Austria joins in opposition towards the EU ban on commissions

One of the major conflicts in the financial sector in the coming months will concern inducements, i.e. compensations, commissions or non-monetary benefits paid or received by intermediaries as a result of the provision of an investment service, as for example in the case of retrocessions.

Following Germany’s footsteps, Austria has now also declared its opposition to this ban proposed by the European Commission, even though the latter continues to stand by its proposal. Austrian Finance Minister Brunner wrote to McGuinness, the EU Financial Services Commissioner, pointing out that “a ban would carry the risk of retail investors no longer being able to afford additional services that improve the quality of advice delivered. Any improvements ought to carefully consider the impact on the availability and quality of advisory services and the distribution of insurance products. We need to ensure that any changes made produce desirable outcomes.” Previously, German Finance Minister Lindner expressed his “great concern” about such a ban that he believes would majorly impact his country’s insurance system. Even the trade associations of banks, insurance companies and investment funds have criticised the possible suspension of these incentives.

McGuinness is nonetheless determined to go ahead. “Incentives can lead to conflicts of interest with adverse effects on the quality of investment advice, “ she remarked on the 24th January at an EU Parliamentary hearing. “Retail investors are often advised to buy more expensive products or products that are not always best suited to their needs. Low-cost products, such as Exchange Traded Funds, are seldom recommended. This has an impact on the net returns that consumers can anticipate”. 

According to Brussels, products that involve incentive payments are on average “35% more expensive for retail investors” than other products, in spite of safeguards provided by MIFID and the EU directives against conflicts of interest. Thus the provision, according to the EU executive’s intentions, would cut the cost of financial products for end consumers by a third, as well as foster market development and growth.

The proposal was presented as part of the “Retail Investment Strategy” and is expected to be launched over the course of April.