The EU Supervisor falls short of advising a complete ban on commissions for “retail” investment advisors

Brussels, 4 May 2020 – On 1 April 2020, the European Securities and Markets Authority (ESMA) published its advice on “inducements” (and on the disclosure of costs and charges) under “MiFID II”, one of the main EU investor protection directives up for review this year, pushing the issue off into the future by encouraging the European Commission (EC) to further deepen its assessment of the “inducements”.

BETTER FINANCE would have hoped that ESMA had conducted its own investigations into the huge detriment caused by inducements, in particular in light of the overwhelming evidence that low-cost investment products such as – for example – index ETFs are simply not promoted or sold by commission-based “advisors”. Estimates indicate that in the European Union (EU) individual investors only hold a roughly 10% share of the ETF market compared to nearly 50% in the US. BETTER FINANCE has repeatedly drawn attention to the devastating impact of these conflicts of interest on the selection of investment funds and “units” by intermediaries and the damage this inflicts on the performances of long-term and pension savings.

In addition, MiFID II rules on “inducements” de facto exempt “closed architecture” or “vertically integrated” providers of retail financial products, since they are not compensated through commissions but mostly sell, and provide advice on, in-house products, regardless of whether these are the best-suited to their clients’ needs.