Download - Memorandum 39 – November 2009 PRIPS Workshop 22 October 2009

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Memorandum 39 November 2009PRIPS Workshop 22 October 2009______________________________________________________________________

IntroductionThe Fdration Europenne des Conseils et Intermdiaires Financiers (FECIF)represent approximately 300,000 European financial intermediaries through:

24 national trade associations representing 247,896 registered intermediariesfrom 12 EU Member States

13 pan European commercial networks incorporating 34,150 registeredintermediaries operating across 22 EU Member States

One financial institution operating cross border

FECIF has also created two national chapters, FECIF-France and FECIF-Poland toaccommodate the smaller local national associations.

The last survey carried on 1,245 intermediaries and 3,124 investors (existing and/orpotential clients of intermediarys member of FECIF) from ten EU Member Statesindicates that:

37% of the total number of investors contacted prefer to deal through anintermediary because of the personal attention they received at the occasion of a

face-to-face meeting

30% better trust an institution to handle their financial affairs, feeling secured bythe size of the bank and/or the insurance company

18% prefer to rely on the assistance of a friend or a member of the family

12% refer their queries to another professional (accountant, tax adviser, lawyer,etc.)

3% handle their affairs directly through the Internet for instance______________________________________________________________________

1. ScopeQ1 Are the above mentioned criteria and the related approach able to capture therelevant market of PRIPs across jurisdictions? Are they able to achieve theidentified objectives? Are there other elements to be considered?

Reply to Q1

Yes but like most of the participants to the workshop FECIF is of the opinion that theeconomic definition rather than the legal form of the investment should generally beconsidered.


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Q2 Are there other products which should be included in the PRIPs work and howmight this impact on the approach to scope outlined above?

Reply to Q2Not to our knowledge.

Q3 How should we handle non unit-linked/index-linked "traditional lifeinsurance"/life insurance 'with profits' contracts, which in some jurisdictions aresold as investment / accumulation products?

Reply to Q3Only pure protection insurance contracts should be excluded.

Q4 How should we handle products which sit on the boundary of the PRIPs

market but are also sold in some jurisdictions as retail investments e.g. "purederivatives"?

Reply to Q4FECIF is of the opinion that it requires a clear definition of what a pure derivative is.

Q5 What is your view on how "pensions" and annuities should be treated? Shouldthey be included? Can they effectively be excluded? Are there certaintypes/categories of pension products which should be included?

Reply to Q5FECIF believes that there are complex relationships with social, tax, and employmentlaw issues. In our view, it would be important above all to ensure that all pillar I, II & IIIproducts are included within the scope of PRIPS, whether or not they are pensions orannuities.

Such an approach is necessary in the interests of investor protection.

2. Pre-contractual disclosuresQ6 Would you agree that we have identified the right principles which shouldgovern a common framework for all PRIPs? Are there other elements to beconsidered?

Reply to Q6Yes No

Q7 Would you agree that these are the key areas in which comparisons areimportant for investors? How can these be best disclosed so as to aidcomparisons? Are there other areas which might be equally important?

Reply to Q7For FECIF it is essential that any disclosure document needs to be tailored to thespecific type of PRIPS in order to avoid misinterpretation.


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FECIF would also recommend the use of plain language in order that the use of jargonis avoided especially sector jargon.

Disclosure of costs and past performance will be critical ingredients. Minimum andmaximum durations for publishing past performance data will need to be set in order toavoid the disastrous tendency of Member States to gold plate the provisions.

Q8 What elements of the KID might need to be different for different classes ofPRIP? E.g. for retail structured products, insurance-based PRIPs or non-harmonised funds?

Reply to Q8FECIF thinks that it is essential to highlight the benefits and services the investor isbuying. The KID should need to show in case of a life contract the death and disability

benefits being provided and also the cost of such benefits. Without such information alevel playing field with other PRIPS is not attainable.

For unit-linked products, information on investment returns would need to be illustratedon a generic approach as to the fund charges.

Q12 How should wrappers be handled so as to ensure investors receiveinformation that is comprehensible to them and which they can use to comparePRIPs?

Reply to Q12:FECIF would like to state that insurance wrapper is one of the most popular productswithin the EU, where the investor is making his/her own choice of assets to reflect theinvestment objectives he has set for him/herself. The insurer should disclose all costs ofthe use of the wrapper itself, being the costs of the establishment and administration ofthe insurance policy plus information as to the associated tax treatment.

This is another area where FECIF pointed out unnecessary gold plating, with someMember States such as Italy requiring more than 500-pages information produced bythe underlying collective fund providers which will not be read by the investor.

Q13 Are there special cases that need particular treatments? E.g. in some MemberStates a single wrapper may provide access to a very wide range of underlying

assets or products, including hundreds of funds.

Reply to Q13See above

3. Selling practicesQ14 What are the issues with applying MiFID selling rules to the distribution ofinsurance-based PRIPs and banking-based PRIPs (e.g. structured term deposits)?

