Mifid II sustainability requirements not understood by European wealth managers

13% admit they do not know what the directives are

Just two out of five (38%) European wealth managers fully understand the European Securities and Markets Authority (EMSA) Mifid directives on sustainability assessments, according to a new study from behavioural finance company, Oxford Risk.

Despite ESMA updating its guidelines to integrate sustainability factors, risk and preferences into investment firms’ organisational requirements last September, 13% of wealth managers from across Europe admitted they do not know what the directives are, or they are unsure whether they understand them.

“It is concerning just how many wealth managers still are not to speed with Mifid II requirements, given we are not far off a year since they came into force,” said James Pereira-Stubbs, chief client officer at Oxford Risk.

“The list of requirements may be long, with sustainability assessments making up just one part, but the key to understanding the solutions is simple: it is all about client insights. Better insights into a client’s sustainability preferences; better evidencing of these preferences; and better presentation to clients of how these preferences match up with suitable investments for them. Get this right and you not only meet the spirit as well as the letter of the law, but also have more engaged clients, better asset growth and higher retention.”

The research, conducted with wealth managers whose firms collectively manage assets of around €4trn, also found that less than one in three (30%) ‘strongly believe’ the EMSA Mifid directive on sustainability assessments will improve investor outcomes, while one in 10 (11%) are not sure.

However, although there is some degree of scepticism, the report revealed that wealth managers still think there is room for improvement within their current processes. Nearly nine out of 10 (89%) either ‘believe’ or ‘strongly believe’ their current process for establishing a client’s sustainability is helpful to building their relationship.

The research comes as EMSA continues its call for evidence on the integration of sustainability preferences in the suitability assessment and product governance arrangements, with firms able to submit comments until 15 September 2023.