European Investors is a firm opponent of inducements. Inducements are payments that advisors and portfolio managers receive from third parties, often product manufacturers. Such inducements provide strong incentives for mis-selling. The adviser should recommend the investment product that best fits the retail investor’s needs, not the product for which he get paid most by the manufacturer.
European Investors believes inducements should be banned. As long as inducements are permitted, there should be full disclosure to the client on the inducements that are or will be received.
As of 3 January 2018 (to be confirmed), firms providing independent advice and portfolio management will be forbidden to accept and retain inducements they receive from third parties. Firms providing non-independent advice will not be obliged to do so, provided that the inducements they receive enhance the quality of the service provided to their clients (the so-called quality enhancement test).
This new regime is a step in the right direction, but falls short of a total ban on inducements. The European Commission is currently drafting the details of the new rules on inducements. European Investors strongly urges the Commission to uphold ESMA’s Technical Advice on this matter.