Valdis Dombrovskis, vice president of the European Commission, is to launch an official investigation of long-term retail investment and pension products.
In a speech marking a year since the publication of the Capital Markets Union action plan, Dombrovskis said creating a competitive single market for European consumer finance services remained a priority. As a result, he will ask the European Supervisory Authorities (ESAs) to scrutinise the transparency of long-term retail investment and pension products, and their actual net performance and fees.
“Returns on retail investment products and pensions can be heavily influenced by the fees levied by asset managers and intermediaries – having the right data on the net performance and fees of the most commonly sold products is important,” he said.
Investment vehicle fees have increasingly come under scrutiny in recent months. European investor rights group Better Finance last week published a report suggesting high long-term savings product fees were putting retirement incomes at risk.
Guillaume Prache, the organisation’s managing director, welcomed Dombrovskis’ pledge, stating he was happy that transparency had “finally” become a priority for the European Commission.
“The ESAs should make work of the transparency of long-term and pension products and analyse their actual net performance and fees to help retail investors get a better deal – as required by Article 9 of the 2010 ESAs Regulations,” he said.
Andy Agathangelou, founding chair of the Transparency Task Force, also responded positively.
“Hidden costs adversely impact net returns, engagement, trustworthiness, market efficiency and innovation. We are keen to support [Dombrovskis’] initiative, because the consumer deserves to be treated fairly, respectfully and transparently,” he said.
“I expect once the investigation is underway they will find more and more that needs to be put under the spotlight. A highly analytical and highly forensic approach will be needed. The key questions are: Where does all the money go? Who gets it? On what basis do they get it? Is that basis in keeping with good market practice? To whom is transparency a threat and opacity an opportunity?”
In the UK today, the UK Financial Conduct Authority (FCA) has also proposed asset managers could be obliged to disclose aggregate transaction costs to pension schemes that invest in their funds. Upon request, firms would provide a detailed breakdown of charges, separated into categories of identifiable costs, which could include specific charges like taxes and securities lending fees.
The proposed rules are open for consultation until January 4 next year.
However, the suggestion that fees are not transparent is at odds with a controversial report issued in August by the UK Investment Association, stating there was no evidence that ‘hidden’ equity fund fees are negatively affecting returns earned by investors.
©2016 funds europe
