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European regulator warns on quality of advice and products

Investors face a number of problems that “cannot be solved by transparency”, according to Steven Maijoor, the chairman of the European Securities & Markets Authority.

Speaking at a joint European Parliament and European Commission event on financial advice in Brussels yesterday, the European regulator’s chairman says investors face a number of issues such as lack of quality financial advice, unsuitable products and inducements.

He says: “Unsuitable investment advice is provided, for example, because the extent and the nature of information gathered about a client’s profile – on financial needs and background – varies between intermediaries.”

Maijoor says inducements to advisers, bias to a limited range of products and “prejudicial remuneration practices” are also problems.

The Esma chairman says unsuitable products are also on offer with high investment risk, “coupled with inherent complexity, opacity or insufficient information”.

He says: “This can be compounded by a lack of compliance with selling practices requirements when selling complex products.”

Maijoor adds: “We know now that too much information can confuse clients, especially unsophisticated retail clients, and can lead to them making bad choices or wrong decisions.

“I must admit here that I am trained as an economist and always have been taught that the combination of rational decision making by consumers, full transparency, and competition among suppliers solve many problems in markets.

“However, experience has now sufficiently shown that this market mechanism does not work effectively in financial markets and that regulation and supervision is needed to get the right outcomes and to protect financial consumers.”

Maijoor says the regulator will be looking at guidelines for remuneration practices and will establish a Financial Innovation Standing Committee to identify risks in financial innovation.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. I really wonder whos out there advising clients that Miajoor has spoken to. They can’t have been advised by a UK IFA

  2. What would the Chairman of the ESMA know about the purchasing public, does he play golf with a financial adviser?

  3. why isn’it possible that 1 super partes “authorithy” establishes 1 only risk profiler (the same everywhere in Europe or, at least ,in the same country) and , based on the same answers , the result of profiling must be the same everywhere ?
    any intermediaries are free to have their own risk profile and , often , in front of similar questions and answers, profiles are different …this situation does not help consumers and improve confusion, isn’t it??

  4. The Chairman of ESMA might have met some people while being a professor in Maastricht and Amsterdam or while being in charge of the Dutch regulator.
    This is a European statement and the similarity of this to recent speeches (remember the “rational investor”) and the similarity to RDR language should probably persuade people to believe that change isn’t just about the FSA in the UK – it’s going global – you just saw it here first.

  5. “One world government coming soon Gillian” You heard it here first.

  6. A journalist once told me that there were very significant problems in the financial market – you should see the pile of letters we get in every day.
    In other words his perception of the financial market is strongly influenced by his post, which, I would estimated at 99% negative. What he apparently never asked himself is whether the amount of post he receives is significant relative to the total market. Many are likely to react if they are treated badly, but how often do you get a letter to say”well done”. Of course the journalist would probably not keep his job if he were to write only nice things, so there is an incentive to believe the whole world is evil.
    And so it is with Regulators. More and bigger regulatory bodies means bigger salaries and more prestige.
    But no one is willing to determine whether poor advice, unsuitable products, and inducements are in fact a material problem. That they exist in beyond dispute. That regulation can materially reduce the incidence of those factors is totally unproven. Indeed there is a strong argument to say that there has been an increase in misdemeanours in direct correlation to the increase in regulation. Of course, this may be co-incidental rather than causal – but it is noticeable that no-one wants to investigate the proposition.
    In a time of high unemployment it makes far better sense for the employed to create ever more committees to ensure that their cronies are never short of a pay packet or two. So expect a few more Committees to investigate a few more “bees-in-the-bonnet” ideas.

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