companies standardising remuneration in preparation for directive, which is due november 2007
Intermediaries may be forced to disclose the difference between the returns for clients paying upfront and those taking trail commissions under the Markets in Financial Instruments Directive (MiFID), Philip Warland, senior adviser at accountants PriceWaterhouseCoopers, has warned.
He said commission could only be offered if it improved the investment advice being given and recommendations were not biased as a result of an inducement.
Warland said: "In preparation for this directive, companies have been introducing share classes without trail commission or standardising it, so investors can see the difference that upfront and trail fees may have on returns."
MiFID will be implemented in November 2007 and has been designed to allow cross-border passporting of investment services within EU states under a level-playing field.
According to EU financial services information provider Europa, the current passport system is not working and needs to be updated to help eliminate barriers to cross-border trading and inject fresh competition into the European investment services industry.
Charlie McCreevy, European commissioner for the international market and services at Europa, said: "The draft measures are being tabled after a very extensive round of consultations. They are designed to protect investors and consumers without imposing unnecessary compliance burdens on firms. The measures have been drafted to provide companies with clear and predictable rules and to give greater security to investors and consumers who buy services from foreign firms.
"The approach is not to flood consumers with reams of information that may not be relevant to them and which they may have difficulty understanding.
"Instead, the emphasis will be on the fiduciary duties of firms towards their clients."
Warland said countries were beginning to change their regulatory framework to increase protection for investors.
He said France, Germany and Spain have recently changed rules concerning risk management, compliance and internal audits of financial firms in anticipation of the directive.
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