A commission ban would represent far more than just “tinkering” and thus I don’t see that necessarily occurring in the next wave of EU regulatory adjustments. Therefore, MiFID 3 and IDD 2 (or whatever this tinkering is called) are unlikely, I believe, to represent further wholesale change.
In the longer term, my crystal ball is far cloudier. One of the major initiatives of the present round of regulatory upheaval is significantly increased transparency – predominantly as an attempt to result in greater advisory objectivity and the removal (or at least the reduction) of remuneration (commission) bias. In the UK this transparency first took place in the mid-1990s, with full commission disclosure. Although there is little evidence that commission or product bias existed after those changes it did not stop the regulator, the FSA at that time, from deciding that bias still existed and thus the only way to combat it was to remove commissions entirely – in its opinion.
Who knows what regulators think?
In other words, if a regulator decides that the present system is not working – whatever that system is – it may well change it; irrespective of whether it can back that up with hard and undeniable evidence. Hence my cloudy crystal ball….
I feel that a lot of European NCAs are not disposed towards commission bans at this time and many of them are also very keen to see how things play out in countries such as the UK and the Netherlands. I thus think that commission is with us for a few years at least, but beyond that……?
What now for business models?
For me the most important question is not really one about commission or fees, it is about the business practices, models and strategy of advisory firms going forwards. Transparency in itself is a “game-changer” – with or without a commission ban. It involves a need to “justify” any remuneration received and thus to show the added value of advice to the prospective client. If you can’t do that it doesn’t really matter whether you are supposed to be paid by the product provider or directly by the client, because you probably won’t transact any business and therefore won’t be paid by anyone!
