change, comes

MiFID II – What’s the fuss? What is it? And why you should care…

MiFID II is coming. And it’s coming soon. MiFID II (its full name: the second Markets in Financial Instruments Directive) is a vast piece of EU legislation that will come into force on January 3, 2018 and covers a wide range of subjects mainly aimed at improving investor protection.

We won’t cover all of its market implications here, as plenty of ink has been spilt on that front by other people in other places before, like here, here and here.

Instead, we will focus on a major part of it that tackles the ‘unbundling of research’ and what that could mean for investor communications. The ‘unbundling of research’ means that fees paid for investment research and corporate access are now separated from fees paid on trading commissions. Before, asset managers could pay for research by routing trading commissions to investment banks that employed their favourite analysts. This research was then put out in the public domain and used by both buy-side analysts and the public to help make investment decisions. There were potential issues here since asset managers have a vested interest in selling financial products.

With MiFID II, there will be stringent requirements to curb such conflicts of interest. All costs must be clearly outlined and defined for investors. In short, there will be greater transparency both pre- and post-execution of trades and about the fees paid for investment advice and portfolio management.

Getting your voice heard

MiFID II means there will likely be fewer research analysts to cover individual companies, which means less research available for investors. This then means that the roles your in-house IR department and Finance Director play will become even more important, particularly for smaller companies. Companies that relied on analyst coverage to keep investors informed will now need to  find different ways to get their voices heard.

While there are various channels to communicate with investors, corporate websites and the annual report remain the first ports of call for investors. According to Ernst & Young research, 77% of institutional investors considered the annual report to be an essential source of information when making an investment decision. Now, more than ever, the quality of your corporate website and annual report can greatly influence how investors see you – what makes you different from your peers, how you handle reputational crises, the strengths of your leadership and your plans for delivering strategic promises.

Quality matters

What does quality mean? For an annual report, it means clearly communicating your investment story by explaining what you do, how you make money, outlining your strategy, how it relates to your risks and reporting on your performance in a balanced and coherent way. A quality website should be able to distil complex topics into accessible information, present content in a visual and compelling way and cater to a wide range of stakeholders. Quality content persuades, builds relationships and tells stories on many levels.

Be clear, confident and loud

You can see MiFID II as a regulatory quagmire or you can see it as an opportunity to rethink how you engage with investors. You can either see the annual report as a compliance document or see it as an opportunity to create engaging content that resonates and influences investor behaviour. You can see your website as a place to replicate information or use it to create dialogue and conversations that matter and in ways that can sway investment decisions.

If you would like to talk to us about how MIFID II might affect your investor communications, please get in touch.