Industry body EFAMA has responded to the European Commission’s (EC) Retail Investment Package first proposed in May this year.
The European Fund and Asset Management Association lists what it calls a number of “positive elements”, along with ones that the association says need to be reconsidered. The changes were proposed earlier this year and were an attempt by the EC to place the interest of consumers at what it described as “the centre of retail investing”.
The more “helpful” proposals, EFAMA said, were digital disclosure documents that take advantage of user-friendly technologies; initiatives to improve financial literacy; access to investment advice by maintaining commission and fee-based models; alignment across investment and insurance products for consistency; rules for marketing by financial influencers; and addressing how financial products and services provide value for money for investors.
Commission-based advice
Retaining commission-based advice was “crucial” argued EFAMA, explaining: “Bank-based financial advisers are often remunerated through commissions, which means they charge an annual % fee based on the investment value. They can offer their services without upfront costs and are often the most affordable option for smaller investors.”
The industry body added: “Independent financial advisers often charge an upfront fee – on average around €180 per hour. For some investors, this is their preferred option but for others it represents a significant barrier. Maintaining both commission and fee-based advisory services in Europe, gives EU citizens choice and access to financial advice, no matter the size of their investment.”
Among the less helpful proposals, argued EFAMA, were quantitative ‘value-for-money’ benchmarks, which it said focused on “undue cost”, went too far towards market price setting, and worked against research and fund innovation. Instead, it said, the EC should push towards greater transparency when assessing value for money.
‘Best interest’ test
EFAMA also criticised the ‘best interest’ test, saying it focused solely on cost, and overlapped with MiFID suitability rules, creating usability issues for investors for limited benefit. Instead, it said the EC should maintain the ‘quality enhancement’ test and extend it to insurance products in the Insurance Distribution Directive.
The banning of commission for execution-only trades, argued EFAMA, was another negative aspect as it could limit access to digital platforms and discourage investors who do not want to pay upfront fees to distributors. And the association criticised what it called “rushed timelines”, adding that the cumulative effect of these significant market changes remained unknown, and a proposed review after three years did not allow enough time to gather sufficient evidence for “smart policy”. Instead, it recommended setting an implementation deadline 18 months after essential technical standards were developed by the European Securities and Markets Authority.
