According to plans by the EU Commission, there should be a ban on commission for pure “execution transactions”.
(Photo: imago images/Shotshop)
Brussels The EU Commission wants to attract more Europeans to the capital markets and therefore tighten investor protection. With the new retail investor strategy, she wants to tackle three key problems: misleading marketing, conflicts of interest among investment advisers and high product costs.
Europeans are good savers, but invest too little, said Finance Commissioner Mairead McGuinness at the presentation on Wednesday.
The aim of the reform is to ensure that consumers are better informed and get a “fairer deal” from the financial firms.
To illustrate the need for action, the Commission cites some statistics: According to a Eurobarometer survey, 45 percent of European investors doubt that the recommendations of their investment advisors are in their best interests.
That could be because retail investor fees are 40 percent higher than institutional investors. The result: Only 17 percent of the assets of EU households are invested in securities – in the USA it is 43 percent.
The EU Commission now wants to take countermeasures with these innovations:
- Commissions for pure execution transactions are prohibited. A financial service provider can therefore no longer demand a commission if it merely executes a customer’s order without advising him. One EU official calls this “going into the commission ban”. However, commissions for consulting services remain permitted. Only a personal recommendation individually tailored to the customer is considered a consulting service. The EU Commission reserves the right to introduce a complete ban on commissions in a few years if the industry does not adequately implement the new transparency and code of conduct.
- In future, the information sheet that investors receive when purchasing a financial product must feature all costs and risks prominently on the first page.
- A new test for investment advisors is designed to ensure they are acting in the client’s best interests. Advisors are obliged to offer the investor a broader range of products during the consultation, including at least one product without additional services.
- The regulators Esma and Eiopa are to develop an objective benchmark for each investment product that indicates good value for money. If a supplier or distributor deviates from these benchmarks, the product in question should not be approved for the market. The companies must transmit all relevant data to the supervisors.
- The activities of finfluencers, i.e. self-employed entrepreneurs who call for the purchase of financial products in Internet videos, for example, should be controlled more closely. The companies whose products are advertised there will in future be liable for misleading information and the resulting damage.
- It will be easier for experienced investors to buy new products in the future because they no longer have to fill out as many forms.
An EU official conceded that the reform was not a “Copernican revolution” in investor protection. It is only about the further development of existing rules. The Commission draft still has to be approved by the European Parliament and the Council of the 27 member states. Changes are expected in the trilogue negotiations between the three EU institutions.
Commission ban: Associations announce resistance
For many associations, the reform planned so far already goes too far. Michael Heinz, President of the Federal Association of German Insurance Merchants (BVK), wrote in a letter to the editor of the Handelsblatt newspaper: “For more than a decade we have been subject to new regulations, we have to fulfill new documentation and information obligations, we have to train ourselves and recently even our customers advise on sustainability risks. And it’s still not enough.
Parts of the industry even hope to overturn the planned commission ban for “execution only” transactions. The German Derivatives Association (DDV) explained that commissions could also bring added value or an additional service to investors in non-advisory business. This should be taken into account in the deliberations in the Council and Parliament.
The biggest problem for retail investors is that they are literally drowning in paperwork when they want to buy a financial product. Markus Ferber (CSU)
The German fund association BVI also rejects the ban on commission in non-advisory sales. He also considers the additional requirements for commission advice to be superfluous. “These measures will not further increase the already very high level of investor protection,” said BVI Managing Director Thomas Richter.
The economic policy spokesman for the conservative EPP group in the European Parliament, Markus Ferber (CSU), criticized the fact that the number of forms for investors was not substantially reduced. “The biggest problem for retail investors is that they’re drowning in paperwork when they’re trying to buy a financial product,” Ferber said. The Commission missed an opportunity to reduce bureaucracy here.
More: “Landed as a bedside rug” – consumer advocates criticize the waiver of the commission ban.