European regulators eventually “stood back from the brink” and within the agreed text of both MiFID 2 and the Insurance Distribution Directive (IDD) fell short of a complete commission ban – a ban that many thought might well happen as little as 12 months ago!
Of course, MiFID 2 does ban commissions (and any third party remuneration) for independent advisers but, quite significantly for most intermediaries across Europe, not for “non-independents”. And the IDD (which is effectively IMD 2) has drawn back from any commission ban at all.
It is also true that, under either Directive, the NCAs (National Competent Authorities – national regulators to you and I) can “gold plate” the terms; in other words the commission bans in countries such as the UK and the Netherlands can remain, but much of mainland Europe seems unlikely to do this, at least at this time.
So, what is the likely future of commission payments?
The fact that full commission bans did not materialise within the two Directives highlighted above is, to a certain degree, due to the lobbying activity of various trade bodies such as AILO and FEIFA, but is also because the industries in general in some of the major European markets were seriously opposed to such an approach; Germany, France and Italy in particular show no real appetite for removing commission payments at this stage.
I think it is very important to realise that the financial services industries and, in particular, the advisory and/or intermediary sectors, are very different in each EU country – and are also at quite varied points in their respective development cycles.
In other words, one size definitely does not fit all at this juncture. A commission ban – along with the significantly increased regulatory burden that these new or revised Directives will create – could simply have been too much for some of these sectors to cope with; and no politician wants to see mass unemployment created in our industry, not least at this fragile time as economies continue to try and climb out of the global crash of 2008 and beyond.
The advisory sector in the UK is arguably relatively robust and significant, and the industry is very mature compared to many other European countries – and yet even there a commission ban has had a substantial effect on adviser numbers. Many other countries could simply not have withstood that regulatory tsunami.
Against that backdrop, what does the future hold for remuneration models within our industry?
MiFID 2 and the IDD, along with PRIIPS and other countless Directives and increased regulations in general, represent the most widespread and extensive changes to financial regulatory frameworks and requirements ever seen within the EU. Given that fact, and although I accept that this is not the end of regulatory developments across Europe, I feel that the next wave of change will most likely be “tinkering” at most – basically adapting and amending MiFID 2 and the IDD once it is clear which aspects are not having quite the desired outcome.
