By Huw Jones
LONDON (Reuters) -The European Union set out plans on Wednesday to cut how much retail investors pay banks and insurers for financial products to encourage investment and make its capital market deeper and more efficient.
The retail investment package toughens up existing EU investment laws by including a ban on banks and insurers paying commission on sales of their products by brokers who gave no advice to customers, the EU's executive arm, the European Commission said.
Only 17% of EU household assets were in the form of stocks and bonds in 2021, well below the U.S. level, as consumers prefer to keep their money in a bank. Retail investor fees are 40% higher than those institutional investors pay, the commission said.
Most retail investment products are sold through a commission-based model with customers not always getting the best deals, the commission said.
After heavy opposition from Germany, Italy, France and industry to a full ban on commission, the EU executive said it would take a "staged approach".
It proposes that the limited ban on commission is accompanied by a tougher tests on how suitable the products are for the buyer, where advice is being offered. Products would also have their "value for money" measured against new cost and performance benchmarks from EU regulators.
"Evidence shows that there are some products on the market that provide little, if any, value for money to the retail client, in particular due to high costs of products," the commission said.
EU Financial Services Commissioner Mairead McGuinness told reporters that a full ban on commission was still on the table in three years time when there will be a review to see if retail participation in markets has increased, value for money improved, and costs cut.
Consumer campaigner BEUC said despite the lack of a full ban on commission, the plans have the potential to limit costs for consumers, but will not be enough.
The U.K. is also introducing tougher protections for financial consumers from July to draw a line under a string of mis-selling scandals.
ICI Global, a funds industry body, said it seems unlikely that constructing granular cost benchmarks against all 30,000 EU-regulated mutual funds that would be evaluated can be done fairly across a diverse range of asset classes to avoid reducing innovation and choice.
EU states and the European Parliament will have the final say on the package with changes likely. The main centre-left party in parliament said it would push for a full ban on commission-based sales.