Many European wealth managers are failing to adapt to the demands of MiFID II by not fully assessing client suitability and risk levels, according to analysis by Oxford Risk.
The research firm’s Wealth Managers are still adapting to MiFID II report was based on a wider study with wealth managers across France, Germany, the Netherlands, Spain, Italy, Switzerland and the Nordics that collectively manage assets of around €3.2tn.
It suggested just two-fifths (38%) of Europea’s wealth managers were ‘fully aware of and strongly understand’ the European Securities and Markets Authority (ESMA) MiFID directives on sustainability (ESG) assessments. It also found some 13% of wealth managers admitting they do not know what the directives on sustainability assessments are or are unsure they understand them.
The study highlighted how, despite being integrated into MiFID II requirements, fewer than a fifth (17%) of wealth managers ‘strongly agree’ their firm has successfully incorporated a method of establishing a client’s sustainability preferences into their processes. Many are unable to do this without the right tools and software, with just one in four (26%) ‘strongly agreeing’ they have access to the right tools or software to assess an investor’s sustainability preferences effectively.
“It is concerning just how many wealth managers still are not entirely up to speed with MiFID II requirements, given how long it has been in force,” said James Pereira-Stubbs, chief client officer at Oxford Risk. “It is time wealth managers addressed client sustainability preferences properly by adopting best practices and a methodology that adheres to the MiFID II regulation.”
‘Squeezed for time’
Pereira-Stubbs added: “In all aspects of their role, wealth managers are increasingly squeezed for time – they are expected to take on more clients as well as deliver more value to current ones. Having a detailed knowledge and insight into clients’ sustainability preferences, however, is no longer a ‘nice to have’ – it is an essential part of being able to make the best investment decisions.”
European wealth managers are also relying too much on their own intuition and clients’ own self-assessment of their suitable risk level, according to Oxford Risk. Three-quarters (75%) admit they largely rely on clients to tell them what their suitable risk level is while around one-fifth (22%) say they strongly agree they rely largely on client self-assessment when it comes to setting risk levels.
Alternatively, wealth advisers can often base decisions on their own intuition – almost three-quarters (71%) told Oxford Risk’s researchers they rely on intuition to assess an investor’s suitable risk level, with about a third (34%) strongly agreeing they do this.
