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France, Germany and Italy fighting EU-wide ban on commission

France, Germany and Italy are fighting against introducing a complete ban on commission in their financial services industries despite pressure from the EU, according to Michael Lodhi, chairman of Luxembourg-based Spectrum IFA Group.


Speaking at the International Adviser Future Advisory Forum Europe roundtable in London on Wednesday, Lodhi said the three countries, considered the most powerful of a post-Brexit EU, are using the Insurance Distribution Directive (IDD) to defend the commission-based models prevalent in their financial services industries.

“If we’re talking about IDD, where each nation state is allowed to decide whether to bring in a commission ban or not, my information is that the French, Germans and Italians, powerful nations in the EU, are against any form of commission ban,” he explained.

Mifid II

Under the latest update to the Markets in Financial Instruments Directive, known as Mifid II, which is due to be introduced on 3 January 2018, firms that provide independent advice or portfolio management will almost always be banned from keeping any commissions.

As part of the legislation, advice firms must also tell clients about all fees, commissions and benefits it receives in relation to the services it provides to the client.

Lodhi added that due to France, Germany and Italy’s resistance of an EU-wide ban on commission, it will take longer to achieve, although he expects commission disclosure to become the norm across Europe.

“They’re [the countries] are facing up to change and see change coming but they’re resisting it so it may take a lot longer. I think disclosure is coming, which will be brought into those countries,” he said.

The comments come as JPM Asset Management’s head of UK funds, Jasper Berens, predicted last week that regulation is moving at such a fast pace that within five years all financial services markets around the world will ban commission and implement an RDR-like regime.

Consumer push

Meanwhile, Brian Dunhill, an adviser with the newly-merged Belgium-based IFA firm Cross Border Planning, said a ban on commission across Europe is likely to be driven by clients wanting more transparency around charging.

“Being in Brussels, I’m seeing more pressure from clients about how we’re getting paid. We’re getting more of a push from them rather than from the regulators,” he told Expert Investor‘s sister publication International Adviser.

While working as an financial adviser in the US for UBS during its “switchover” from a commission-based model to a fee-charging structure, Dunhill, who in 2010 moved to Belgium to set up his own advisory business Dunhill International Financial Planners, said he found that the average adviser was “twice as productive” working under a fee-based model compared to a commission environment.

“Where the real demand is going to come from is the consumer over here [Europe] being more informed and asking for those out of their advisers and pushing for this model.

“The advisory practices that want to evolve need to use this to shape their new business model going forward,” he concluded.