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#Investments — 30.11.2017

MiFID2: A New Way To Serve Private Investors

MiFID2 will take shape beginning January. What will be the impact of these game-changing rules? Olivier Maugarny, Head of Offering & Marketing, explains how private banking clients will benefit from an increased protection through a better profiling and transparency.

What is MiFID2, and why has it been launched?

O.M. Since the 2007-2011 financial crisis, investors have been facing a lot of uncertainty, with low performance, higher volatility and a global lack of confidence. The European regulator wanted to restore this confidence by increasing transparency, control and responsibility when investing. All European Union countries are concerned by these rules, which apply to any investment on financial markets, excluding life insurance - which is regulated by the new Insurance Distribution Directive with a probable release in October 2018.

"We, as the 1st private bank of the Eurozone, believe that MiFID2 may help us to increase client satisfaction, that’s why we invested a lot in digital solutions, staff training and client awareness, to turn it into an opportunity."

What will change for the private investor?

O.M. MiFID2 covers many different areas from best execution to phone recording and relationship manager training. From our perspective, one of the major impacts is that we will ensure that clients with the right profile will invest in the right product, at the right price.

  • The right profile: we will review more regularly and more in-depth each client profile, e.g. on its financial knowledge, its risk appetite and investment objectives.
  • The right product: producers, especially asset managers, will now have to define the client target for each product they are building. And as a distributor, the private bank will have the responsibility to verify that each recommended investment fits the client profile.
  • The right price: in addition to the regular report on costs, the detailed costs will be sent to the client before every transaction and new service, ensuring a full transparency. Concerning discretionary portfolio management - when the client delegates us the management of its wealth - it won’t be possible anymore for the private banks to perceive inducements from asset managers to have a clear pricing of the service.

As an umbrella of these evolutions, all private banks will need to contractualize with the client to deliver investment recommendations. This will be a positive evolution to clarify the service that clients will receive.

 

Does that mean additional paperwork for the client?

O.M. I would rather say that MiFID2 will change the way we advise our clients. We may interact more with them, e.g. asking for more information to better understand their personal situation, their goals, and review them regularly. That’s why we worked a lot for the past 3 years on processes and digital solutions, aiming to ensure a smooth experience for our clients.

 

What will be the impact within the private banking industry?

O.M. MiFID2 implies a lot of investments to ensure it is done in the best way for the clients, so they can benefit from an increased transparency and protection. As a consequence, some players already adapted their strategy on investment advice, choosing to exit some markets, or deciding to focus on some client segments. This trend should continue in the next few months. At BNP Paribas Wealth Management, we decided to continue delivering a full range of advisory & discretionary services, in all our markets and for all our clients.