Danske CEO Likes What MiFID II Is Doing to His Wealth Business

(Bloomberg) -- Not all bankers get a headache when they contemplate MiFID II.

The chief executive officer of Denmark’s biggest bank says Europe’s major revision of market rules is actually good news for the asset management unit he wants to expand.

“MiFID II for us is an opportunity,” Danske Bank A/S CEO Thomas F. Borgen said in an interview in Copenhagen.

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The European Union’s revised Markets in Financial Instruments Directive is designed to create more transparency for investors. “As you’re now being encouraged, or some would say forced, to have much more transparency of what you get for the fees, all things being equal, that will probably compress the margins,” Borgen said. “But it will demand much more diligence, in that you pay for what you get.”

That’s bad news for firms whose fee structures have been impenetrable, and good news for those used to providing a clear breakdown of services and costs.

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Danske’s wealth unit, which has $253 billion in assets under management, was formed in 2016 when the lender merged its pension arm with its capital units. The division’s profit before tax fell 5.1 percent last year after trading income dropped and operating costs rose.

Danske last year added to its asset management services by creating an investment robot. It’s called June, and offers a standardized product to retail clients that gives them a quick overview of what they’re paying for.

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“We take the view that we shall and will take the lead in being innovative,” Borgen said. “That’s why we introduced June, to see how its traction is in the Nordics.” He says June now advises about 14,000 clients. “I’m not exactly sure if it’s going to be a big growth market, but it shows you what competition, technology and MiFID II can do to the market.”

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Borgen says part of the key is knowing when to farm out tasks rather than keeping them in house.

“You can’t be the best at everything,” he said. “So third-party providers are going to be important.” For that reason, Danske “will look further into where do we in-source third-party providers and where do we double down.”

“Historically asset management has been well remunerated” but in the last decade, it’s “been more difficult for all parties to perform in all asset classes in all geographies in all sectors at the same time. Expertise, or competence, means more and more. So it’s a natural progression, and MiFID II amplifies that progression.”

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