Morningstar calls for funds to be reviewed twice yearly under Mifid

Portfolio-Bonds-Investment-Business-700x450.jpgAsset managers should review their fund ranges semi-annually under the new Mifid rules and weed out the products that are no longer relevant, Morningstar’s director of manager research services says.

Currently many asset managers are complacent in monitoring whether their funds are up to scratch Jackie Beard says, but under the revised directive investment firms will be required to check whether their funds are fit-for-purpose, remain relevant for investors and offer value.

Beard says: “The number of fund share classes available for sale in Europe has grown at an exponential rate in the last decade. We hope that Mifid II product review requirements, which must be proved through an audit trail, will eventually prompt action to be taken on some of the long-established funds that have lost their way. These still exist because the assets are sticky, in spite of indifferent management.

“As well as a regular review, they will be obliged to review their products when they become aware of an event that could materially affect the potential risk to investors…There is no timeline or frequency specified in the directive; we believe best practice is a semi-annual review, although we think it’s more likely that it will be done annually.”

Beard adds that the outcomes of such reviews could prove beneficial to asset managers by attracting investors.

“Any positive action on the back of such a review, which shows a clear benefit to the investor, could encourage greater interest from investors and their advisers, as that firm will be demonstrating good stewardship of assets.”