Critical Reflections on MIFID II by Fundrella’s Founder

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MiFID II: when good intentions meet unintended consequences

MiFID II was designed with a clear and commendable ambition: increase transparency, strengthen investor protection, and accelerate capital flows into sustainable investments by embedding clients’ sustainability preferences into the advisory process.

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Yet, several years into implementation, we need to ask an uncomfortable but necessary question: is the regulation, in practice, achieving its purpose?

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‍What we increasingly observe, confirmed by both advisors and regulators across Europe, is a paradox. When sustainability preferences are applied mechanically through today’s MiFID II frameworks, the investable fund universe often becomes so narrow that proper diversification is no longer possible. The outcome? Clients are asked to adjust or even lower their stated sustainability preferences simply to receive a compliant portfolio recommendation.

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Not because suitable funds don’t exist, but because:

   ·   Sustainability reporting is still incomplete and inconsistent,

   ·   Product classifications are interpreted rigidly,

   ·   And the preference questions rely heavily on EET terminology that non-experts understandably struggle to navigate.

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A recent master’s thesis from Uppsala University by Emilia Björnfot Johans & Klara Brykt, to which Fundrella and a broad network of Swedish industry experts contributed, reinforces these observations:

   ·   Clients face complex, sometimes misleading sustainability questions

   ·   Advisors spend disproportionate time on documentation rather than dialogue

   ·   Products are filtered out prematurely instead of being contextualised and explained

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The result is a trust issue. How do we build confidence in sustainable finance if clients leave advisory meetings more confused than informed - and with “weaker” sustainability preferences on paper than when they arrived?

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‍From Fundrella’s perspective, the solution is not to further restrict the fund universe. In many distribution channels - such as pension and insurance platforms - the available funds have already been rigorously analysed and vetted by some of the most sophisticated manager research teams in the industry.

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Instead, we believe the focus should shift to better tools and smarter processes:

   ·   Tools that allow flexibility rather than binary filtering,

   ·   Tools that support advisors in translating sustainability data into meaningful conversations,

   ·   And tools that help clients maintain their standards - not dilute them for the sake of compliance.

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MiFID II has laid an important foundation. Now the challenge is ensuring that it’s implementation genuinely supports informed decision-making, market access, and the transition to sustainable capital - rather than unintentionally slowing it down.

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We’re grateful to Emilia Björnfot Johans & KlaraBrykt for tackling this critical topic and for including Fundrella in their research. To access the thesis (in Swedish), feel free to reach out to the authors directly.

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