BETTER FINANCE: Potential Ban On Inducements Reduced To False Choice Between “Advice Gap” And “Biased Advice”

In response to warnings about an “advice gap” if inducements – or rather salescommissions – were to be banned, BETTER FINANCE stresses that there can be no “advice gap” ifthere’s no “advice”: biased advice is not really advice.

The discussion in Brussels between advocates and opponents of bias-free advice (the stated objectiveof the EC) for retail investment products is coming to a head in 2023. On the eve of 2022, in reply to aletter from the former European Parliaments’ Rapporteur on MiFID II, Commissioner McGuinnessoutlined her reasoning for a ban on sales commissions paid to retail distributors (surprisingly andmistakenly labelled as "investment advisors"), stressing that under an inducement-based model, retailinvestors will often be sold products which are more costly than other cheaper alternatives availableon the market and not be advised on the best or most suitable products.

Indeed, the current situation effectively leaves EU consumers without independent advice. BaFin (theGerman Federal Financial Supervisory Authority), for example, lists just 17 independent advisorsregistered in Germany, so real financial advice is virtually unavailable to the majority of consumersthere.1 Establishing a system of independent advice would only reduce this gap by making genuineadvice available in the first place.

It is unfortunate to see the debate around a potential ban on inducements being reduced to a falsedichotomy between an advice gap on the one hand, and biased, costly and unsuitable investmentadvice on the other.

Besides the fact that there is no evidence for an “advice gap” in those countries that implemented aban, and where retail investors now enjoy lower investment costs and better value for money2, BETTERFINANCE underlines that there can be no such thing as an “advice gap” if there is no “advice” in the firstplace, but (too often) merely product marketing and promotion.