Mairead McGuinness
Mairead McGuinness, European commissioner for financial services, said Brussels would look at tightening the conditions under which inducements are permitted © EPA-EFE

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The European Commission has been accused of bowing to pressure from the financial services industry and member states after toning down its support for a full ban on inducements.

Mairead McGuinness, European commissioner for financial services, announced at the end of last month that Brussels would look “at tightening the conditions under which inducements are allowed” rather than a full ban.

Brussels had previously indicated that a full ban on payments made by product manufacturers to financial advisers could be on the cards as part of its retail investment strategy, which is expected to be published on May 24. Critics say the kickbacks incentivise the sale of poor-quality retail products and cause consumers great financial harm.

Guillaume Prache, managing director of Better Finance, an investor campaign group, said: “I think [McGuinness] has bowed to pressure not only from asset managers but the whole financial services industry and key member states.”

This article was previously published by Ignites Europe, a title owned by the FT Group.

Prache said McGuinness “found barriers on her way”, including a “very strong letter” from the German finance minister and “extremely strong opposition from fund trade associations, insurers [and] distributors”.

“I think she faced too many headwinds from industry players but also political stakeholders,” he said. “It made it too difficult for her to think she had sufficient probability to win the case, at least this time.”

McGuinness told audience members at Eurofi, a high-level summit attended by policymakers and senior financial executives, that “even if we do not propose a ban on all inducements now, it does not mean a free pass for the financial sector”.

“Those of you that are in this sector may have to rethink some of your business models and practices, so that consumers get a fairer deal,” she said.

The retail investment strategy will include a review clause that “will allow us to bring in a full inducement ban at a later stage if necessary”, added McGuinness.

Prache said he welcomed the possibility that the commission might propose a ban on inducements on execution-only sales of financial products.

But he added: “We are disappointed by the commission. One of the key objectives [of RIS] is to ensure bias-free advice.

“The way chosen by the UK and Netherlands, [where bans have been in place for years], was the most obvious way to achieve this.

“[Financial services firms] all claim they are very much for a capital markets union but when the commission tries to do more there is a lot of opposition to this.”

Prache’s comments came as Ignites Europe learnt that several asset managers met with the commission in the past few months to discuss the retail investment strategy.

BlackRock, the world’s largest asset manager, met with commission officials in Brussels in October along with Schroders, Invesco, State Street, Capital Group and public relations firm FleishmanHillard, according to the EU Transparency Register.

BlackRock’s position is that inducements are an “important aspect of many distribution models in the EU where citizens do not typically pay independent financial advisers”, said a person familiar with the situation.

“If a ban were to occur, the industry would need years to build the infrastructure and investor education to avoid any counterproductive effect such as retail clients not investing at all.”

UK-listed Schroders declined to comment. However, Schroders chief executive Peter Harrison has previously said that while a ban in the UK had been “relatively good” for the firm’s business, the “power of the banking model” was “really embedded in how Europeans save”.

US-headquartered Capital Group declined to comment. Invesco and State Street did not respond to a request for comment.

Many incumbent asset managers and distributors in the EU, which are mainly bank or insurer owned, have lobbied against a ban, arguing that an advice gap could appear.

Fears had grown among some European fund managers that a ban on inducements could enable greater distribution of exchange traded funds, which do not pay inducements, and therefore allow US fund managers to gain a greater share of the EU market.

Passive giant Vanguard had been actively lobbying for a ban, while Franklin Templeton had noted that a ban would benefit ETFs.

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Richard Bruyere, managing partner at Indefi, an asset management consultancy, said a ban would have created “disruption that works more in favour of new market entrants rather than the traditional incumbents”.

Michael O Riordan, founding partner of Blackwater Search and Advisory, says: “There are too many vested parties operating in the market to make such a ban likely, unfortunately, and by that I mean the traditional asset management space.

“Is that a disappointment to the ETF market? Yes of course, as it gives an unfair advantage to mutual funds.”

However, Carolina De Giorgi, regulatory policy adviser at Efama, the European fund association, said: “An EU-wide commission ban would effectively restrict the access of the majority of EU citizens to affordable qualified advice.”

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at

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