July 3, 2012 8:37 pm

EU proposes new financial advice rules

Investment companies have repeatedly sold consumers financial products they do not properly understand, Brussels policy makers warned as they set out fresh standards for the industry.

Savers have been put at risk of “devastating” losses, the EU said as it laid down reform proposals taking in information disclosure, advice provision and even fund manager pay.


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But big chunks of the legislative package ran into immediate opposition from the investments and life insurance industries, which warned additional costs resulting from compliance with the proposed rules could put consumers off long-term savings altogether.

Under plans to “raise standards for advice”, the commission pledged to shake up rules on “risks of conflict of interest, including disclosure of the remuneration received by sellers of insurance products”.

Insurance product sales would have to be accompanied by “honest, professional advice”, it said.

Maggie Craig, director of financial conduct regulation at the Association of British Insurers, said: “Consumers should be free to decide whether or not they require financial advice.”

Requiring consumers to purchase advice when buying insurance “will restrict their access to financial investments and their ability to make their own investment decisions, and will have a negative impact on long-term savings,” she said.

“While the ABI is supportive of disclosure, there is no evidence of existing consumer detriment, and minimal future benefit, to warrant disclosure of commission on general insurance products.”

Under a separate plan, every bank, insurer and investment company would be required to provide a “plain-speaking” document to consumers that explains the risks and costs associated with the product they are being sold.

The “Key Information Document” would need to “make clear to every consumer whether or not they could lose money with a certain product and how complex the product is”.

One European investments lobbyist, who declined to be named, said that the proposal could cost each large company a “seven figure” sum because of the additional investment required to produce the customised data.

Steven Cameron, head of regulatory strategy at life insurer and pensions provider Aegon UK, pointed to exemptions for so-called auto-enrolled pensions. “To me what we should be trying for is to be more consistent in how we educate and inform the population on pensions ... These proposals go against that aim.”

Under separate plans also announced on Tuesday, managers of retail investment funds could face tougher pay rules. The Commission said “the way they are remunerated should not encourage excessive risk-taking”.

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