A board member of Germany-based advice trade body Der Bundesverband Finanzdienstleistung (AfW) has said a commission ban in Europe would “exclude large parts of the population from qualified financial advice”.
During a European Federation of Financial Advisers and Financial Intermediaries (Fecif) editorial for July 2023, Frank Rottenbacher wrote a piece called The future of financial advice in Europe: why a commission ban is not the answer. AWF is a member of Fecif.
This comes after the European Commission published its retail investment package in a bid to “empower” retail investors.
The proposals aim to allow retail investors to make investment decisions that are aligned with their needs and preferences, ensuring that they are “treated fairly and duly protected”, as the EU looks to trust and confidence into the financial industry.
As part of the package, the EU will be banning inducements for “execution-only” sales, where no advice is provided, to ensure that financial advice is “aligned with retail investors’ best interests”. It u-turned on its bid to ban asset managers and insurers from paying financial advisers for recommending their investment products.
AWF’s Rottenbacher said: “Europe has formulated ambitious goals in many areas to protect the interests of consumers as well. The latest goal is to make the capital market more accessible to citizens. To this end, the Retail Investment Strategy was launched, which aims to encourage and enable consumers to invest more in the capital market. These goals are undoubtedly important, correct and deserve recognition.
“However, we also need to be honest about the challenges that come with implementing such goals. Often, the best intentions are torpedoed by proposals that ultimately make it impossible to achieve the goals. An example of this is the proposed commission ban in the retail investment strategy, which would ultimately exclude large parts of the population from qualified financial advice.
“It is important to emphasise that commission-based remuneration does not automatically lead to conflicts of interest. Financial advisors provide high-quality advice and suitable solutions to their clients regardless of how they are remunerated. However, a ban on commissions would lead to a one-sided solution and limit the diversity of advisory models.”
He believes that the advice industry should “take a balanced approach that focuses on both consumer protection and access to qualified financial advice”.
“It is important that consumers can make informed choices and have a wide range of advice services available,” Rottenbacher added. “This requires flexible and differentiated solutions that meet consumers’ needs and preferences. As long as consumers are not willing to pay adequate hourly rates for qualified fee-based advice, a commission ban will lead to them doing even less for their old-age provision or investing less or not at all in the capital market. This cannot be in the interest of politics and certainly not in the interests of consumers.
“Dialogue between policymakers, regulators and the financial services industry is crucial to find the best ways to achieve the goals set. Together we can work on practical regulation that strengthens consumer protection, enables innovation and at the same time ensures that all citizens have access to qualified financial advice.
“Let’s not lose sight of the positive goals, but also address the potential dangers of overly restrictive and patronising implementation. If the political will is there, if prejudices are broken down, we can find solutions together that strengthen consumer protection, preserve the diversity of advisory services and encourage European citizens to participate in the capital market.
“At Fecif, we are very much ready for such a constructive dialogue.”