Bringing you live news and features since 2006 

CFA survey finds European investment professionals believe banning inducements unlikely to prevent mis-selling


As the European Union considers a ban on inducement payments, a new survey released by CFA Institute, the global association of investment professionals, finds that a majority of investment professionals think a ban is unlikely to prevent mis-selling of investment products.

The survey, CFA Institute Global Survey on Inducements, which garnered responses from more than 1,000 investment professionals worldwide, sought to examine views concerning possible regulations to restrict the practice of inducement payments on the sale of certain investment products.

Just a third (34 per cent) of investment professionals surveyed in the EU think that inducement payments should be banned, with respondents citing concerns that this could negatively impact on the variety of products offered to clients. This compares to almost half (48 per cent) of respondents in the UK, where inducements are already banned.

As opposed to an outright ban, investment professionals in the EU instead favoured increasing efforts on financial literacy and investor education (59 per cent) and mandating clear disclosure of all commission payments received by distributors before investments are made (55 per cent) as more effective methods of preventing mis-selling.

Josina Kamerling, Head of Regulatory Outreach for CFA Institute in EMEA, says: “Policymakers in the EU are actively discussing whether to restrict the practice of inducements on the sale of specific investment products. This important debate is often caught between the risks inherent in the current system for biased, costly, and unsuitable investment advice on the one hand, and on the other, the concerns about a growing advice gap as a potential consequence of an inducements ban. However, diverging views amongst EU member states is likely to prevent a unified approach on the issue, and is reflective of the diversity of market structures which needs to be tackled before any ban. In our view, banning inducements is not the immediate solution, but addressing a number of key market structure issues is crucial.”

“There are measures that we believe regulators can take to tackle the underlying incentivisation issues behind product mis-selling without resorting to an inducements ban, which carries risks of its own. Our survey finds that the most important regulatory reforms needed to combat mis-selling are to mandate clearer and full disclosures of commissions and fees paid, and to introduce clear standards for product information including cost structures. Such a move would help bring the standards at play in the practice of inducements into line with what is already in place for investment performance information.”

Other key findings from the survey include:

·         Globally, just 33 per cent of respondents believe commission payments to financial advisers in respect of retail financial products should be banned and 45 per cent agree that a total ban could negatively impact on the variety of products offered to clients.

·         Most respondents (65 per cent) consider remuneration structures currently in place at distributors to be the main cause of mis-selling practices. This figure rises to 67 per cent within the EU, and 73 per cent in the UK.

·         Most respondents agree that the most important reform needed to combat mis-selling would be to mandate disclosure of all commission payments received by distributors before investments are made (66 per cent). This was felt most keenly in the UK, with 78 per cent of respondents in favour. Further, 65 per cent of respondents globally felt that improving disclosures of product key features, including full disclosure of all product costs would be an important mandate (UK 68 per cent).

·         Globally, 81 per cent of respondents agree that a full disclosure requirement (with appropriate enforcement) on all commissions and fees paid could be helpful to combat the issues of mis-selling of financial products.

·         Increasing efforts on financial literacy and investor education also ranked highly in most markets as an important reform (46 per cent). (EU 59 per cent, UK 55 per cent)

·         Globally, 45 per cent of respondents believe product choice for customers would likely diminish if inducements are banned, with distributors no longer offering some products, such as those from third parties.

·         Globally, 30 per cent of respondents felt that an inducements ban may result in retail investors steering away from advisers and advice channels in favour of self-directed, execution-only, or retail brokerage investment platforms. (EU 33 per cent, UK 36 per cent)

·         Most respondents (71 per cent) agree that strengthening investor education before any regulatory moves associated with mis-selling is necessary for any new regulation to be a success.

Latest News

ETP provider GraniteShares has announced it has surpassed USD5 billion in assets under management (AUM), reaching USD5.199 billion...
News came last night from the US that the SEC has approved CBOE’s proposal to list and trade VanEck’s spot..
Irish domiciled funds surpassed EUR4.3 trillion AuM (Assets under Management) at end-March 2024, a 15 per cent increase in net..
European white label ETF platform, HANetf, has announced its total assets under management (AUM) has now exceeded USD4.31 billion...

Related Articles

Timothy Rotolo, Range Funds
In 2023, Timothy Rotolo launched his business, Range Fund Holdings, the parent company for Range Indices and Range ETFs, followed...
Dan Miller, IQ-EQ
With just over a week to go till T+1 settlement begins in North America, Canada and Mexico, time is of...
Emily Spurling, Nasdaq
Last October’s ETF Express US Awards 2023 found Nasdaq winning Best Index Provider – ESG ETFs and Best Index Provider...
Vinit Srivistava, MerQube
Index provider, MerQube, launched in 2019, with the aim of providing a “technology-driven answer to the most complex, rules-based investment...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by