The European Commission must ensure that its much-awaited proposal on the retail investment strategy includes a full inducement ban, which would end conflicts of interest in financial advice. Europeans must have access to bias-free and high-quality advice on how to invest in Europe’s capital markets; this is urged by the S&Ds in light of today’s exchange of the Parliament’s committee on economic and monetary affairs with the Commissioner for capital markets union, Mairead McGuinness. The Commission’s proposal on the retail investment strategy is expected later this year*.
Eero Heinäluoma, MEP and S&D negotiator on the EU legislation on markets in financial instruments, said:
“Today, the most common way that financial advisers are remunerated for providing their services to clients is through commission payments from product providers. Life insurers, pension providers and fund managers often pay out commissions to financial advisers for recommending certain products. This model is highly lucrative for financial advisors but it generates clear conflicts of interests and poor-quality financial advice for consumers. Retail investors should save money for their own pension, not for the pension of their advisor.
“To tackle conflicts of interest in advice, current EU law requires financial advisers to be transparent about the commission payments they receive. However, transparency alone is not enough to protect consumers in this market. The EU should thus follow positive examples of the Netherlands and the UK, which introduced bans on the payment of such inducements to advisers. Studies in the wake of these bans show that retail investors in these countries invest in lower-cost investment products with better value for money, as advisers no longer have a financial incentive to recommend fee-laden investment products to consumers.”
Jonás Fernández, MEP and S&D spokesperson on economic and monetary affairs, added:
“According to a European Commission scoreboard, the retail investment market is one of the worst performing markets for consumers in the EU. It is time to change this negative trend and ensure a fair treatment of clients by the financial system.”
Note to editors:
*The European Commission is currently reviewing capital market rules defined by two legislative acts: Markets in Financial Instruments Regulation (MiFIR) and Markets in Financial Instruments Directive (MiFID II). Later this year, it is set to follow up with the retail investment strategy, aiming to ensure that consumers who invest into capital markets can do so with confidence and trust. As set out in the 2020 Capital Markets Union Action Plan, the Commission intends to assess the applicable rules in the area of inducements and, where necessary, propose to amend the existing legal framework to ensure that retail investors receive fair and adequate advice.
