DThe EU Financial Markets Commissioner Mairead McGuinness had already pulled the sharpest tooth out of the new set of rules in advance. Contrary to what was originally planned, McGuinness said a month ago that she would refrain from proposing a strict ban on commissions for financial advice in the EU. She has listened to those who think a total ban is “too disruptive”. What she meant by that: In some EU countries, not least in Germany, the business model of advice would have been at risk, especially in the banks, where brokers of financial products receive a commission. The protests of the German associations and the federal government against the plans were correspondingly strong.
The proposal for a new legislative package (“Investment Package”), which McGuinness presented in Brussels on Wednesday together with the responsible Vice President Valdis Dombrovskis and which is primarily intended to provide better protection for small investors, does not contain the commission ban either. However, McGuinness emphasized that the package still means the “entry” into a ban. The basic problem – that consultants who receive a commission for brokering a product do not advise independently, but come into a conflict of interest as a seller – persists.
The resulting “gap in advice” must be closed. “The fact remains: the status quo is unacceptable.” A study commissioned by the Commission (“Impact Assessment”) came to the conclusion that a total ban would be the best solution. Dombrovskis said that it is part of any legislation that those affected should also be heard. Overall, this hearing came to a different conclusion than the study. The Commission weighed up the different arguments.
The entry into the commission ban
The “entry” into the commission ban consists of several elements. On the one hand, there should actually no longer be any commission for placements without advice (“execution only”). Secondly, the Commission wants to ensure that customers are informed exactly how much commission a consultant receives for brokering a product. Currently, retail investors have to pay around 40 percent more than institutional investors, said McGuinness. “In my experience, many small investors do not dare to ask their agent about the exact costs. That’s why we need more transparency here.”
Thirdly, advisors must examine the individual needs and interests of their customers more precisely than before, and thus enable more “tailor-made” advice. The national supervisory authorities should develop new test criteria for this. After all, the EU authority wants to review the rules again after three years. Depending on the result of her examination, she could still propose a complete ban on commissions, said the Commissioner, who comes from Ireland. “Three years isn’t much. The industry must now take action to prevent the ban. We stay on the ball.” McGuinness documented the fact that she remains suspicious of the financial advisors with a number. According to a new Eurobarometer survey, 45 percent of EU citizens do not trust that the advice they receive from financial intermediaries is to their advantage.
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