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Europe looks to clampdown on execution-only

The European Commission has proposed to tighten up Mifid rules surrounding execution-only services and has put forward the option of banning execution-only altogether.

In a recent consultation paper reviewing Mifid, the EC notes that Mifid rules permit execution-only services where they involve ‘non-complex financial instruments’.

The paper argues there is uncertainty over what constitutes a non-complex product. As a result the commission has put forward two alternatives.

The first is a tightening up of the definition of what products would be classified as non-complex, such as shares that embed a derivative, and how instruments such as bonds are categorised.

Under the new terms execution-only services would also be prevented where investors are taking out credit or a loan to finance the investment.

Within the improved definition there is also a proposal that could exclude some Ucits from being offered through execution-only services if they are subject to complex portfolio management techniques.

The second option would be to ban execution-only services altogether.

The EC says: “In support of this option it may be argued that retail clients – who are essentially concerned by the provision of execution only – should always expect a higher standard of service from intermediaries, including online brokerage which is the typical channel for this kind of services.”

Zurich UK Life principal of government and industry affairs Matthew Connell says there is a split among EU member states about whether execution-only services are beneficial or not.

He says: “It feels to me like the commission’s favoured option, and the one it has put most thought into, is the first option.

“It is almost like the commission is saying to would-be respondents ‘if you don’t want to meet us halfway and help us redefine non-complex products then we can ripple up some support for a ban from some member states’.”

Cicero Consulting associate Tim Gieles says: “In my view a complete ban would imply that retail investors that have done their homework properly, who know everything about the product they are investing in and who therefore do not need advice, have to bear unwanted extra costs as they will need to pay for the intermediary’s advice once execution-only is no longer available.”

The consultation closes on February 2, 2011.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. As reported here, the issues about which the commission is concerned do seem mostly to be valid. However much we might like to pretend otherwise, EO is often used merely to sidestep normal regulatory procedures and their associated costs.

    Then again, we’re supposed to live in a free society (though sadly this seems to be a notion under ever-increasing threat). So, if someone wishes to invest without any sort of regulatory protection just to save a few quid on advisory costs (which, in any event, are ever more negotiable these days), then Caveat Emptor.

    If, on the other hand, intermediaries are encouraging EO for inappropriate reasons, then that should be addressed.

  2. Dennis Burling ACII APFS, Chartered Financial Plan 8th January 2011 at 10:46 am

    Well..words almost escape me..

    So the EU now thinks that we are unable now to make any decisions on our own and must have our hand held at all times for anything !

    My concern is where this likely to lead – are people now to be forced to give up their free will and own right to make their own decisions? Are Professional advisers now to be prevented from doing their own business on their own behalf without going through someone else? How long will it be before no-one can do anything without asking first – the state is starting to take over our lives and if we want to keep our free will this type of blanket legislation must be resisted at all costs or we will all loose our free will !
    I am all for giving people good advice but things are now being taken to extreme levels by people who are just not considering the future of society as a whole. I fear that all that will come of this is that even more good profitable businesses will go to the wall – how is this likely to benefit anyone, other than to create jobs even more work and jobs for the regulators until there is no-one left to regulate!

  3. I choose to receive the sales literature from a number of these execution only / no advice firms and it is quite honestly tosh to say they dont seek to influence the views of clients, equivalent in my eyes to giving advice. One thing for certain, it is most certainly selling and these companies play the game very successfully, they should be made more accountable to protect the clients who dont know the complexity that is modern financial services in both disclosure of remuneration, sales literature and investor protection.

  4. It’s time we told the EU to get stuffed as far as finacial services are concerned.

    Before all this nonsense started the UK was streets ahead of the rest of the EU in financial services. Look at us now!

    My SIPP’s Stockbroker only provides execution only. I have no problem with that and why should the EU tell me I can’t have it?

  5. The more sophisticated and complex that society becomes the more simplistic the ruling moral minority become in protecting fools and their money. And the consequence is a dramatic increase in costs, a reduction in choice, lack of competition (because most providers will back away from offering products to the private investor), and increasing fear of dealing in respect of marginal products. The unintended consequences rule is rampant in finance, and the only beneficiary appears to be the Regulator.
    I am curious as to the expertise of the membership of some of these committees, other than being staffed by people who are expert at being on committees. Do they have any real feel for the topics upon they are happy to pronounce?
    And why does finance attract such moral rightists? idiots can buy powerful cars and kill people with virtual impunity; people can sail on the open sea or walk in the countryside and put the lives of rescuers at risk without any of this endless cant.
    No system can perform “ the impossible task of protecting fools from their own folly” :Professor Gower. But what it can do is keep a lot of regulators in well paid jobs.
    Alongside this proposal should be a clear statement of cost and benefit – provided by a independent third party (we are already aware of the manipulation of figures by the FSA). There may be a need, but first prove it, do not assume it.

  6. At long last I say

    The Banks and Building Societies have been operating on linited advice and execution only for years and now it the european union that looks to help us IFA’s.

    It a pitty the FSA did not do this 10 years ago !!!!

  7. If execution only is removed as a business model option and RDR is introduced then presumably the majority of the population of Europe will have to pay for proper financial advice or not get any…so who will now pay for those that don’t and end up creating even greater dependence upon the State/States?

  8. when it comes to investments ( OEICs & ISA) I think it would make more sense to ban Advice.

    It is true that there are Advisers who add value but in overall investors would do better to deal direct on an EO basis.

    Or perhaps we could simply let the public choose ? Those who want advice could be allowed to pay for it. Those who want to go direct could be allowed to as well.

    What is it about the modern world where everyone is so concerned to stop others doing what they want – meddling in the affairs of others.

  9. Is the answer to ban execution only unless the consumer has attained a prescribed level of qualifications such as those expected under the RDR?

    The CII could make a mint out of that.

  10. Richard Brown, Managing Director, Moneynotion Limi 12th January 2011 at 10:07 am

    So if I go to a product provider direct and say I want product “x” I can’t have it, unless I can prove I have taken “appropriate” advice?

    The looneys are running the bin!

  11. reading some of these response I see that there are a lot of IFA out there that do product sales under EO. THAT IS A BIG WORRY AND SHOWS HOW LAZY THEY ARE!!

    If this idea was to come in then just think how important IFA’s would become. Do not understand some of the people on this site sometime

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