MiFID 2: Turn a regulatory constraint into a business opportunity

As margins shrink, financial institutions constantly have to integrate new regulations that make the search for profitability ever more complex. The latest of these is MiFID II, which requires a thorough review of processes to capture the ESG preferences of investors. While this umpteenth constraint may have made more than one sales manager cringe, it could be the source of new commercial opportunities. With the right tools, such as Neuroprofiler’s ESGprofiler, it is possible to take advantage of this regulatory challenge to boost client investments. Here is a demonstration. 

MiFID 2: a heavy regulatory burden

Risk profile, financial situation, level of experience and financial knowledge… The MiFID II regulation requires financial institutions to know in detail the investor profile of their clients since 2007. From 2 August 2022, financial institutions will also have to determine their clients’ preferences regarding sustainability and ESG criteria. The aim is to keep up with the growing popularity of sustainable finance products and further protect investors, particularly from attempts at greenwashing.

Financial advisors need to equip themselves with the necessary means to capture their clients’ ESG preferences in detail to offer them suitable financial products. At first glance, financial institutions may be tempted to add questions to an already lengthy compliance questionnaire. This would be a mistake in several respects:

   Adding questions on sustainability preferences may be compliant, but it affects the customer experience. Already drowning in multiple questionnaires, they don’t need another tedious process at the risk of losing investment opportunities.

      Simply lengthening the questionnaire is to miss the business opportunity offered by this regulatory issue.

Indeed, the collection of ESG preferences represents a formidable lever for selling products more in line with investors’ expectations. The final objective here is clear: boost sales of ESG products, which are more dynamic than traditional euro fund products… And of being favoured by investors.

Capitalize on the sustainable finance craze to boost your sales!

Did you know that 60% of investors seek to make an impact with their investments? And that this proportion even rises to 80% among young people? Despite a marked appetite for sustainable finance, individuals struggle to invest in products that fully meet their values. According to a study by Devere Group, 75% of investors also deplore the lack of information on sustainable finance. The craze for ESG products is there, but we still need the right tools to capitalize on them.

ESGprofiler: capture your investors’ ESG preferences
simply and in detail!

In collecting information on ESG preferences, the new MiFID II regulation requires an excellent granularity. For example, the text requires that you ask about the client’s choice of the 18 significant adverse impacts, which results in approximately 200,000 different combinations. To offer the ESG product best suited to these preferences, you cannot be satisfied with approximate or manual matching, at the risk of generating frustration among the potential investors.

To be fully compliant with MiFID II and meet your clients’ ESG expectations as closely as possible, the easiest way is to use behavioural finance tools. In its 2018 guidelines, ESMA strongly recommends the use of behavioural finance.

Based on this principle, the start-up Neuroprofiler has designed ESGprofiler: a fun application based on the principles of behavioural finance and gamification aimed at understanding clients’ investment preferences. Designed as an investment game, ESGprofiler allows you to accurately assess your clients’ appetite for sustainable finance and understand the impacts they are looking for in their investments. Gamification also minimizes cognitive biases and fully reveals the desires and needs of each individual.

The associated behavioural finance algorithm then identifies the ESG product that best matches the values expressed. Compliance with regulations thus becomes a pretext for learning more about clients’ expectations to offer them the financial products that will correspond to them. With a 95% predictability rate, ESGprofiler allows institutions to protect themselves from potential
customer complaints and fines from financial regulators.

So, even if you don’t have 200,000 different ESG products to offer, you will be able to identify the one that most closely matches the expectations of a given client. This will boost your investments and comply with regulations without affecting the customer experience! Want to know more? Request a demo!