Anatocistic compound interests, usury, unfair bothersome clauses, antitrust guarantees, forced non-transparent securitization, and unilateral changes to contracts; are just some of the negative events that have influenced the relationship between banks and their depositors or borrowers in recent years. Even financial intermediaries dedicated to asset management have often generated problems of fairness. I do not intend to refer here to return problems that are part of the risks.
All these are attitudes that identify aspects of a crime punishable by law. This is not the case when, on the other hand, the lack of transparency affects the reputation of intermediaries and is not identified by the rules in force but only by lack of transparency and abuse of the bargaining power of intermediaries. Lately, attention has also shifted to the payment and remuneration system for the distribution of financial instruments and services. A proposal by the EU Commission suggests, without shared consent, to abolish the retrocessions of operators to distributors – as is largely the case, as far as now, in the absence of diffused untied advice – thus transparently distinguishing the distributor’s fee from the asset managers’ remuneration.
It will not be easy to harmonize the playing field, also considering the presence of competitors in the Anglo-Saxon world who have long been oriented towards more rooted solutions. For this reason, the UE choice cannot be only internal, impacting on several tens of trillions of Euro or other currencies. Moreover, among the 15 main asset management manufacturers, 11 originate in the USA, the first European is Swiss and only 3 are internal to the EU – two French and one German. The world of distribution is still conditioned by that of producers, but the latter cannot underestimate the power of the savings supply generated in EU countries. Asset management players produce research, portfolio management, risk management and investment guidance. None of the 12 main non-EU citizens has their own network in the EU but manages agreements with banks and distribution companies or proposes their choices to the attention of brokers.
Turning to the specific issue of total costs (ISC), the statistical comparisons confirm higher costs when resulting from production costs spread over low volumes and remuneration for distribution that combine the initial acquisition and maintenance of the portfolio, mostly also linked to the relative operating result. Instead, we examine the problem from the point of view of the customer, the end user of the production chain examined. The commission enhances the commercial moment weighing about 2/3 of the total, while the fee remunerates advice, assistance and the remaining services. Then there is the crucial distinguishing element: the commission is top-down, from the producer to the network, while the fee is bottom-up, from the customer to the network. Elements are clear but not so well perceived by the end user, who seems to pay for the product, the cost of which includes the retrocession hidden from the distributor.
MiFID II has tried to separate in the reporting phase the two factors, but after five years, it must be recognized that it is difficult to be applied and understand for the client. It is useful to add that several non-convergent sources question possible savings with the new system or the opposite effect, having to pay the advice and then the commission at a separate time of purchase of the product.
From a behavioural point of view of the customer, we must also consider the reluctance towards the duplication of the moment of manifestation of costs, even in the face of the low average financial education of the customer. On the other hand, many purchases in our lives do not allow us to distinguish the cost of the product, that of distribution and that of assistance. In the most modern realities, the digital ones, often the product is free or low-cost and the necessary or mandatory service is instead more expensive, the opposite of what is perceived in the case of savings.
Customers ask for a transparent, upstream standard that distinguishes the facets that enhance the potential of the sector not yet expressed because unknown. Of course, each customer can improve his knowledge on his own.
Article edited by
Professor Giuseppe G. Santorsola