From August 2022, banks, asset management companies, and investment advisory firms will have to capture their clients’ sustainable finance preferences in their suitability questionnaires. This new provision of MiFID II regulation aims to offer more protection to investors, ensuring that the financial products they are offered are in line with the desired impact. Suitability questionnaires are already lengthy, considering risk, investment objectives, financial situation, and assessment of financial knowledge and expertise.
A MiFID-compliant questionnaire could be indigestible for investors… So how can we be compliant without affecting the client experience?
MiFID questionnaire: what does it have to contain to comply with the regulations?
The MiFII suitability questionnaire already requires the collection of a certain amount of information, to which it will soon be necessary to add the consideration of ESG preferences. According to the SFDR regulation, ESG preferences are a matter of the investor’s choice to integrate into his investment strategy:
- Products that promote ESG characteristics (Environmental, Social and Governance criteria)
and/or
- Products with a sustainable investment objective
To accurately identify the client’s ESG strategy, specific questions need to be asked. Does the investor only want to exclude non-ESG compliant financial products from his portfolio? Or do they want to invest in companies that invest in specific sustainable operations? What if these companies also harm the environment? How much of his assets is he prepared to devote to ESG? Does he have a preference between E, S, or G criteria?
As you can see, this is not about adding a single question like « do you want to have an impact on your investments? » to the MiFII questionnaire. It is about understanding in detail the desired ESG strategy, identifying the trade-offs that individuals are willing to make, and helping them formalize their expectations.
MiFID questionnaire: a brake on profitability?
The 2008 financial crisis and more recently the Covid-19 crisis have dampened investors’ spirits. Increasingly conservative, they are favoring euro funds and shunning the more dynamic unit-linked products. The popularity of ESG products could be seen as a positive development, as most ESG products fall under the umbrella of unit-linked funds, but the cumbersome compliance processes imposed by the regulations have led to fears that investment opportunities will be lost. However, it is possible to be compliant with MiFIDII and still create new investment opportunities.
MiFID questionnaire: a pretext to learn more about investors’ expectations and boost the sale of financial products
How can you use the MiFIDII questionnaire to create new business opportunities? By using the ESG Preference Assessment as an opportunity to learn more about investors’ expectations, so that you can recommend financial products that are in line with their values… and thus boost your sales.
To help financial institutions in this exercise, Neuroprofiler has developed InvestProfiler: a fun and interactive questionnaire based on behavioral finance and gamification. This unique tool on the market allows to accurately capture the appetite for sustainable finance and the ESG preferences of individuals while identifying the sectors they wish to exclude.
At the end of the process, the associated behavioral finance algorithm enables the selection of the ESG products best suited to the investor’s profile. Very intuitive for the client, InvestProfiler is also very easy to use for the financial advisor, who can rely on the tool not only to comply with MiF regulations but also to boost his sales. The use of the solution proposed by Neuroprofiler allows indeed to benefit from a conversion rate of 10% of customers from Euro funds to UC.
Ready to take advantage of the ESG product craze to boost your clients’ savings? Request a demo!