European Wealth Managers Lagging in Understanding Sustainability Assessments, Study Shows
A recent study conducted by Oxford Risk, experts in behavioural finance, has revealed that just 38% of European wealth managers have a full understanding of the European Securities and Markets Authority (ESMA) MiFID directives on sustainability assessments. The study involved wealth managers from France, Germany, the Netherlands, Spain, Italy, Switzerland, and the Nordics.
Despite ESMA updating its guidelines on sustainability factors, risk, and preferences for investment firms last September, the study found that 13% of wealth managers admitted to not knowing or being unsure about the directives on sustainability assessments. This lack of understanding highlights the need for further education and awareness for wealth managers in the field.
+300% growth in revenues
Oxford Risk has experienced a substantial increase in revenue from clients in continental Europe over the past 12 months, seeing a growth of 300%. This growth can be attributed to the new ESG regulation in MiFID II countries, as well as the rising demand from investors for personalized advice.
The survey, which included wealth managers managing a collective €4 trillion in assets, found that only 30% “strongly believe” that the ESMA MiFID directive on sustainability assessments will improve investor outcomes. 57% of respondents “believe” that it will have a positive impact, while 11% were unsure. This indicates that there is still some scepticism among wealth managers about the effectiveness of the directives.
WM needs to improve their processes
Despite these reservations, the study also revealed that wealth managers recognize the need for improvement in their current processes. Only 28% “strongly believe” that their current process for establishing a client's sustainability preferences is helpful in building relationships. Approximately 61% believe their processes are helpful, but 11% are unsure about the effectiveness of their current methods.
The release of this new research coincides with ESMA's call for evidence on the integration of sustainability preferences in the suitability assessment and product governance arrangements. Firms have until September 15, 2023, to submit comments. This presents an opportunity for wealth managers to provide feedback and contribute to the ongoing development of sustainable investing regulations.
James Pereira-Stubbs, Chief Client Officer at Oxford Risk, expressed concern over the number of wealth managers who are not up to speed with the MiFID II requirements. He emphasized the importance of client insights in meeting these requirements and building successful relationships. Pereira-Stubbs urged wealth managers to adopt best practices and methodologies that adhere to the MiFID II regulation, enabling them to accurately capture and address their clients' long-term sustainability preferences.
Oxford Risk, known for its software solutions that assist financial services companies in making sound financial decisions, continues to develop its suitability and sustainability tools. These tools incorporate scientific research on sustainable investing, helping wealth managers assess the suitability of investments suitability of investments based on clients' individual preferences and circumstances.
The company believes that the best investment solutions should combine measures of risk tolerance, knowledge of clients' financial circumstances, and behavioural assessments of their financial personality. These assessments enable investors to understand their attitudes, emotions, and biases, helping them navigate potential anxieties and make informed decisions.