MiFID II guide
MiFID II explained: a practical guide for wealth and fund managers
What MiFID II is, who it applies to, and what it asks of firms that advise clients or manage their money. Each obligation is explained in plain language, with links to the legal texts.
Guides in this series
- MiFID II Art. 25(2) · DR 2017/565 Art. 54–55Suitability assessmentBefore you advise a client or manage their money, MiFID II requires you to understand them well enough to recommend only what suits them. Here is what that means in practice and how to evidence it.Read the guide
- MiFID II Art. 25(6) · DR 2017/565 Art. 54(12)Statement of suitabilityEvery piece of advice to a retail client needs a written explanation of why it suits them, delivered before the trade. Here is what the statement of suitability must say, and how to write one a supervisor will accept.Read the guide
- MiFID II Art. 25(3)–(4) · DR 2017/565 Art. 55–56Appropriateness testWhen a client buys without advice, MiFID II still asks whether they understand what they are buying. Here is how the appropriateness test works, when the execution-only exemption applies, and what makes a warning effective.Read the guide
- DR (EU) 2021/1253 · DR 2017/565 Art. 2(7), 54Sustainability preferencesSince August 2022, every suitability assessment must ask whether the client has sustainability preferences, and how strong they are. Here is what to ask, in what order, and what to do when nothing matches.Read the guide
- MiFID II Art. 24(4) · DR 2017/565 Art. 50, Annex IICosts and chargesMiFID II requires firms to show clients every cost of a service and product, before and after they invest, as cash amounts and percentages. Here is what to disclose, when, and in what form.Read the guide
- MiFID II Art. 16(6)–(7) · DR 2017/565 Art. 72–76, Annex IRecord-keepingIf it isn’t recorded, it didn’t happen. MiFID II requires firms to keep records good enough for a supervisor to reconstruct every step of the advice process. Here is what to keep, for how long, and in what form.Read the guide
- MiFID II glossaryPlain-language definitions of the terms used across MiFID II, MiFIR and the delegated regulations.Browse the glossary
MiFID II is the European Union’s Markets in Financial Instruments Directive (Directive 2014/65/EU). Together with its companion regulation MiFIR, it sets the rules for investment services and trading in financial instruments across the EU and EEA, and it has applied since 3 January 2018. For wealth managers, private banks, advisers and fund managers, its most important part is investor protection. It sets how firms must get to know their clients, recommend only what suits them, disclose costs and keep evidence of all of it.
The name is written several ways, including MiFID II, MiFID 2 and MiFID2. They all mean the same directive. This guide explains what MiFID II requires in practice, with a focus on firms that advise clients or manage their money. Each core obligation has its own in-depth guide.
What is MiFID II?
MiFID II replaced the original MiFID (Directive 2004/39/EC), which had applied since November 2007. The financial crisis exposed gaps in the first directive’s scope and in investor protection, and MiFID II was the EU’s response. It was adopted in 2014 and applied from 3 January 2018, after a one-year delay to give firms and supervisors time to prepare.
The framework has several layers:
- MiFID II, Directive 2014/65/EU covers authorisation, organisational requirements and conduct of business rules, including investor protection. As a directive, it is transposed into each country’s national law.
- MiFIR, Regulation (EU) No 600/2014 covers market transparency, transaction reporting and trading obligations. It applies directly.
- Delegated Regulation (EU) 2017/565 contains most of the detailed organisational and conduct rules, such as how to run a suitability assessment and what to disclose about costs.
- Delegated Directive (EU) 2017/593 covers safeguarding client assets, product governance and inducements.
- ESMA guidelines and Q&As explain how supervisors expect firms to apply the rules, for example on suitability, appropriateness and product governance.
In EEA countries such as Norway, Iceland and Liechtenstein, MiFID II applies through the EEA Agreement and national law. In the UK, the version brought into domestic law after Brexit is being replaced by FCA rules, so UK and EU requirements are diverging.
Who MiFID II applies to
MiFID II applies to firms that provide investment services or perform investment activities in relation to financial instruments. In practice that includes:
- investment firms, such as brokers, wealth managers and investment advisers;
- credit institutions (banks) when they provide investment services;
- UCITS management companies and AIFMs with permission to provide portfolio management or investment advice, for those services;
- market operators and trading venues, and data reporting services providers;
- third-country firms serving EU clients, through branches or the MiFIR third-country regime.
Some member states use an optional exemption, in Article 3 of MiFID II, for small firms that only advise and pass orders to authorised firms. They must still apply conduct requirements comparable to MiFID II.
Wealth managers, private banks and advisers
If your firm gives investment advice or manages portfolios on a discretionary basis, the investor protection rules are your core MiFID II obligations. That means suitability, the statement of suitability, sustainability preferences, costs and charges, inducements, product governance as a distributor, and record-keeping.
