Industry Updates

EU scales back blanket inducement ban in draft ‘value for money’ rules – report

Watered-down proposals will still offer a commission to advisers

Theo Andrew

EU flags outside of EU commission

The European Commission has scaled back proposals for a blanket ban on inducements in draft ‘value for money’ rules for asset managers, banks and insurers on the continent.

The draft rules, seen by Reuters, propose a ban on inducements on advice-free sales of products instead of the blanket ban on retrocession fees first earmarked by the European Commission.

Inducements – a practice which pays commission to financial advisers who have sold their products – are widely perceived to nudge investors in the direction of costly and unsuitable investment products and away from cheaper products such as ETFs.

Under the new proposals, due to be published on 24 May, advisers will still earn the commission if they have an advisory relationship with the client.

Last month, Mairead McGuiness, European Commissioner for financial services, financial stability and the Capital Markets Union, softened her stance on inducements following strong opposition from the asset management industry and EU states such as Germany and Austria.

During a speech in Stockholm, she said the European Commission was looking to tighten the conditions with which inducements are allowed as well as introduce a breakdown of costs to make it clearer for consumers.

McGuiness said: "There should also be a targeted ban on inducements for execution-only transactions because it is not right that inducements are paid even when there is no advice relationship at all with a client.”

She added there should be protections in place around when inducements should be paid and when they should not be.

Industry and member states have been split on the debate on whether to ban inducements, a practice outlawed by the Netherlands and the UK.

Michael O’Riordan, founding partner of Blackwater Search & Advisory Group, said the watered-down proposals did not come as a shock.

“There are too many vested parties operating in the market to make such a ban likely, unfortunately, and by that, we mean the traditional asset management space,” he said. “We are sure the EU Commissioner quickly found that out after her first speech on the topic.

“Unfortunately for the end investor, they also lose out as they are being mis-sold products purely based on commission.”

In February, Amundi CEO Valerie Baudson came out against a ban on inducements despite acknowledging it would be good news for the firm’s ETF business.

The European Parliament would review the draft proposals before final publication, with some expected to continue to push for an outright ban on inducements, Reuters reported.

The proposals, which could be subject to change, suggest asset managers would only be allowed to sell funds across Europe if they can prove to regulators they offer value for money.


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