From August 2, 2022, investment companies will have to assess the possible sustainability preferences of investors. This assessment will have to be done within the framework of the suitability test, to be able to offer investors investments that correspond to their expectations. To be compliant, the system to be put in place must meet certain requirements. Are you ready to integrate ESG preferences in the MiFID II questionnaire? Take stock before the deadline!
MiFID II Questionnaire and ESG preferences: what the regulations say
According to the Delegated Regulation of April 21, 2021, investment firms providing investment advice and portfolio management services must ask their clients questions about their individual sustainability preferences to be able to recommend suitable financial instruments. To do so, they must put in place appropriate mechanisms to ensure that the inclusion of sustainability factors does not lead to misselling or greenwashing. Thus, to collect sustainability preferences, a clear distinction should be made between:
- Financial instruments focusing on investments in environmentally sustainable economic activities (as defined in Article 2(1) of Regulation (EU) 2020/852)
- Sustainable investments (as defined in Article 2(17) of Regulation (EU) 2019/2088)
- Financial instruments that address key negative impacts on sustainability factors. Recognizing that the quantitative and qualitative elements necessary for this categorization are determined by the client.
These sustainability preferences must be accommodated to a minimum extent, as determined by the customer or potential customer.
Integrating sustainability preferences: what you need to do to be compliant
To comply with the regulations, it will be difficult to simply add elements to the existing suitability questionnaire: making this already relatively long document more cumbersome could affect the customer relationship and slow down the sale of financial products, without being certain of complying with the regulations.
Indeed, to be in order, it will not be enough to ask 2 or 3 questions related to green finance, but rather to equip oneself with all the necessary means to precisely define the desired ESG strategy, by helping clients to formalize their preferences and by identifying the compromises they are willing to make.
For example, some will refuse to make sustainable investments with companies that do not consider their negative impacts. Others will be more interested in social than environmental criteria, while still others will want to focus exclusively on an environmental goal that is important to them, such as the fight against global warming.
The possibilities are so numerous that there are almost as many ESG strategies as there are investors! In this context, it is difficult to develop an efficient methodology to collect these famous ESG preferences, without affecting the investment advice too much. This is why it is in the interest of investment firms to equip themselves with tools specifically designed for this issue, to be compliant by August 2, 2022. And this, in the simplest way possible, both for investors and financial advisors.
ESGprofiler: a simple and efficient tool to collect investors’ ESG preferences, in full compliance
How about turning the regulatory constraint imposed by MiFID II into a business opportunity to boost your ESG product sales?
This is what ESGprofiler does: a fun and adaptive questionnaire, specially designed to capture investors’ ESG preferences. Thanks to powerful behavioral finance algorithms, ESGprofiler allows us to establish precisely the impact that investors are looking for and to offer them financial products that correspond to their expectations. Its use is a way to stimulate sales of ESG products and at the same time improve the conversion rate of customers from euro funds to unit-linked products. It is also a sure way to comply with the regulator’s requirements.
Equipping yourself with the ESGprofiler today is the assurance that you will comply with European regulations to the letter, while putting the needs of savers first, to sell them more financial products. Don’t wait until the last moment: request a demo!