UK: Fund Distribution Under MiFID II | Building The Optimal Model

Last Updated: 15 February 2016
Article by Joy Kershaw and Kateryna Bobrova

New investor protection rules under MiFID II are set to reshape investment managers' product and distribution strategies in Europe. As the impact of the changes will vary across countries and distribution channels, there is no single optimal approach for firms to adopt. Investment managers distributing funds across the EU will need to think carefully about their strategy in each market. Innovative solutions around online platforms and robo-advice may offer some answers. While the final details of the rules are still pending, policymakers are considering a potential delay of the MiFID II go-live date until 2018. But firms still need to prepare now to be ready in time.

What are the key changes to the investor protection rules under MiFID II?

  • Product governance: Product providers will need to ensure that products and distribution strategies are aligned to and sold to their target markets. Firms will face increased costs due to the need to renegotiate agreements and maintain ongoing exchange of information with their distributors.
  • Appropriateness test: A wider range of products, including structured UCITS and AIFs, will be deemed complex and subject to the pre-sale appropriateness test to ensure investors have sufficient knowledge and experience to buy these products.
  • Inducements: Independent advisers and portfolio managers will be banned from receiving most third-party inducements. While other firms can continue to receive inducements, they will need to show that these are designed to enhance the quality of service to the client. The rules on what constitutes enhancing the quality of service are expected to be stricter than under MiFID I.
  • Disclosures to investors: MiFID II introduces an EU-wide definition of independent investment advice and requires firms to disclose to clients whether they provide such advice. MiFID II will also require more detailed disclosure of costs and charges.

Further detail on these requirements will be fleshed out in the MiFID II Delegated Acts, which are expected to be adopted by the European Commission in the coming weeks.

How are funds distributed currently across the EU?

Despite some similarities, there are substantial differences across EU countries in how funds are distributed. Different supervisory regimes, historic distribution structures and consumer preferences are just some of the factors contributing to the variety of distribution landscapes.

In many EU countries, banks are the biggest distributors of retail funds. By contrast, in the UK most distribution of funds to the retail market is done via platforms, independent financial advisers, or a combination of the two. In the Netherlands, the local regulator banned third-party inducements in 2014 and the share of distribution via platforms has grown since then. In other EU countries, platforms are slowly taking off but the market share of retail clients buying directly is still relatively low. Some countries have seen investment managers setting up their own direct-to-client platforms.

Independent advice makes up only a small proportion of retail distribution in many EU countries and is more common for high net worth clients. A small but growing number of platforms offer "robo-advice".

When it comes to the choice of products, in many EU countries, retail investors are sold AIFs as well as UCITS. The types of AIF sold to retail investors include funds compliant with local retail fund regimes (such as UK Non-UCITS Retail Schemes) and closed-ended funds. Investment via life insurance products is popular among retail investors in some countries, such as France. In some countries, including Belgium and Italy, local supervisors have taken action to reduce the sales of complex products to retail clients.

How will MiFID II affect distribution in the EU?

Overall, MiFID II will increase the cost of distribution, and could shift the balance of power from investment managers to distributors, which may lead some investment managers to set up their own distribution channels. This may reinforce an existing trend towards lower cost solutions such as digital distribution and robo-advice.

More specifically, the impacts of MiFID II may include:

  • Distributors becoming more selective and a rise in direct-to-client offerings: Distributors selling funds from a wide range of investment managers may look to reduce the number of investment managers whose funds they sell as costs increase under the product governance rules. As a result, some investment managers could look to build direct-to-client solutions.
  • New add-on services from banks: Banks receiving inducements to distribute funds will need to ensure that the inducements they receive sufficiently enhance the quality of service to the client. This may involve providing more ongoing services, such as market insight or personalised reporting.
  • Reduced product complexity: Distributors currently selling AIFs and structured UCITS on an execution-only basis will need to incorporate the appropriateness test into their sales processes because these products will in future be deemed "complex". Fund managers may consider moving towards products which are deemed "non-complex" where this can be achieved without significantly altering the fund's investment strategy.
  • Moving to non-independent advice: Where no local regulatory definition of independent advice exists, standalone financial advisers may currently label their services as "independent". Many of these will likely re-label their advice as "non-independent" under MiFID II to avoid the stricter rules on inducements for independent advisers. However, in the UK and the Netherlands, both independent and non-independent advisers are already prohibited from receiving inducements under local rules.
  • New opportunities for independent advice: In many EU countries where independent advice is not currently defined, MiFID II may provide a new opportunity for some firms to provide this service to high net worth clients.
  • Lower cost solutions: As MiFID II will increase distribution costs, increase the transparency of costs and charges, and widen the scope of products deemed "complex", investment managers will need to make strategic decisions about their offering. This may include moving to lower cost, less complex and passive funds and/or developing robo-advice solutions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions