The chairman of the European Financial Planning Association (Efpa) has sent a letter to the European Commission (EC) to oppose its plans to ban commissions for financial advisers.
International Adviser recently reported that, as part of its retail investment strategy (RIS) to attract more consumers to capital markets, the EC was looking to ban commissions for intermediaries.
The move sparked criticism from industry and member states alike, with Efpa becoming the latest to blast the plans.
Emanuele Maria Carluccio, Efpa chairman, said in his letter that the main purpose of the RIS is to increase retail investor participation in financial markets and that financial advisers play “a key role for the achievement of this objective”.
And since advisers are “the most important drivers of retail investors’ decisions”, as also the EC recognised, financial advice can “strongly contribute to financial inclusion” as well as help investors meet their sustainability preferences and reach their goals for retirement.
Carluccio provided the UK as the leading example against banning commissions as he believes it is responsible for widening the advice gap, especially among vulnerable clients.
He added: “The RIS must ensure different business models, without imposing a mandatory fee-based model that could have undesirable effects. The Mifid II framework is an open market model. There is a wrong presumption over non-independent advice to be ‘bad advice’, and that Mifid II has not led to a shift towards independent advice.
“However, Mifid II did not determine a market model based on independent advice: its model was to create an efficient, safe, and investor-protective capital markets union, based on transparency and the prevention of conflicts of interest, through all the life cycle of investments products.”
That is why Carluccio proposed the focus of the RIS should be on providing clear and precise information on the costs of advice to retail investors, which would include commissions and the scope of the advice provided.
“Clients do not perceive the relevance of the dichotomy between independent or non-independence advice. From the transparency point of view, informing on the status of independent or non-independent of the adviser or on inducements ‒ a concept that retail investors do not fully understand ‒ is not perceived as relevant by retail investors.”
Rely on Mifid
He continued that going forward the EC should base its strategy off two Mifid II measures: the Product Oversight and Governance (POG) and the Suitability Assessment rules.
This is because financial advice can be considered ‘good’ if the adviser fulfils their obligations under the suitability assessment according based on the work carried out prior to providing the advice and on whether it meets the client’s profile and objectives.
On this basis, Carluccio believes there is scope for POG to be enhanced to include charging structures, in order to provide value for money to retail clients.
“This must be included as an element of the suitability assessment as well, so advisers should commit to recommend the best of the options available in terms of value for money,” he added.
“We think that this approach would be a more efficient model of regulation to tackle down the suspicion on the commission-based model and to create a capital markets union that ensures access to all financial services to retail clients.”