THE GROWING INFLUENCE OF FINANCIAL PLANNING. Jean-Paul SERVAIS Chairman CBFA and IPISC (CESR) Lector ULB (University of Brussels)

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1 COMMISSIE VOOR HET BANK-, FINANCIE- EN ASSURANTIEWEZEN BANKING, FINANCE AND INSURANCE COMMISSION THE GROWING INFLUENCE OF MIFID ON FINANCIAL PLANNING fpa Italia European Conference 2010 Jean-Paul SERVAIS Chairman CBFA and IPISC (CESR) Lector ULB (University of Brussels)

2 Overview 2 1. The new EU financial architecture 2. Investment advice 3. PRIP's 4. Challenges for financial advisors and planners

3 1. The new EU financial architecture 3 Macroprudential supervision European Systemic Risk Board (ESRB) Micro-prudential info Information and data risk & recommandations Microprudential supervision Supervision on financial markets and services European Banking Authority (EBA) (ex CEBS) National Banking Supervisors European Insurance & Occupational Pensions Authority (EIOPA) (ex CEIOPS) National Insurance & Pension Supervisors European Securities & Markets Authority (ESMA) (ex CESR) National Securities Supervisors ( CBFA, AFM, AMF, CONSOB, FSA, BAFIN...) Joint Committee

4 2. Investment advice Definition 2.2 Work of CESR 2.3 Investment advice in practice 2.4 Relevant rules 2.5 MiFID review

5 2.1 Definition (1) 5 Article 4(4) MiFID : Investment advice = provision of personal recommendations to a client either upon his request or at the initiative of the investment firm in respect of one or more transactions relating to financial instruments

6 2.1 Definition (2) 6 Article 52(1) L2 Directive Personal recommendation = recommendation: presented as suitable for that person (or) based on a consideration of the circumstances of that person not issued exclusively through distribution channels or to the public (subject to discussion in MiFID-review) Transaction buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument, including as result of exercising any right conferred by a particular financial instrument

7 2.2 Work of CESR 7 CESR, Consultation paper of 14 October 2009 Question and Answers - Understanding the definition of advice under MiFID - (Ref ) published on 19 April 2010

8 2.3 Investment advice in practice (1) 8 What constitutes a personal recommendation? Advice versus Information personalised comments / value judgments statements of facts/figures Example of information: publicity, communication of prospectus; information of the composition of the assets of a fund

9 2.3 Investment advice in practice (2) 9 Transactions in financial instruments Advice versus Generic Advice particular financial instruments asset classes/sectors Example of generic advice: advice to invest 40% of assets in shares or bonds, 40% in real estate and 20% in life insurance (financial planning)

10 2.3 Investment advice in practice (3) 10 Personal recommendation presented as suitable Advice versus Non-advised sales presented to be in the interest of a particular client presented to an undifined class of clients Example of non advised sales: Standardised marketing messages promoting a financial instrument

11 2.3 Investment advice in practice (4) 11 Made to an investor or potential investor Advice versus Corporate finance advice Pure financial returns Industrial purposes Example of corporate finance advice: advice on the issue of a convertible bond on an IPO

12 2.4 Relevant rules 12 Know your customer : suitability test Knowledge Experience Financial situation Objectives Conflict of interests Inducements Information to clients

13 2.5 MiFID Review 13 Article 3 of MiFID provides that Member States may choose not to apply the Directive to any persons who's activities are limited to investment advice in transferable securities and UCIT's Members states are free to regulate investment advisors EC intends to review article 3 in order to submit all investment advisors to the MiFID conduct of business rules

14 3. PRIP's (1) 14 Proposal of the European Commission to develop horizontal approach regarding disclosures and selling practices for main retail investment products: Investment funds (both harmonised and non-harmonised) Retail structured securities Investment-based insurance products Structured term deposits

15 3. PRIP's (2) 15 Objective level of investor protection should not vary according to legal form of product Benchmarks Disclosures Key Information Document (KID) for UCITS Selling practices MiFID Joint 3L3 Task Force (CESR/CEBS/CEIOPS) Report of the 3L3 Task Force on Packaged Retail Investment Products (PRIPs) of 6 October 2010 (see website CESR /Documents/3L3 coordination)

16 16 4. Challenges for financial advisors and planners Qualification and training (Leonardo da Vinci Programme) Need for european harmonised professional standards Scope of european regulation (prips, MiFID review, IMD,...) and national legislations (France, Belgium,..) will more and more be extended in the direction of financial planning Independence is a key issue for financial advisors and planners