To promote investment and improve the efficiency of its capital market, the European Union unveiled measures on Wednesday to reduce the prices that ordinary investors must pay banks and insurers for financial products.
According to the EU’s executive arm, the European Commission, the retail investment package toughens up existing EU investment legislation by prohibiting banks and insurers from receiving a commission on sales of their goods by brokers who gave no advice to customers.
As customers prefer to put their money in a bank, only 17% of household assets in the EU were in the form of stocks and bonds in 2021, a significant decrease from the U.S. level. According to the commission, costs for retail investors are 40% higher than those for institutional investors.
According to the commission, the majority of retail investment products are sold using a commission-based business model, and customers aren’t necessarily getting the best deals.
The EU executive announced it will adopt a “staged approach” in response to strong resistance to a complete ban on commission from Germany, Italy, France, and industry.
It suggests that a stricter evaluation of how appropriate the products are for the consumer, where counsel is being provided, goes hand in hand with the limited restriction on commission. Additionally, products would be evaluated for “value for money” using updated cost and performance standards set by EU regulators.
“Evidence shows that there are some products on the market that provide little, if any, value for money to the retail client, in particular, due to high costs of products,” the commission stated.
To put an end to a succession of miss-selling scandals, the U.K. is also establishing stricter protections for financial customers starting in July.
It appears unclear that creating detailed cost benchmarks against all 30,000 EU-regulated mutual funds that will be examined can be done fairly across a varied range of asset classes without sacrificing innovation and choice, according to ICI Global, a funds industry association.
The final decision on the package will likely be made by EU member states and the European Parliament. The dominant center-left party in parliament declared that it will work to have commission-based sales completely outlawed.