Reply to Q14


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FECIF is of the opinion that any advice is to be based on the demands and needs of theinvestor and for disclosure on the basis, on which the financial intermediary acts, be that

as an independent or tied or other agent.

However any rule should apply equally to all financial intermediaries to ensure a levelplaying field. Therefore the same rule should also apply to direct sales staff of financialinstitutions.FECIF would anticipate the need to tailor rules on conflict of interest and remuneration tofit the family of products and distribution channels.

Q15 Are there any refinements to the MiFID handling of conflicts of interest thatshould be considered for PRIPs?

Reply to Q15

FECIF supports appropriate disclosure of all forms of remuneration and potential conflictof interest.

Q16 Should the general duty to act in the best interest of the client constitute acommon overarching principle for all PRIPs?

Reply to Q16Yes Any financial intermediary acts in the best interests of the client as it is his/heronly way to maintain his/her business successful with a happy portfolio of clients.

Q17 How can the nature of the services being offered by the seller be bestcommunicated? Should the client be informed if the recommendations are basedon a broader or more limited range of products?

Reply to Q17The financial intermediary should explain to the investor and confirm in writing the basison which he provides services (as it is specified in the IMD) so enabling the investorto know if the service is provided by an independent/tied agent/or employee of theprovider.

Q18 Should those making recommendations comply with specific comparablereporting obligations to clients, e.g. on the underlying reasons underpinning theadvice, as is currently the case in the IMD?

Reply to Q18Yes -

Q19 What information do retail investors need about remuneration and costs, soas to combat so-called 'commission bias' and enable informed decision making?

Reply to Q19As much as at FECIF we favour full disclosure, since this is the best method for avoidingconflicts of interest. We are very concerned that if the choice of remuneration bycommissions is removed then the range of financial intermediaries who are not tied to or


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employees of financial institutions will reduce dramatically which goes against the will ofthe investors (see introduction).

The fee based approach is not popular with investors and if such a policy isimplemented there is a significant risk that only affluent investors will benefit fromindependent advice and will thus adequately provide for their retirement and otherneeds. Those who are perhaps most in need of advice will not be approached byfinancial intermediaries as they will be either unwilling or unable to pay for the cost.

A market limited to fee based advice will also have an effect on product choice. Thenumber of independent financial intermediaries will reduce as a result of the fact that fewinvestors will be able or willing to pay for advice. A market with few independent financialintermediaries will be dominated by incumbent product providers with tied sales forces.

The investor needs to know the total amount deducted from the premium/funds under

management, but may not need to know to whom amounts are paid.How should the effect for example of salaries, bonus and company cars be featured inremuneration disclosure? (See question 21 below).

Q20 Would a more standardised approach to cost and remuneration disclosuretested on consumers help?

Reply to Q20This is a valid suggestion.

Q21 Do you agree that direct sales should be covered by PRIPs sales rules?Should rules be only tailored in so far as this allows differences in the risks toconsumer protection found in different channels to be reflected?

Reply to Q21Yes. We believe at FECIF that this is just a matter of fairness. Therefore any definition ofacquisition costs/charges must therefore also include a reference to the tied salesmanssalary and commission/bonus arrangements.

Q22 Should a suitability, or at the least an appropriateness test, always berequired when selling PRIPs, or only for some PRIPs?

Reply Q22

FECIF is of the opinion that a no advice regime is inherently dangerous but one cannotimpose to all investors an advice/suitability/appropriateness test if such investor wishesto opt out expressly. In this case, he/she must also waive rights of recourse against thefinancial intermediary.It may be necessary especially if at one point the EU legislation imposed the fee-basedrule.

Q23 Are there any issues to be addressed when applying the MiFID approachtowards the concept of retail client across the whole PRIPs market?

Reply to Q23


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FECIF does not believe that MiFID should be regarded as a benchmark: one size doesnot fit all.


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Comments on Annex 1With regard to the Not included list:

Savings accounts: should not be included;

Shares: should be included;

Depositary receipts for shares or bonds: should be included

Treasury bills/government bonds: should not be included;

Ordinary bonds: should be included;

Cash: should not be included;

Certificates of deposit, commercial papers, subordinated bonds, callable andputtable bonds: should be included;

Term insurance: should not be included

Pure protection/risk coverage policies: should not be included;

Mortgages and loans: should be included;

Pure wrapper: should be included;

Sports spread betting: should be included if at all regarded as an investment andregulated as such;

Regarding the Included list:

No comment

For any further information, please contact Christine Brbart at:

Fdration Europenne des Conseils et Intermdiaires Financiers(FECIF)Generali Tower - Business CentreAvenue Louise 149/24B - 1050 Brussels, BelgiumTel.: +32 2 535 7622Fax: +32 2 535 7575E-mail: [email protected]: www.fecif.org

Download - Memorandum 39 – November 2009 PRIPS Workshop 22 October 2009

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