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Brussels has backtracked on plans to ban asset managers and insurers from paying financial advisers for recommending their investment products, bowing to intense industry lobbying and in spite of warnings from consumer groups.
An analysis by the European Commission last year concluded that an EU-wide full ban on incentive payments made by investment product manufacturers to financial advisers would be the most effective way to remove conflicts of interest and improve results for end-investors. But Brussels has now retreated from that position and will limit the ban on inducement payments to so-called “execution-only” sales of investment products where no financial advice is delivered, according to a leaked draft of the EU’s retail investment strategy seen by the FT.
“A full ban on inducements would entail significant and sudden impacts on existing distribution systems, with consequences that are hard to predict,” said the commission. The commission has been focused on the practice of payment for financial advice, arguing that it distorts the market for consumers. It hopes greater transparency will encourage more retail investors to move into the investment market. It is expected to publish the finalised version of its retail investment strategy on May 24 but alterations to the plans appear unlikely at this late stage. Many of the EU’s largest asset managers and investment product distributors are owned by banks and insurers and had opposed a ban on inducements.
They argued that a ban would create an advice gap and leave retail investors in a worse position. The European Fund and Asset Management Association had said previously that an EU-wide ban on inducements “would effectively restrict the access of the majority of EU citizens to affordable qualified advice”. Germany and Austria’s finance ministers had also sent objection letters to Mairead McGuinness, the European commissioner for financial services...
more at FT