Mifid II  

Product governance post-Mifid and your clients’ investments

This article is part of
Guide to Mifid II implementation

Ultimately, she says, the whole industry will be “looking to ensure that internal product governance processes are documented clearly and operate effectively”.

Greater awareness

With the emphasis on knowing the client, proper product design and appropriate distribution, there should be better documented analysis available to help make the distributors more knowledgeable about the fund universe on which they must advise. 

Linda Gibson, director of regulatory change and compliance risk for BNY Mellon’s Pershing, comments: “Mifid II takes a fundamentally different approach to product governance, as firms are now expected to not only comply with their own obligations but be aware of what is happening up and down the product chain.”

Connor Sloman, head of products and client solutions for Morningstar’s EMEA division, points out: “Mifid II is not black and white for advisers when it comes to using target market information in their investment recommendations.

“There may be circumstances where it is appropriate for a product to be sold to an investor in a different target market, but advisers must justify their individual security decisions as enhancing the suitability or diversification of the investor’s portfolio.”

But good product governance is not purely the lien of the distributor, who now has more information at his or her fingertips: it is the responsibility of the product provider to ensure it is fit for purpose. 

This means advisers will need to be given more information for them to be able to make a more appropriate and suitable recommendation to clients.

Ms Gibson adds: “Mifid II increases information and target market sharing requirements and places the additional burden of the target market assessment obligation on product manufacturers and distributors.”

Fit for purpose

Jackie Beard, director of manager research services for Morningstar, opines: “Good product governance is about making sure the funds are fit for purpose. 

“Fund managers need to make sure the funds are going to do what they say they will do.”

This is a point on which Richard Romer-Lee, managing director of Square Mile Investment Consulting and Research, agrees.

According to him, it is fair to say many products have been launched by the industry and not all have delivered to expectations.

“Better governance should help deliver better products, which are more relevant, have clear objectives and deliver to the customer’s expectations,” Mr Romer-Lee adds.

Ms Gibson also believes Mifid II’s push for clearer product governance will make sure the providers are also focusing on the end user, not on the distributor or platform.