Article (Scientific journals)
Accommodating profile dynamism in MiFID II
Hübner, Georges; Plunus, Séverine
2013In Revue Bancaire et Financière, (3)
 

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Abstract :
[en] The requirements of the MiFID I and II Directives regarding suitability of investor's advice seem a burden to many banks. Such a point of view induces them, in turn, to consider investor profiling with great reluctance, and restrict their view on the administrative side only. In this paper, we claim that a genuine client-centric advisory process could turn the personal information gathering and analysis stage into a real asset for a loyal and mutually profitable relationship. The recognition of the different facets of investor profiles - objectives and constraints, horizon, but most notably the distinct dimensions of risk aversion and loss aversion - enables the financial advisor to get a much more refined, objective and convincing financial picture of the client. This, in turn, opens up the way to a greater alignment of the portfolio on the profile. We show, with the example of traditional portfolio allocations based on a static asset allocation process, that the full complexity of the investor's requirement is not met by only accounting for risk aversion in the profiling process. Worse still, the new MiFID II requirement of a dynamic monitoring of the portfolio-profile relation over time can totally become out of control. We also demonstrate that with proper tools, the advisor and portfolio manager can indeed combine a compliance to the letter and spirit of the regulatory process, with the fulfillment of the investor's objective and the generation of "happy moments" in the customer relationship. To achieve this virtuous cycle, financial institutions have to understand that the traditional approaches inherited from the 20th century have to evolve, just like medicine cannot afford to diagnoses diseases on the basis of remedies that used to be state-of-the-art decades ago.
Disciplines :
Finance
Author, co-author :
Hübner, Georges  ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière
Plunus, Séverine ;  Université de Liège - ULiège > HEC - École de gestion de l'ULiège > HEC-Ecole de gestion
Language :
English
Title :
Accommodating profile dynamism in MiFID II
Publication date :
2013
Journal title :
Revue Bancaire et Financière
ISSN :
1376-7720
Publisher :
De Boeck & Larcier, Bruxelles, Belgium
Issue :
3
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since 23 August 2013

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