In the next two years, European investment funds will be subjected to two regulatory changes. If MIFIDII is expected to have a limited impact, according to experts, PRIPS raises more concerns.
MiFID II is supposed to enter into force in 2017; however, since the financial sector is not ready, it will take more time. The Directive provides for “independent investment consulting”. Financial advisors will therefore no longer receive commissions from the fund issuers.
In the Netherlands and the UK these types of commissions were removed in 2014 and the impact thereof has differed between the countries. In the Netherlands customers have had to choose between paying a commission for advice and making their own investment decision. Many people have opted for the second option as a result of which they have overwhelmingly favored ETFs. "Initially, active fund managers were very happy with this change. They thought that with lower fees, they would become more attractive. But their distribution partners also decided to turn to ETFs, thereby hurting domestic management companies as well as some foreign ones" according to Morningstar.
In the UK, the change hardly made a difference. "The end commissions for fund distributors only apply to new investors, those who bring fresh money. The money already managed is placed in funds that still practice retrocession commissions to distributors, 99 % of the market has not changed, "said San Lie of Morningstar.
"Many questions remain regarding ’independent’ investment advice versus non-independent investment advice, for which fund distributors can still receive commissions,” said Guillaume Prache, managing director at BETTER FINANCE. "This rule does not apply to the integrated network of bank insurers. However, 70% to 80% of fund sales in Europe are carried out by the major banking networks, which are not affected" he added.
Regarding PRIIPS, Guillaume Prache stated that we are looking at “a catastrophe, because this directive is likely to abolish all requirements for information on past performance and that of the fund’s benchmark. This information is important to find out whether an investment product has made money in the past or not and also to compare the performance with other similar funds."
The fund industry has asked for the postponement of the Directive to 2020. BETTER FINANCE would even push it to 2022. "If we cannot correct the text, this rule will be disastrous," points out Guillaume Prache.