European advisers are strongly in favour of regulation that appropriately protects consumers but are concerned that some of the present European Union proposals under the Markets in Financial Instruments Directive II (MiFID II) may disenfranchise large proportions of the European populace from accessing independent advice, according to the European Federation of Financial Advisers and Intermediaries (FECIF).
FECIF has generally welcomed the European Securities and Markets Authority’s (Esma) technical advice to the European Commission (EC) on MiFID II and MiFIR, which reflects many of the concerns expressed by the industry. However, the non-profit trade body said in a statement that there are still some points of concern which could undermine the functioning of the internal market, to the detriment of consumers.
FECIF firmly disagrees with MiFID II provisions on quality enhancement (Article 24(9)), as it says these measures would most likely have “the undesired and unintended effect” of reducing clients’ access to investment advice, discouraging what is generally known as “open architecture”, thus limiting the choices available to consumers. “Regulation that is likely to reduce consumer alternatives should be avoided wherever possible”, said David Charlet, chairman of FECIF. “The European Union is committed to economic growth in the region as well as the ability to enhance cross-border operations,” he said. “We 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”.
The main proposals of MiFID II relating to the improved protection of investors, especially retail, include clarifications about the circumstances in which portfolio managers can receive research from third parties and clarifications around which inducements meet the quality enhancement requirement for the provision of advice. The provisions around investor protection include new requirements for investment companies manufacturing and/or distributing financial instruments and structured deposits to have product governance arrangements to assess the robustness of their manufacturing and/or distribution.
FECIF said that MiFID II’s commission ban for independent advisers could favour distribution agents tied to product providers which could have a negative impact on investor choice and the adviser community.
More “expensive and unnecessarily onerous” regulation, in the current difficult economic climate, will only reduce the number of intermediary firms, putting people out of work while leaving consumers without essential financial protection or sufficient savings for retirement, said Johannes Muschik, vice-chairman of the federation.
There are ways to treat customers fairly, transparently and without conflict of interest, using sensible regulation which does not unfairly penalise intermediaries, said FECIF. “Treating clients in this way will also improve industry standards at the intermediary level as well as for financial institutions such as large banks and insurance companies,” it said.
FECIF promotes training and education in the use of structured products among its members and in 2012 teamed up with Investment Design and Distribution (IDAD), the structured products specialist boutique, to develop the content of a series of masterclasses with a focus on structured products for its European members.
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