In an argument that will be all too familiar to those pointing to an advice gap following a ban on commission under the RDR, the European advice trade body has warned of unintended consequences and a reduction in choice under tough new rules coming in across the continent.
Proposals under the second iteration of the Markets in Financial Instruments Directive (Mifid II) may disenfranchise large swaths of the European populace from being able to access independent advice, according to the European Federation of Financial Advisers and Intermediaries (Fecif).
The group came out in support of the European Securities and Markets Authority’s recent technical advice to the European Commission, which reflects many of the concerns expressed by the industry, but still feels that there are points of concern.
For instance, Fecif firmly disagrees with certain provisions including a limited commission ban, which it claims would likely have the unintended effect of reducing clients’ access to investment advice and discouraging what is generally known as the ‘open architecture’ model.
Mifid II will see commission banned for independent advisers, defined for the purposes of the directive as those not tied to a product provider. Some have claimed this will have the effect of encouraging distribution through tied agents.
The directive, which comes into force across Europe in January 2017 and sets only minimum standards, requires other advisers to disclose any inducements. It has also been criticised for the effects it may have even in the UK, where it will increase documentation requirements.
As the rules are only base standards the RDR, which has a more stringent ban on commission and a higher bar for independence, is not under threat. Sweden also recently signalled its intent to introduce a tougher across-the-board commission ban on advice.
David Charlet, Fecif’s chairman, stated that the European Union should not forget that small and medium sized businesses, such as intermediary firms, provide valuable services for consumers and are important distributors for the products of banks, insurers and asset managers.
“In addition, they provide jobs for several hundred thousand EU citizens”, he said.
The federation’s vice-chairman, Johannes Muschik, argued that more expensive and unnecessarily onerous regulation will only reduce the number of advisers, putting people out of work, whilst leaving consumers without essential financial protection or sufficient savings for retirement.
He added: “Also, it will create a greater financial burden for the social services and benefit systems of Member States”.
Paul Stanfield, Fecif’s secretary general, agreed with the head of European Insurance and Occupational Pensions Authority Gabriel Bernadino’s earlier assertion that he believed in better not more regulation.
“We are very much in agreement with this concept and hope that both ESMA and the European Commission will take our comments into account in this light”.
Additional reporting by Ashley Wassall