KPMG study on distribution models for retail investors

At the time being, the European directive on markets in financial instruments, known as “MiFID II”, provides a comprehensive and interconnected set of rules aiming at protecting the clients, especially retail clients, when investing in financial instruments. According to these rules, the inducements paid by the manufacturer of the financial instruments to the distributors are admitted under several conditions (the “Commission-based model”).

In accordance with Action 8 of its Action Plan on Capital Markets Union, the European Commission has planned to review the regulatory framework applicable to such inducements in 2022, including consideration of a possible general ban. If this were to be the case, the investor would then be required to remunerate his distributor directly, through the payment of fees, as it has been the case in the UK since 2012 and in the Netherlands since 2014 (the “Fee-based model”).

Against this background, Spanish, French and Italian professional associations have mandated KPMG⁽¹⁾ to conduct a comparative study of the two existing remuneration models in Europe, from the perspective of the costs paid by the retail investor, and thus verify the competitiveness of the Commission-based model, which is in place in all Member States except the Netherlands, compared with the Fee-based model.

The KPMG study shows that both models present a similar level of costs for retail investors, but that only the Commission-based model allows all clients, including the less wealthy, to benefit from investment advice at a reasonable cost, while having access to a wide and varied range of financial instruments, including third-party products.

These conclusions are confirmed by another study carried out by KPMG in Germany at the request of the local professional associations to assess the consequences of the two remuneration models on the provision of investment advice to retail investors⁽²⁾.

⁽¹⁾ To carry out this study, KPMG’s offices in France, Italy and Spain relied on the knowledge of the financial sector associations of the concerned countries of their respective local markets. Associations surveyed:

• In the United Kingdom: The Investment Association;
• In the Netherlands: the Dutch Fund and Asset Management Association (DUFAS);
• In France: FBF (Fédération bancaire française), AFG (Association française de la gestion financière), AMAFI (Association française des marchés financiers), AFPDB (Association française des produits d’investissement de détail et de bourse) and four associations of Financial Advisors: ANACOFI (Association nationale des conseils financiers), CNCEF (Chambre nationale des conseils experts financiers), CNCGP (Chambre nationale des conseils en gestion de patrimoine) and La Compagnie des CGP;
• In Spain: INVERCO (Asociación de Instituciones de Inversión Colectiva y Fondos de Pensiones), AEB (Asociación Española de Banca), CECA (Confederación Española de Cajas de Ahorros) and UNACC (Unión Nacional de Cooperativas de Crédito);
• In Italy: the FeBAF (Federazione Banche Assicurazioni Finanza), ABI (Associazione Bancaria Italiana), ASSOGESTIONI (Associazione del risparmio gestito), ASSORETI (Associazione delle Società per  la Consulenza agli Investimenti) and ASSOSIM (Associazione Intermediari Mercati Finanziari).

⁽²⁾ KPMG, The future of advice: A comparison of fee-based and commission-based advice from the perspective of retail clients, November 2021, https://hub.kpmg.de/the-future-of-advice.