Europe is starting to fight for returns in the financial field

Will the European Union ban retrocessions in the sale of investment products? The idea has the strong support of the European Commissioner for Financial Services. Mairead McGuinness said this in a letter she sent to Markus Ferber, a member of the European Parliament from the German Conservative Party, on December 21, and was disclosed by Reuters. The measure could be part of a legislative package by the Community executive aimed at encouraging the participation of retail investors in the capital markets, expected for the second quarter. However, the matter has not yet been decided within the Commission, the Irish Commissioner said. There is still a long way to go before implementation. If proposed by Brussels, the measure would have to be approved by the European Parliament and the Council of 27 Member States in the coming months.

In Brussels, lobbyists from the financial sector, savers’ associations, members of the European Parliament and governments are sharpening their arguments to defend or condemn the practice, which allows distributors to be rewarded by the manager they sell their products to. For Mairead McGuinness, banning these “mistakes” – that is, any advantage or premium obtained by a service provider from a third-party manufacturer in the sale of financial products in the European Union – will allow to drastically reduce costs in the first place. facing retail investors. He explains that supported by Commission research, “products for which ‘incentives’ are paid are – on average – about 35% more expensive (..)” and are often “inappropriate”.

“In contrast, the costs of financial products have fallen in the Netherlands and the UK, where the ban has been in place, and customers in these two countries are benefiting from better value when buying investment products.” read in his treatise. “At a time when citizens are increasingly forced to turn to private solutions to prepare for retirement, offering them suitable and affordable financial products becomes important,” said Sebastian Mack, a researcher at the Jacques Delors Center, a think tank. in Berlin. The EU should follow the positive experiences of the Netherlands and Great Britain.

a battle of numbers

“Positive experiences”? The outcome is unclear, with the two camps engaged in a numbers battle over the real impact of the 2013 measure on British and Dutch retail investors. Last February, a report compiled by a consortium of European financial sector associations and consultancy KPMG confirmed that investors in the Netherlands and the UK must pay for advice directly – no advice is given to those with less than €100,000. . Critics of the measure in the EU thus raise the risk of a lack of access to advice (the advice gap) for less fortunate savers if retrocessions are banned altogether.

The study’s findings were later refuted in a counter-study by Better Finance, the European Federation of Retail Investors. Along with the European Consumer Union Bureau and the Financial Supervisory Authority, the association is pushing for a ban.

Proponents of this line decry the risks of conflict of interest inherent in the practice of retrocession. An argument supported by several studies published by the European Commission in recent years. One of them, carried out by Deloitte Luxembourg in 2018, for example, observed that financial advisers in Europe very rarely offer some low-cost products that earn no commission or pay little. The latest Brussels study on the subject, due in July 2022, points to the limits of existing transparency measures that force financial advisers to communicate the commissions they receive.

Roar of Christian Lindner

Opponents of the ban, including the European Banking Federation, are concerned about the huge loss of revenue the measure would mean for banks and insurers that distribute the funds. Mairead McGuinness replies: “A ban on ‘inductions’ would certainly force banks to change their business models, but it would not prevent them from selling their products and making a profit.”

If the Irish woman’s opinion prevails among commissioners, there is no indication at this stage that the project will get the green light from the EU Council. To the contrary: In a letter sent by Germany’s finance minister to the Irish commissioner on December 28 and published by Reuters on Monday, Christian Lindner said he was “deeply concerned about the risk that a blanket ban would prevent enforcement. advice in the most needed investments. “The German insurance market is dominated by commission-based sales,” he said.

The subject of retrocession is equally sensitive in France. If, as is said, nothing is possible in Europe without Paris and Berlin, France’s position promises to be decisive. Questioned by L’Agefi, Bercy, who generally defends the interests of the French financial sector in Brussels, is reluctant to take a stand for now. But it’s hard to see government authorities contradicting the Financial Markets Authority, which publicly opposed the ban in early January.

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