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.