Call for EC to introduce ‘industry standard’ commission cap
Members of European intermediary trade body write to Michel Barnier to protest commission ban under Mifid.
A Europe-wide ban on commission payments proposed under the revised Markets in Financial Instruments Directive (Mifid II) would hurt small investors and should be replaced by an “industry standard” cap on the level of commission institutions can pay, advisers have argued.
In letters to Michel Barnier, commissioner for the European Commission for Internal Markets and Services, advisers affiliated with the European Federation of Financial Advisers and Financial Intermediaries (Fecif) argue that commission is not inherently detrimental to investors if it is well regulated.
The adviser letters argue that smaller investors would be worse off if the proposals were implemented while only larger financial institutions would benefit.
Graham Reid, chartered accountant and managing director of Classic Financial Solutions, writes: “I find it astounding that so much regulatory time is devoted to checking the trivia and so little is devoted to addressing the abuses practised by the ‘big and beautiful’ to the detriment of those least able to defend themselves, namely many small investors.”
Responses follow a letter to the Commission from Vincent Derudder, general secretary of the European Federation of Advisers and Financial Intermediaries, that also protested the introduction of a ban on commission.
Rather than banning commission outright, Mr Reid instead suggests introducing a ceiling on how much may be paid by a regulated insurance company to its intermediaries.
He says: “Instead of banning it, why not put a ceiling on how much may be paid by a regulated insurance company to its intermediaries. Commission levels then become a simple approved industry standard for the service provided.
“Any insurance company that exceeds the permitted level can be penalised very simply by making the policy voidable at any time on request of the policyholder, with a full refund of either the original sum invested plus penalty interest, or the current value - whichever is the higher.
“The relative simplicity of the commission system is something that works in its favour provided adequate controls on rates are in place.
“It is easy and cheap to administer compared with direct invoicing which inevitably also involves far more accounting for the adviser as well as VAT costs for the client.”
Last month a revised draft of Mifid 2 suggested dropping the ban on commission for independent advisers, as long as the amount of remuneration being paid was disclosed to clients. Advisers classified as restricted would still be unable to receive so-called inducements.
The European Parliament was expected to vote on the proposals in July but the vote was pushed back to the autumn.