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MM leader: Dangers in banning execution-only

The European Commission has reignited old battles by calling for a clampdown on execution-only investment services.

In a consultation paper reviewing Mifid, the EC raises concerns that some investment products are too complex to be offered on an execution-only basis. It is worried the current list of non-complex investments allowed to be sold on an execution-only basis is too lenient and suggests areas of concern, including bond categorisations and certain Ucits investments with “complex investment management techniques”.

The paper suggests one option would be to scrap the execution-only regime entirely, although experts suggest a tightening of current rules is the most likely outcome.

When the Mifid rules were being drawn up, some countries called for a more draconian treatment of execution-only and the UK had to fight hard for the regime to be allowed.

Execution-only brokerages have been a huge success story and account for a considerable percentage of retail investments sold. However, advisers have often queried the breadth of investments offered on an execution-only basis as well as raising concerns that slick marketing used by some firms blurs the line between information and advice.

It is right that the definitions of non-complex investments are reassessed and pleasing to see policy formulation which starts from the position that advice is a force for the good – FSA please take note.

However, in the context of huge numbers of people failing to save adequately for their futures, there are significant dangers in taking a blunt hammer approach to execution-only.

In trying to protect the consumer, European regulators must be aware of the risks of stopping them from engaging with financial services altogether.

Alongside this debate, the industry is still grappling with the concept of simplified advice. The Treasury’s desire to create a successful simplified product regime has put simplified advice back on the agenda after the FSA and industry appeared to have reached an impasse over the idea.

A successful simplified advice service must be about meeting the needs of consumers unable to pay for fully regulated advice and not about the banks flogging high volumes of products through pressurised sales.

We suggest that simplified advice is most likely to work through IFA firms offering layered advice solutions rather than banks looking for a quick profit.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. There are no dangers in banning Execution Only. Everything is far too complicated for most investors.

    The only way forward is to require everyone to take expensive fee based advice from Q level 6 advisers. RDR is a good start. Remove choice and increase cost. How can the evil of EO be allowed to continue ?

    Banning execution only should only be seen as a start. Eventually everyone would have to take advice and get permission before using their credit cards or signed a cheque – just in case they mis-bought a tin of baked beans or booked an inappropriate holiday

    Then we could move on to banning political parties. People tend to find thinking difficult at the best of times and get confused by the political parties. Far better to remove choice and do what is best for them !!!!!

  2. @John Blackmore

    Absolute twaddle!! There is a huge community of day traders, willing share gamblers and hobby investors out there who would come near an adviser if you paid them….

    Oh..sorry..I get it..tongue in cheek??

  3. The vast majority of people are perfectly capable of buying suitable financial products for themselves, without visiting a financial salesman.

    It seems to me the financial sales industry recognises this, doesn’t like it, and is trying to have people forced to only buy products via a salesman.

    Execution only is a god send for Joe public.

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