The European Federation of investors and Financial Services Users fully supports the clear stated objectives of the European Union’s very welcome “Retail Investor Strategy”.
ENSURE A LEVEL PLAYING FIELD IN SECTORAL LEGISLATION
The European Commission’s stated goal for the EU Strategy for Retail Investors (RIS) is to: ”ensure that (…) rules are coherent across legal instruments”.
Article 38 of the EU Charter of Fundamental Rights requires a high standard of consumer protection to be ensured across all Union policies. Unfortunately, EU rules are too often inconsistent between one category of “retail” investment products and another.
BETTER FINANCE proposes to adopt a uniform approach to both MiFID II, MiFIR, IDD, PEPP, IORP, MICAR etc., to ensure that individual, non-professional investors benefit of the same level of protection when buying packaged investment products, regardless of the type.
Such a legislative work would ensure a higher standard of investor protection, stimulate cross-border distribution of services and products, reduce regulatory arbitrage, increase legal certainty, clarity of the legal framework and, ultimately, trust in investment services.
A common body of investor protection rights would be key to achieve this objective and build towards a Capital Markets Union “that works for People”.
CLOSE THE UNBIASED ADVICE GAP FOR RETAIL INVESTORS
The EC’s stated goal for the RIS is also to ensure that “an individual investor should benefit from (…) bias-free advice”.
EU citizens must trust that investment professionals act honestly, fairly, and professionally in accordance with their best interests. This requires the elimination of biases in investment services and closing the advice gap in the EU.
Currently, the EU market for “retail” investments faces a huge shortage of advice for non-professional savers. This is because the dominant distribution model (of retail investment products) is commission-based, meaning that product manufacturers pay distributors to influence what to sell to their clients.
EU law should end this confusion between selling and independent advice: at the very least, investment firms should not receive and retain third-party remunerations for providing independent advice, portfolio management, and execution-only services to retail clients. Currently, only MiFID II lays down such a prohibition (except for execution-only, Art. 24(7) and (9) MiFID II) and it should be extended for all retail investment sectors (IDD, PEPP, MiCAR, etc.).
DELIVER VALUE FOR MONEY
Another stated goal for the RIS is that individual investors “should benefit from (…) a variety of competitive and cost-efficient financial services and products”.
Value for money incorporates suitability or appropriateness of a product with a client’s profile (knowledge, needs, investment horizon, risk tolerance), but it goes much further. As explained in our earlier exchanges, Value for Money (VfM) should be designed as a fundamental safeguard for consumer protection, building on the already existing - but not enforced – MiFID II or Investment fund rules prohibiting “undue costs” and requiring providers to assess the cost of their product with regard to that of equivalent products on the market.
CLEAR, NOT MISDLEADING, AND COMPARABLE PRODUCT INFORMATION
It is also the stated goal for the RIS to ensure that individual, non-professional investors benefit from “transparent, comparable and understandable product information”.
“This is a triumph of pseudoscience over common sense” – prof. John Kay.
The “PRIIPs” (packaged retail and insurance-based investment products, excluding listed securities and personal pensions) Key Information Document is for the most part, and especially on performance and costs, not clear, misleading (e.g. future performance data based on 5 year past performance) and not comparable, even for similar products. It must be reviewed asap to meet the EC’s objective.
Contact
Guillaume Prache, Managing Director, prache@betterfinance.eu
Aleksandra Maczynska, Executive Director, maczynska@betterfinance.eu
Maryian Nikolov, Research & Policy Officer, nikolov@betterfinance.eu