Study finds varying quality of advice for European investors

Europe’s fragmented investment market urgently requires “major surgery” to prevent further damage to the financial health of millions of retail investors, according to consumer rights campaigners.

A European Commission study published this week showed large variations in the cost of investment products and the quality of advice for retail investors across Europe.

The study found that entry fees when buying an equity fund could cost retail investors in Germany up to 8 per cent of their initial investment while some UK, Polish and Portuguese investors could be charged 5 per cent when selling out of a fund. These entry and exit costs are in addition to annual ongoing charges by fund managers.

Investors in bond funds, which typically carry lower ongoing charges, could pay an entry fee of up to 6 per cent in Germany, Italy and Portugal and exit charges of up to 5 per cent in Poland and the Czech Republic.

Mick McAteer, head of the Financial Inclusion Centre, a non-profit organisation that campaigns for investor rights, said the high cost of these fees was harming savers and damaging economic growth as capital was extracted before it could be invested.

“The investment industry is grossly inefficient. It needs major surgery,” said Mr McAteer.

He said the report raised “real concern about the shocking level of costs and lack of competition” in many EU countries. “This is down to ineffective regulation and a lack of consistent enforcement of existing rules.”

Huge sums of cash remain in low yielding bank accounts, the most common financial asset owned by households. Policymakers want to redirect these savings into useful investments but this has been made difficult by the failure of financial product providers to clearly inform investors, especially the less financially literate, about fees and charges.

The study highlighted the variations in the amount of information provided for life insurance and pension products. In some countries, no fee data could be found on distributors’ websites.

“Even when [fees are] displayed it is difficult for a retail investor to discern whether [they] include the costs of any underlying asset,” said the commission.

Savers who sought advice from banks and insurers were mainly offered in-house funds, whether or not these were most suitable.

Retail investors in the UK and Netherlands generally pay lower fees for all types of funds because of a ban on inducements to financial advisers.

Better Finance, the investor rights group, said the study painted a “grim picture”.

“It is difficult for individual investors who are not financially savvy to find, understand and compare [costs and charges] to be able to make an informed decision and choose a suitable product,” said Guillaume Prache, managing director of Better Finance.

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