The EU's investment services directive threatens to block execution-only business, claims the Investment Management Association in its response to the current round of consultation on the directive.
In a letter to the EU's internal market directorate general, the trade body says compelling fund managers to query a potential investor's financial situation before undertaking a transaction jeopardises execution-only business.
But the IMA has welcomed proposals to broaden the scope of what constitutes investment advice beyond exclusively fee-remunerated advisers. It believes any lack of consumer understanding can be tackled through enhanced disclosure and conduct of business rules.
Although this response does not attack the FSA's defined-payment system proposals directly, it is as close as the trade body has come to criticising the regulator's plans.
While conceding that the proposed text of the directive says the nature of services must be taken into account, the IMA believes that a distinction between execution-only and other types of business must be made.
Its letter points out that around 20 per cent of funds and 25 per cent of Isas are currently sold on an execution-only basis and the effect of the proposed action would be “to put an end to a market development which is responding to consumer demand”.
The IMA says fund supermarkets are increasingly becoming an important part of distribution and warns that the directive damages them.
Deputy chief executive Sheila Nicoll says: “The Commission must resist the temptation to over-regulate and stifle competition where markets work well and where they provide choice both for retail and institutional investors. Retail investors need to be given the choice of dealing without advice and its attendant costs. Institutional investors should be free to deal where they can get the best deal for customers.”