The Swedish Investment Fund Association, Fondbolagens förening, has sharply criticised proposals put forward by the country’s financial supervisory authority, Finansinspektionen (FI), to ban commission based sales of financial products.
FI’s report into the matter published earlier this month (http://www.fi.se/upload/43_Utredningar/20_Rapporter/2016/ett-nodvandigt-steg-sparandemarknad.pdf) came with a stark conclusion.
“When consumers cannot judge either quality or price of a service or product they cannot affect the range on the market. In contrast to how a well functioning market works, this means expensive and poor products are not elminated, but can continue to be sold at good margins. FI therefore deems that there is a market failure in the savings market. Instead of helping consumers to select from the wide range of savings products, today’s advice strengthens consumers’ information disadvantage by being steered by the size of remuneration from producers instead of the needs of customers. To deal with this requires a broad ban against commission.”
However, the Association has responded by noting that it feels the analysis offered by FI in support of its conclusion is severely lacking on a number of points, and therefore does not provide a suitable, final answer to the debate ongoing about the role of commission payments and their continued suitability in regards to broader regulatory changes ongoing across the EU.
The Association picks out six key points in its rebuttal note, based in part on the noted fact that it did not have the ability to enter into dialogue with FI before publication of its report. These key points include:
- It does agree with FI about the need for properly functioning market where consumers can trust the financial services and products on offer
- It shares FI’s objective of achieving similar protection rules between different products and channels
- However, it says that FI’s analysis is based on the existing regulatory regime, and that it is not possible to distinguish the analysis of outcomes that may flow from greater consumer protection inherent in Mifid II versus the outcomes that could flow from the proposals to ban commission
- FI does not say in what way the Swedish market differentiates itself from the rest of the EU to the degree required to support a decision to bank commision
- FI’s view is not reflected in its own supervision; the Assoication notes that the supervisory authority has not taken steps against those that its own report has idendified as causing problems in the market, which in turn created uncertainty about on what basis FI judges when it should or should not take action, or if failures are due to market failures or are something that could be addressed through the supervisory work
- The FI report outlines an uneven selection of reports and research results, and is missing an in-the-round view of business models and outlooks for actors in the industry; and the conclusions are hard to follow and are built on a chain of assumptions that do not appear to be well founded, creating an unneccessary mistrust towards the analysis, hampering any collaboration or proactive self-regulation
The criticism about a lack of analysis of how Mifid II proposals may impact the market in order to compare outcomes against the proposed commission ban compares poorly with Denmark, the Association suggests, because in that neighbouring country there has been a very different approach to the inquiry into the effects of regulatory changes.
And further in terms of comparing outcomes with other countries where commission bans have been implemented, such as Australia, the UK and the Netherlands, the Association says that the majority of EU jurisdictions have decided that Mifid II rules provide sufficient consumer protection.
“It is worth noting that the commission bans in the UK and the Netherlands encompass all sales of funds. This means that experiences from these countries need to be translated to the proposals for a commission ban [at the point of advice] that is being put forward by FI. The report does not analyse these differences,” the Association notes in its reponse.
And it adds that FI has not made clear how independent financial advisers would fare if its suggestions were implemented.
“FI argues for independent advice, and there are many advantages with such a function in the market. An all-encompassing commission ban is intended to encourage growth of new actors. The analysis is, however, thin regarding the conditions under which these actors can grow. Apart from difficulties of value added tax, which can possibly be managed but which today creates an additional cost, there is a number of barriers that need to be overcome before an independent advice market can emerge and an alternative to today’s market be achieved. FI speaks about drivers, but finds it hard to show how the growth is expected to take place and how these actors will manage competition from product manufacturers’ own sales people.”
“The big risk is that the effects will not at all be as FI hopes, but that we go back 30 years in time to product providers with own sales people and a system of tied agents.”
The Association’s response, attributed to its CEO Fredrik Nordström, covers a number of other, including technical, points. Its response has been sent to the Swedish Ministry of Finance, the Financial Markets division of the Ministry, and the Analysis Section of the Swedish Consumer Agency, which is the government agency responsible for safeguarding consumer interests.