Just a third (34%) of investment professionals based in the European Union think that inducement payments should be banned, according to research by industry body CFA Institute.
This comes as the EU is looking to ban commissions for the sale of financial products to attract more retail investors into capital markets.
The CFA Institute survey also found most respondents think a ban is unlikely to prevent mis-selling of investment products and cited concerns that the ban could negatively impact on the variety of products offered to clients.
As opposed to an outright ban, investment professionals in the EU instead favoured increasing efforts on financial literacy and investor education (59%) and mandating clear disclosure of all commission payments received by distributors before investments are made (55%) as more effective methods of preventing mis-selling.
The EU plans have come under fire as International Adviser reported that the chairman of the European Financial Planning Association (Efpa) sent a letter to the European Commission (EC) to oppose the ban of commissions for financial advisers.
‘Diverging views’
Josina Kamerling, head of regulatory outreach for CFA Institute in Emea, said: “Policymakers in the EU are actively discussing whether to restrict the practice of inducements on the sale of specific investment products. This important debate is often caught between the risks inherent in the current system for biased, costly, and unsuitable investment advice on the one hand, and on the other, the concerns about a growing advice gap as a potential consequence of an inducements ban.
“However, diverging views amongst EU member states is likely to prevent a unified approach on the issue, and is reflective of the diversity of market structures which needs to be tackled before any ban. In our view, banning inducements is not the immediate solution, but addressing a number of key market structure issues is crucial.
“There are measures that we believe regulators can take to tackle the underlying incentivisation issues behind product mis-selling without resorting to an inducements ban, which carries risks of its own.
“Our survey finds that the most important regulatory reforms needed to combat mis-selling are to mandate clearer and full disclosures of commissions and fees paid, and to introduce clear standards for product information including cost structures. Such a move would help bring the standards at play in the practice of inducements into line with what is already in place for investment performance information.”
Global opinion
The CFA research also looked at the international views on the banning of financial product commissions.
Globally, just 33% of respondents believe commission payments to financial advisers in respect of retail financial products should be banned and 45% agree that a total ban could negatively impact on the variety of products offered to clients.
Most respondents agree that the most important reform needed to combat mis-selling would be to mandate disclosure of all commission payments received by distributors before investments are made (66%).
Further, 65% of respondents globally felt that improving disclosures of product key features, including full disclosure of all product costs would be an important mandate.
Globally, 81% of respondents agree that a full disclosure requirement, with appropriate enforcement, on all commissions and fees paid could be helpful to combat the issues of mis-selling of financial products.
Increasing efforts on financial literacy and investor education also ranked highly in most markets as an important reform (46%).
