MiFID II will end asset manager ‘complacency’ on outdated funds

MiFID II comes into force in January 2018

Jackie Beard, director of manager research services EMEA at Morningstar, has said MiFID II will force asset managers to reassess fund products that are no longer “fit-for-purpose”, “relevant” or “good value”.

Beard said the regulation, which comes into force 3 January 2018, should tackle “complacency among some asset managers” as well as an “investor inertia” that prolongs the life of funds “that are no longer relevant”.

MiFID II outlines a host of product governance requirements that require firms to ensure the suitability of fund products for the end client.

It aims to ensure transparency in the marketing of funds, costs and charges, as well as in the communication of how a fund is performing.

The regulation could see asset managers reassess the availability of certain funds or share classes, and the feasibility of continuing to offer them.

Beard said: “While certain funds have less relevance in today’s investing world, and notwithstanding the costs involved in fund closures, there is a degree of complacency among some asset managers.

“Investor inertia – or lack of awareness – also plays a role in prolonging the life of funds that are no longer relevant for today’s investors.

“Asset managers should take a long, hard look at the funds they offer and ask themselves these questions; Is every fund in their line-up relevant? Are they priced competitively? Does the firm have the right skill set and expertise to manage these funds well?”

Beard added the number of share classes available for sale in Europe has grown at an “exponential rate” in the last decade, and MiFID II’s product review requirements will “prompt action” on funds that have “lost their way”.

MiFID II will require asset managers to conduct a regular assessment of fund products, as well as a review of funds when they become aware of an event that could materially affect the potential risk to investors.

“Not only do investment firms need to carry out these checks, they must prove that they are doing so and evidence this with an audit trail,” said Beard.

“Asset managers will need to ensure their products function as intended to avoid any potentially detrimental consequences for investors.”

Beard added she believes MiFID II will ultimately be good for investors, tackling “high fund fees” and bringing “value for money” into the “forefront of attention”.

“Asset managers will no longer be able to ignore the continued existence of funds that have lost their way,” she said.

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