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drowning not waving

European financial advisers face an ever-growing mountain of local and EU-wide regulations that threatens their survival. By Rodrigo Amaral


Measures that restrict or forbid the payment of commission by fund providers are the main culprits for the challenges faced by the sector, according to experts.

Tougher professionalism and transparency requirements have also raised the bar, leaving it too high for many intermediaries.

Vincent Derudder, chairman of the European Federation of Financial Advisers and Financial Intermediaries (FECIF) warns that the constant flow of new regulation is having a deleterious effect on the industry, and more damage will be inflicted if it does not come to a halt.

“It is badly affecting financial intermediaries across Europe,” he says. “Around 130,000 financial intermediaries have been the victims of the crisis but, more than that, of regulatory changes. Regulation is only making things more difficult for consumers, intermediaries and bank employees alike.”

One example is the Netherlands, where intermediaries have been denied what was in practice their most important source of income: a 50% share of the management fees charged by investment funds.

A law passed by the Dutch authorities has banned the so-called rebate paid by fund managers to advisers who bring them new investors. It kicked in this month for new clients, although not for existing ones. In 2015, the ban will affect all clients of the country’s financial advisers.


Most advisers live from the rebates they receive from the different funds they invest in. Now they will have to ask for clients to pay either an advisory fee or a management fee”

Rico Bosma
Partner, Wealth Management Partners

Good intention gone wrong

The adoption of commission bans, a trend that is gaining momentum across the EU, is designed to benefit consumers by preventing the rise of conflicts of interest between their advisers and fund providers. But such measures could have unintended effects that not only threaten the survival of many investment advisory firms, but also increase the risks faced by non-professional investors.

“We believe that more and more people will move towards execution-only online platforms,” says Rico Bosma, a partner at Wealth Management Partners, a financial advisory firm in the Netherlands.

“Most advisers live from the rebates they receive from the different funds they are investing in,” he explains. “Now they will have to ask clients to pay either an advisory fee or a management fee. A big part of the client base is not used to paying these kinds of fees and they will move to online platforms.”

He says that suppliers have already started to market their funds with lower management fees that reflect the new rules. In Bosma’s view, the changes will have an effect especially among small savers – those most in need of some kind of advice.

“Savers will have to make decisions by themselves,” he says. “We know from past experience that accidents will happen.”

Tidal wave of rules

The woes faced by Dutch advisers are not an exception in Europe, where commission bans and other kinds of tighter regulation have hit the market in recent years. Finland, Denmark and Belgium are among the countries that have adopted similar measures, notes Derudder.

Loud complaints have also emanated from Germany, where tougher licensing requirements have been imposed on financial intermediaries. One result of the new rules, whose implementation has been heavily criticised, is that the number of intermediaries in the country has fallen from 70,000 to 30,000, according to Peter Brandstaeter, the CEO of Munich-based fund platform Fonds Laden.

“The impact has been a catastrophe,” he says in an exclusive video interview for the Expert Investor Europe website. “The market is concentrating and private investors are a little bit confused. We made a big step backwards. Now private investors are being forced to go back to the insurance industry and to buy standardised products.”


Regulation is only making things more difficult for consumers, intermediaries and bank employees alike”

Vincent Derudder
Chairman, FECIF

Germany is not the only country to adopt or propose regulation of doubtful value for clients, commentators point out. In Italy, financial authorities have pushed forward a proposal that, if approved, will blur the distinction between independent advisers and those who work for providers of investment products, says Riccardo de Caria, a Turin-based lawyer.

If it is implemented, it is likely to further strengthen the position of big banks that have a stronghold on investments made by Italian savers, he adds.

A game of wait-and-see

Other countries are discussing changes, while they wait to see how the new rules will affect those who pioneered them. To compound it all, plenty of changes are coming from the European level too.

The eagerness of European officials to come up with new rules for the financial industry is one of the main concerns for entities such as FECIF. In late November, the industry celebrated a significant victory in its fight-back when, after intense lobbying, a proposal to cap adviser charges was dropped at an EU plenary.

However, even though a battle was won, the war is far from over. Proposals that could affect financial advisers are being discussed at several European agencies, such as ESMA, which oversees the investment industry, EIOPA, which deals with insurance, and the EBA, which supervises European banks.

“We expect a constant stream of guidance and tweaking from bodies like EIOPA, and we can only hope that it will not be too disruptive for firms and regulators at the national level,” says Chris Hannant, director general of the UK-based Association of Professional Financial Advisers (APFA).

“Any legislative work has the potential to be hijacked in a way that we do not expect. We live with that risk. We would rather have stability, but this is something that we have to accept.”

Andrew Strange, a financial services regulation specialist at PwC, highlights two main pieces of European legislation where changes could affect the industry in a significant way. First is the Packaged Retail Investment Products directive (PRIPS), which he believes will present a challenge in terms of disclosure requirements and the need to revisit operating systems, among other issues.

Another is the update of the Market in Financial Instruments Directive (MiFID) of which various versions are being debated. The discussions focus on issues like the introduction of a definition of ‘independent adviser’ and the imposition of a European-wide commission ban.


The impact has been a catastrophe. The market is concentrating and private investors are a little bit confused. We made a big step backwards”

Peter Brandstaeter
CEO, Fonds Laden

Derudder adds the revision of the Insurance Mediation Directive (IMD) as a further possible source of woe for financial intermediaries.

RDR provides a blueprint

Professionals working in countries that have not yet felt the full extent of the regulatory tsunami can look at the UK market to get an idea of what the future holds.

At the start of 2013, a set of consumer protection measures gathered under the Retail Distribution Review (RDR) hit in full. Among other things, financial advisers were banned from accepting commission, were exposed to higher professionalism standards, and were given stricter responsibilities in terms of informing savers about the financial products they recommend as investments.

The most visible outcome so far has been a reduction in the number of financial advisers operating in the country – a fall from 26,000 to about 21,000 since RDR kicked in, according to APFA.

However, the Financial Conduct Authority, which oversees the application of RDR, maintains that the number of advisers who meet the new requirements is gradually increasing, rising from 20,453 when the new rules were first enforced, to almost 21,700 in July 2013.

“The ban of commission is affecting mainly small clients, who are losing access to the best products,” Derudder says. “It only helps the sale of financial products via the internet and by the big banks.”