Two pieces of European legislation relating to sales practices – specifically “inducements” for financial advisers (or trail commissions) and their disclosure – are heading in different directions.
Known as the Markets in Financial Instruments Directive and the Insurance Mediation Directive, they respectively deal with marketing of banking products and funds, and of insurance products.
The European Commission set out with the excellent intention to ensure that all forms of packaged retail investment products, sold throughout Europe, are subject to common rules on marketing and disclosure. But this idea has been split between three pieces of legislation – the revised Mifid II and IMD II, and a new Key Information Document Regulation.
Sadly, our fears that the rules would diverge and come into effect over different timeframes were well-founded.
In particular, the variations between the rules in Mifid II and IMD II on inducements are getting ever wider.
The latest Mifid II text retains the proposal to ban inducements, but only where paid to independent financial advisers. Apparently, it is acceptable for non-independent advisers (for example, staff of banks) to continue to be “induced” to sell certain products.
But under IMD II, Werner Langen – the MEP leading on the draft legislation in the European Parliament – has suggested that the provisions relating to a ban on inducements for IFAs and better disclosures for others advising on insurance products should be deleted altogether.
His argument appears to be that advisers focused on insurance products are SMEs. So are most IFAs, I hear you retort. Please, shout a bit louder so that Herr Langen can hear you.
The two sets of rules are addressing different areas but, whether involving bans or clearer disclosures, should they really be differentiating between types of distributor or types of product? Not unless you want to create further distortions in the retail advice market.
To be effective, there has to be a link between the relevant provisions in Mifid II and IMD II so that the rules relating to marketing are common for all Prips, just as the regulations for disclosure will be on successful completion of the KID negotiations.
The IMA suggestion to ensure better alignment between the two pieces of legislation was to replace the text in the IMD by direct references to the Mifid provisions on inducements. But given the timetables are so out-of-sync, we support alternative options being put forward: to bring insurance Prips into the scope of Mifid II; or to amend IMD II via Mifid II.
The lawyers can battle that one out. But in the interests of retail investors, here’s hoping that sense prevails and the fundamental and worthy objective of the Prips initiative – to have common marketing and disclosure rules – is not lost. If not, it will not be a case of “wrong trousers” so much as ones with different legs.
Julie Patterson is director of regulatory affairs for retail and investment funds at the Investment Management Association