investment advice

The debate on commission-based investment advice has flared up again in Brussels. EU Financial Markets Commissioner Mairead McGuinness complains that this leads to small investors being sold expensive financial products. Now she is planning reforms and does not rule out a Europe-wide ban on commissions. The BVI supports the coexistence of commission-based and fee-based advisory services.

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Discussions about a commission ban in investment advisory services have flared up time and time again. At the end of 2022, EU Financial Markets Commissioner Mairead McGuinness again put commission-based investment advice under the spotlight. She complains that commission-based advice often leads to retail investors being sold expensive or unsuitable products. And the disclosure of costs for financial products regulated in MiFID II has not led to a shift from commission-based to fee-based advice. She wants to present proposals at the beginning of April 2023 within the framework of the announced retail investment strategy.

The BVI considers a ban on commissions to be wrong and is committed to keeping the freedom of choice between commission-based and fee-based advice. Especially for small investors, commission-based advice has clear advantages: Those who invest a lot pay a lot, and those who invest little pay little. In addition, if savers do not buy anything the advice remains free of charge. Already now consumers can freely choose between commission-based and fee-based advice. Nevertheless, according to a survey by the market research company Kantar, only 16 percent of Germans could consider paying a separate fee for advice. A commission ban would therefore lead to a major lack of advice. Many consumers would end up taking less advice or no advice at all. This would have the consequence that - contrary to the declared goal of EU legislators - they would turn away from the financial markets and no longer buy financial products or buy products without advice - with a correspondingly higher risk.

This is also shown by a look at the UK, where a commission ban has been in place for ten years. There, broad sections of the public are now cut off from advice. The British financial supervisory authority FCA has determined that the advisory market is geared towards fortunes of at least higher five-digit pound amounts. Above all, savers with small or medium investment amounts can no longer afford advice, or just don’t want it. The situation is similar in the Netherlands. Here, commissions are also prohibited, but the need for private provision and thus investment advice is much lower due to the strong occupational pension provision. Traditional investment advice is found almost exclusively in private banking and often requires assets of at least EUR 500,000, as a KPMG study shows.

Moreover, a commission ban would not only have a negative impact on consumers. Commissions are an important source of income for credit institutions and thus contribute to financial stability. This is because commission income reacts to different shocks than interest income and thus supports a stable earnings situation for banks, which is a continuing requirement of banking supervision.

Furthermore, a commission ban would have consequences for the implementation of the "Green Deal". The fund industry plays a key role on the path to greater sustainability. Actively managed funds, which are primarily sold through commission-based advisory services, are particularly important in this respect. Only active fund managers are in a position to avoid stocks and bonds from those companies that do not comply with ESG standards.

Finally, a commission ban limited to the distribution of securities, as is currently being discussed, is unacceptable. It would harm consumers by distorting competition between securities and insurance. Funds would probably be increasingly repacked and disguised as insurance products, again with additional costs for investors.

More on this topic

Disclosure, inducements, and suitability rules for retail investors study

Study EU Commission7/2022

© smolaw11 /

An analysis of non-traditional activities at German savings banks – Does the type of fee and commission income matter?

Deutsche Bundesbank: Discussion Paper No 01/2018

© / Agatha_Kadar

BVI's position from a-z

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