Fund managers
A UCITS management company or AIFM can hold a “top-up” permission to manage individual portfolios or give investment advice. When it provides those services, the MiFID II conduct rules apply to them, including suitability and costs disclosure. Fund managers are also product manufacturers under MiFID II product governance. They define each fund’s target market, and they supply distributors with cost data and sustainability data, typically through the European MiFID Template (EMT) and the European ESG Template (EET).
Investment services and client categories
MiFID II lists the regulated investment services and activities in Annex I, Section A:
- Reception and transmission of orders
- Execution of orders on behalf of clients
- Dealing on own account
- Portfolio management
- Investment advice
- Underwriting or placing on a firm commitment basis
- Placing without a firm commitment basis
- Operation of a multilateral trading facility (MTF)
- Operation of an organised trading facility (OTF)
Investor protection scales with the client category:
- Retail clients get the full protection.
- Professional clients, either per se professionals such as banks and large companies, or retail clients who opt up and meet the Annex II criteria, get lighter protection in some areas.
- Eligible counterparties get the least protection, for certain services only.
The investor protection rules
These are the obligations that shape the day-to-day advice process.
Suitability assessment
Before advising a client or managing their portfolio, the firm must collect information about the client’s knowledge and experience, financial situation including their ability to bear losses, and investment objectives including risk tolerance. It must then recommend only what suits them (Article 25(2)). Read the full guide: MiFID II suitability assessment.
Statement of suitability
For investment advice to a retail client, the firm must provide a written statement, before the transaction, explaining the advice and why it suits the client (Article 25(6)). Read the full guide: statement of suitability.
Appropriateness and execution-only
For non-advised services, the firm must check that the client has the knowledge and experience to understand the product’s risks, and warn them if not. Execution-only in non-complex instruments is exempt under conditions (Article 25(3)–(4)). Read the full guide: appropriateness test.
Sustainability preferences
Since August 2022, the suitability assessment must ask whether the client has sustainability preferences, across three regulatory categories, and apply them when recommending products. Read the full guide: sustainability preferences.
Costs and charges
Clients must receive aggregated information on all service and product costs, as cash amounts and percentages, before the service (ex-ante) and at least annually afterwards (ex-post) (Article 24(4)). Read the full guide: costs and charges disclosure.
Inducements
Firms providing independent advice or portfolio management may not keep fees, commissions or other benefits from third parties, apart from minor non-monetary benefits. Other firms may receive inducements only if they enhance the quality of the service to the client and don’t impair the firm’s duty to act in the client’s best interests. They must also be disclosed (Article 24(7)–(9)).
Product governance
Firms that manufacture products must define a target market and test that the products meet its needs. Distributors must understand the products they offer, identify their own target market, and report back to manufacturers (Articles 16(3) and 24(2); Delegated Directive 2017/593). Since November 2022, sustainability-related objectives are part of the target market.
Best execution
When executing client orders, firms must take all sufficient steps to obtain the best possible result, considering price, costs, speed, likelihood of execution and other factors (Article 27). For retail clients, the best result is judged on the total consideration: the price of the instrument plus the costs of execution.
Knowledge and competence
Staff who give investment advice or information about products must have the necessary knowledge and competence (Article 25(1)), according to ESMA’s guidelines and national qualification requirements.
Client reporting
Portfolio managers must send periodic statements, and must tell clients by the end of the business day when the overall portfolio value falls by 10%, and at each further multiple of 10% (Article 62 of the Delegated Regulation).
Record-keeping and call recording
Firms must keep records sufficient for supervisors to check compliance with every obligation. They must also record telephone conversations and electronic communications relating to client orders (Article 16(6)–(7)). Read the full guide: MiFID II record-keeping.
| Obligation | Reference | How it's handled |
|---|---|---|
| Suitability assessment | MiFID II Art. 25(2) DR 2017/565 Art. 54 | Question sets for knowledge and experience, financial situation and objectives, with scoring rules compliance approves before they go live. |
| Statement of suitability | MiFID II Art. 25(6) DR 2017/565 Art. 54(12) | Generated from the client's answers and provided in a durable medium before the transaction. |
| Appropriateness and warnings | MiFID II Art. 25(3) DR 2017/565 Art. 55–56 | Checks for non-advised services, with warnings the client acknowledges before continuing. |
| Sustainability preferences | DR (EU) 2021/1253 | A dedicated question set whose answers carry through to the statement of suitability. |
| Costs and charges | MiFID II Art. 24(4) DR 2017/565 Art. 50 | Ex-ante cost disclosures generated from your product and fee data. |
| Record-keeping | MiFID II Art. 16(6) DR 2017/565 Art. 72–73 | Every answer, question version, document and flow step stored with a timestamp and hash, and retained for at least five years, or up to seven where your regulator requires it. |
Tervan helps firms meet these obligations and keeps the evidence. Responsibility for compliance stays with the investment firm. References are to Directive 2014/65/EU (MiFID II) and Commission Delegated Regulations (DR).
How each investor protection obligation maps to the advice process. Select an obligation to read its guide.
