Stockholm The EU Commission has dropped the controversial plan to ban commissions for financial advisors. Finance Commissioner Mairead McGuinness announced in a speech late Thursday afternoon that she would refrain from a complete ban on commissions for the time being.
“We’ve listened to those who tell us that a total commission ban might be too disruptive at this point,” McGuinness said at a financial conference in Stockholm. Other measures such as more transparency obligations are now being considered.
The Irish woman is thus bowing to lobbying pressure from the financial sector and a number of EU governments. The German industry associations, for example, had warned that a commission ban would cost tens of thousands of jobs in Germany alone and that small investors were threatened with a “consultation desert”. Finance Minister Christian Lindner (FDP) had also intervened several times in Brussels and campaigned for the status quo.
McGuinness remains sympathetic to the commission ban
There are several hundred thousand investment advisors in Germany. They make their money by adding a percentage of a finder’s fee to every fund and insurance policy sold. These commissions are included in the total price and are spread over the entire contract period.
Consumer advocates have long been calling for this practice to be banned and replaced by independent fee-based advice. From their point of view, the commissions are too non-transparent and too high. The model is the Netherlands, which introduced a commission ban back in 2014.
The Federal Association of Consumers and the citizens’ movement Finanzwende had high hopes for McGuinness because the commissioner had always acted as an advocate for consumers. Now the disappointment is even greater.
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In her speech, however, McGuinness left no doubt as to where her sympathies lie. She cited the most important argument for a commission ban, namely that a consultant who works on commission is actually a salesperson. He has his own financial interest in selling the customer a product that is as expensive as possible.
“Retail investors are rarely offered the cheapest products, although these are often just as good as the more expensive ones,” McGuinness said. Customers also often do not know how much they pay for financial products or how to compare the products available. It is therefore more necessary in this area than in any other to address the conflicts of interest.
McGuinness: “No free pass for the financial sector”
The Commissioner stressed that she would act. “Even if we don’t propose a ban on commissions now, that doesn’t give the financial sector a free pass,” she said. Some in the industry would have to rethink their business model so that consumers would get a “fairer deal”.
She announced that the rules around commissions would be tightened. “There should be a better breakdown of costs so consumers can more easily compare different options,” she said. There must be more control by the financial regulator.
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She also wants to ban commissions for “execution only” transactions, i.e. when a financial company only executes one order without any consulting services. “There should be tightened rules about when commissions are paid – and when not,” she said.
She wants to present the details in her small investor strategy, which has already been postponed several times. May 24th is currently planned for the presentation.
In order to achieve the desired behavioral changes in the industry, McGuinness is keeping the full ban on commissions in reserve. The bill will include a review clause that will allow for a full ban on commissions at a later date, she said. And added: “If it should be necessary.”
More: Commission ban – the 14 billion euro risk for the industry.