are suitable for their clients.”

Moreover, providers will need to demonstrate to distributors that they fully understand the products and its features, so that advisers and distributors can explain these adequately to the end investor.

Additionally, as Ms Altkemper says, distributors and providers will need to undertake “detailed analyses” to determine under which circumstances a product might deliver poor outcomes, and to deploy the product through distribution channels which are appropriate for the intended market.