MiFID II market rules in brief
The other half of MiFID II and MiFIR deals with markets rather than clients. It introduced organised trading facilities, pre- and post-trade transparency for equities and non-equities, extensive transaction reporting to supervisors (MiFIR Article 26), position limits for commodity derivatives, and rules on algorithmic and high-frequency trading. It also changed how investment research is paid for. Those research rules have since been relaxed by the EU Listing Act. For most wealth and fund managers, the market rules matter mainly through their brokers and trading venues.
Key dates
| Date | What happened |
|---|---|
| 1 November 2007 | The original MiFID (2004/39/EC) applies |
| 2 July 2014 | MiFID II and MiFIR enter into force |
| 3 January 2018 | MiFID II and MiFIR apply |
| 28 February 2022 | The “Quick Fix” (Directive (EU) 2021/338) applies. Electronic information becomes the default, and some cost rules are eased for professional clients |
| 2 August 2022 | Sustainability preferences become part of suitability (DR (EU) 2021/1253) |
| 12 October 2022 | ESMA guidelines on appropriateness and execution-only apply |
| 22 November 2022 | Sustainability factors are added to product governance (Delegated Directive (EU) 2021/1269) |
| 3 October 2023 | Updated ESMA suitability guidelines apply |
| March 2024 | The MiFIR review (Regulation (EU) 2024/791 and Directive (EU) 2024/790) enters into force, with consolidated tapes and a ban on payment for order flow |
| 18 December 2025 | Political agreement on the EU Retail Investment Strategy |
What’s next: the Retail Investment Strategy
The EU’s Retail Investment Strategy is the next significant change to the MiFID II investor protection rules. Some commentators call it “MiFID III”. It amends MiFID II, the Insurance Distribution Directive and the PRIIPs Regulation. Its aims are clearer cost disclosure, value-for-money benchmarks for retail products, a stricter test for inducements and changes to the suitability and appropriateness process.
The European Parliament and Council reached a political agreement on 18 December 2025. Formal adoption is expected around the end of 2026, and member states will then have roughly two years to transpose the directive. Until the new rules apply, the current requirements described in this guide remain in force. Firms that keep their questionnaires, templates and flows as configuration rather than code will find the transition much easier.
A practical MiFID II checklist for wealth managers
- Clients are categorised (retail, professional, eligible counterparty) and told their category
- A suitability questionnaire covers knowledge and experience, financial situation, ability to bear losses, objectives, risk tolerance and sustainability preferences
- Scoring and matching rules are documented, approved and versioned
- Every retail recommendation produces a personalised statement of suitability before the trade
- Non-advised services run an appropriateness test, with effective warnings
- Ex-ante and annual ex-post costs and charges reports cover both service and product costs
- Inducements are assessed, disclosed or refused in line with the service model
- Product governance target markets are received from manufacturers and applied as a distributor
- Client information is reviewed at least annually where ongoing suitability is promised
- Every step is recorded in an append-only, timestamped audit trail, with a written retention policy
How Tervan helps
Tervan is MiFID II advice infrastructure for wealth and fund managers. It brings versioned suitability and appropriateness question sets, generated statements of suitability and cost disclosures, and flows for e-signature, archiving and CRM updates into the client portal and advisor tools you already run. It works through web components, a REST API and webhooks. Your compliance team configures it, and your auditors can trace every piece of advice, answer by answer.
See how it works or book a demo.
Frequently asked questions
What does MiFID II stand for?
MiFID II stands for the second Markets in Financial Instruments Directive, Directive 2014/65/EU. It is often written as MiFID 2 or MiFID2. Its companion regulation is MiFIR, Regulation (EU) No 600/2014.
When did MiFID II come into force?
MiFID II entered into force on 2 July 2014 and has applied since 3 January 2018, after a one-year delay. It replaced the original MiFID, which had applied since November 2007.
What is the difference between MiFID II and MiFIR?
MiFID II is a directive, transposed into national law, and covers authorisation, organisation and conduct of business, including investor protection. MiFIR is a regulation that applies directly and covers market transparency, transaction reporting and trading obligations.
Who does MiFID II apply to?
Investment firms, banks providing investment services, UCITS management companies and AIFMs providing portfolio management or advice, trading venues, data reporting services providers and third-country firms serving EU clients. It applies across the EU and, through the EEA Agreement, in Norway, Iceland and Liechtenstein.
What are the main MiFID II requirements for wealth managers?
Suitability assessments before advice or portfolio management, statements of suitability for retail clients, sustainability preferences, costs and charges disclosure, rules on inducements, product governance as a distributor, staff knowledge and competence, client reporting and record-keeping.
What is MiFID III?
An informal name for the next round of changes to MiFID II, mainly the 2024 MiFIR review and the EU Retail Investment Strategy, on which a political agreement was reached in December 2025.
This guide is general information about EU rules, not legal advice. National implementation and your regulator's guidance can add requirements. Check the primary sources linked above before relying on it.