We follow with much interest the Commission’s work related to IMD, MIFID and PRIPs. We were informed that consideration of introducing a ”ban on inducements” for ”independent advice” in the MiFID has been made. Although we do not have details of the proposals, we believe that this issue is so important that we wanted to bring some considerations in this respect to public attention.
In MiFID, the word ”inducements” covers commissions and the introduction of such a ban would, in our opinion, deprive many consumers from any form of advice. Already in the preparatory phase of MiFID stakeholders strongly opposed to the use of the term ”inducement” as it implies the exercising of undue influence. Commissions as a remuneration for work should not be considered as ”inducement”. This distinction is unfortunately not made in the MiFID inducement rules.
The introduction of a ban on commissions (through the ban on inducements) would ignore the unique position an intermediary has and the added value he offers in any transaction. An intermediary can render services to both the product ”manufacturer” and the client. A prohibition to be remunerated by the product ”manufacturer” (by way of commission), would mean that it becomes impossible for the intermediary to do work for such ”manufacturer” and be paid fairly for it. It also denies the manufacturer the opportunity to outsource.
Such a ban would equally lead to a very sharp reduction in the number of financial intermediaries and their employees. We hope that such a measure will not be taken without broad and deep cost/benefit analysis and a thorough impact assessment covering all products covered by the MiFID II.
We are of the opinion that a ban on commission is in conflict with the general concept of liberal markets in a modern world. The financial and investment market and the intermediation market are highly competitive and freedom of remuneration between the parties should be considered to be a basic right of entrepreneurs and consumers in every free market around the world. The coexistence of various remuneration systems -commission or fee or a combination of both- on a transparent basis is in our view the best guarantee for competitive and dynamic markets.
The question here arises why destroy choice? Choice on the basis of clear information is clearly in the interest of the consumer and in the interest of competition. Clients, as matters stand can choose to use an intermediary or to choose for advice or not. In a system where there is choice, clients and financial institutions can choose to pay intermediaries by fee or commission or a combination of both. Why deny the market parties the right to choose for themselves on the basis of what they consider best adapted to their own situation. Also why deny the possibility for these systems to compete with another?
For ”manufacturers”, intermediaries represent a valuable distribution network for their products for which they do not have to incur the fixed costs. To lose this network would mean they lose an efficient channel to reach the clients. Especially in cross-border business, the possibility for a foreign manufacturer to enter the market via an existing distribution network is of paramount importance. It is clear that foreign financial products cannot be sold by representatives who work already solely with one product manufacturer.
In France, for example, the possibility to remunerate the intermediaries by commission has made it possible for portfolio management firms to develop. To prohibit payment by commission would be an economic and social error. Indeed, these portfolio management firms cannot rely on a large network of agencies, as banks have, to promote their products to the consumer. By remunerating ”independent” intermediaries, the services of portfolio management firms are brought to the attention of the consumers who have consequently more choice.
We believe that the payment by manufacturers of transparent commissions to intermediaries, permits the existence of a unique model that gives the necessary counter balance to the huge networks of bank branches who often sell or “advice” their own products. A ban on commission would be a discrimination of the intermediation distribution model and it surely would mean that market players are treated unequally.