Under MiFID II, financial product manufacturers and distributors will have to define a target market, which is in-line with the client’s needs and requests, for each product.
This entails a shift of mindset and communications, with funds now needing to work with intermediaries to ensure a product’s suitability for various types of clients. The question of whether the fund or the intermediary initially establishes the target market is, in many cases, unresolved.
EFAMA has produced a target market template, which is a good starting point and has been endorsed by many fund associations. But, asked Florence Stainier, a Partner at law firm Arendt & Medernach, will this EFAMA document be sufficient for compliance purposes or should manufacturers provide more substantial detail on their funds? Some distributors may wish to receive additional details.
ALFI set up a working group to address this question. The thinking emanating from it so far is that manufacturers and distributors will have to compromise on who does the work. Although manufacturers – asset managers – are often not present at point of sale, they will almost certainly bear responsibility for ensuring a product is suitable. Another grey area is the responsibilities (or otherwise) of retail platforms offering execution-only services.
The creation by manufacturers of bespoke suitability documents is a possible alternative to the EFAMA template, said Ms Stainier. “But would that be recognised by intermediaries?” she asked. “And how should feedback be given to manufacturers about the type and quality of information provided?”
Apart from potential compliance issues, manufacturers have a vested interest to engage in the debate. This vested interest even applies to intermediaries who are not captured by MiFID, said Gary Janaway, COO of KNEIP, a data management company. “Some people think that if they don’t fall under the regulation, there is nothing to do,” said Mr Janaway, who chaired the roundtable.
“Strictly speaking, that is true, but commercially maybe not. You still need a commercial relationship - people won’t distribute your funds if you don’t fall in line. You still need your information to be correct, you need product governance and a target market. It will become an industry standard, much like a kitemark.”