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Changes to MiFID II will require advisers to offer suitable products to clients with sustainability preferences. But how will they find the right ones? How can you meet clients’ ESG preferences?
New rules bring new requirements – and new criteria in product selection From 2 August, MiFID II will require financial advisers and distributors to ask their clients whether they have sustainability preferences and offer only products that meet these pref- erences. But how will they know whether a product is suitable? Three routes to MiFID-eligibility, one outcome MiFID II offers three ways to determine whether a fund is suitable for clients with sustainability preferences:
• If it commits to having a certain percentage in so-called Sustainable Investments
New ESG reporting standards will provide additional guidance to advisers to find the best suited sustainable product for each client.
• If it commits to having a certain percentage in Taxonomy-aligned investments
data with their distributor, fund selector and financial adviser clients via a new industry- standard document called the EET (European ESG Template). NAM intends to publish this in June so that advisers have time to build their lists of suitable products. Who decides if a product is suitable? In short, the adviser does. As an asset manager, NAM can confirm to the adviser which products meet at least one of the three routes to MiFID- eligibility, but ultimately the decision about the suitability rests with the adviser. However, with the information NAM will report, advisers and distributors will have everything they need to assess whether a product meets their own clients’ needs.
• If it commits to considering the Principal Adverse Impacts of its investments.
To be MiFID-eligible, a fund must adhere to at least one of these criteria; although funds can meet two or even all three of them. Ultimately, the three criteria are all ways of demonstrating that a fund considers the sustainability of its underlying investments. New disclosures around these three routes Going forward, funds’ prospectuses will include information about each product’s sustainability commitments, the criteria that define whether a product can be offered to a client with sustaina- bility preferences. However, on a more practical level, asset managers will be sharing detailed ESG
ISSUE 02.2018 ISSUE 01.2022
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