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Five selectors talk MiFID II tips and challenges

Five selectors talk MiFID II tips and challenges

MiFID II will come into effect in January and asset managers are adding firepower to ensure firms are compliant in time.

While many firms have agreed to absorb the costs MiFID II will bring, many have announced they instead will charge clients for research, despite continued concerns over how costs will actually be quantified.

Despite confusion around the regulation, Jakub Wojciechowski (pictured below) of Polish group mBank said the importance of the new regulation for the industry cannot be overlooked.

'MiFID II is important because it will visibly increase cost transparency for the clients,' he told Citywire Selector.

'I believe that a lot of investors are not aware of the hidden costs they are paying every year such as kickbacks from mutual funds and what the impact on the return rate actually is.'

Wojciechowski said an ideal scenario will lead to improvements in service. 'Advisors will be obliged to present the costs both ex-ante and ex-post, this will probably increase the quality of the advisory services as the competition increases.

'Although expensive for our industry, I believe that in the long run, this is a necessary step in the right direction.'

Service headaches

London-based Valeur Capital’s Andrea Macchi and Alessandro Noceti (pictured below) said once the regulation comes into play it could negative impacts on the quality of services.

'Leaving aside for a moment hot topics such as best execution, transaction and trade reporting that will mark a significant increase of required resources to be implemented, we would like to point out some issues that can potentially affect the quality of asset managers’ activity.

'For many years, asset managers have relied on investment banks or brokers for high-quality market research that was easily accessible and at a very low cost.

'Access to research platforms was actually the market makers’ "business card" to approach a prospective client and a significant amount of analysis and documents were constantly feeding decision makers’ inboxes during any trading day.'

This "business card" approach meant these research platforms came for free or, under a non-written gentleman’s agreement, Noceti said, in exchange for potential business.

'MiFID II will completely rewrite this business model since it will force market makers to charge AMs a fee to maintain access to the research services.

'Right now, our fund management business has received just a few clarifications from our counterparties regarding how they intend to approach this issue.

'Most importantly, one of the biggest questions that remains unanswered is if asset managers will be able to perform without or with limited access to market makers’ insight and detailed analysis when MiFID II comes into effect next year.'

Keeping clean

Kredietrust Luxembourg’s Gabriel Catherin (pictured below) said it’s important that asset managers and fund selectors offer clean share classes to clients.

'MiFID II is a priority,' he said. 'In Luxembourg, we have already started to provide clean share classes to our clients, which has been one of the main focus points for us.

'Many of the funds we recommend already have clean share classes, but not all of them are registered in Luxembourg, so that is one issue that we really need to push the asset manager on – share classes need to fit a wider audience.'

Cross-company challenge

Elsewhere, ING’s Thierry Carabin said the regulation will take up a lot of resources and that there is still a lot of work to be done ahead of January's looming deadline.

'It will affect advisory and execution only clients as we will have to inform them more often on transparency, costs, performance, and suitability, for example – the investors risk profile.

'We will also only be able to advise on funds that are registered for sale in the country where our clients live – this issue is pretty important as we work in an international environment.

'This means that MiFID II will affect our fund selection process, for discretionary mandates we will have the same communication effort, but we will also have to move to clean share classes, so there will be a lot of work to be done in the last months of 2017.'

Carabin added it will be challenge for portfolio management teams, but also for IT teams, risk management, legal and training for commercial teams.

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