BETTER FINANCE Research - ROBO-ADVICE 5.0: Can Consumers Trust Robots? | | |
BETTER FINANCE published the fifth annual edition of its research into Robo Advisors following mystery-shopping covering 13 Europe-based platforms and 4 non-European ones. Most of the Robo Advisors investigated for the 2020 BETTER FINANCE Report do not come with the same conflicts of interest as traditional advisors, most of whom are paid commissions for selling certain products. This ‘independence’ generally translates into less expensive products, in addition to the cheap service cost of Robo Advisors, with overall Robo Advice fees in Europe situated in between 0.55% and 1.65% and between 0.11% and 1.55% in the US, Australia, and Singapore. This compares very favourably with traditional players who typically charge total fees far above 1%. As in previous years, the lower cost of Robo Advisors can mainly be attributed to the use of low-cost exchange-traded index funds (ETFs), which are usually commission-free. Six of the nine platforms that also featured in last year’s report decreased their costs compared to 2019. There was also a marked improvement in terms of user-friendliness of the platforms, with platforms providing additional features such as tutorials on how to use their services or educational videos and webinars on key financial concepts for individual investors. In as far as transparency is concerned, despite some minor improvements, some Robo Advisors continue to disappoint. Although transparency should be the cornerstone for a sound financial industry, only 65% of the platforms covered by this report disclose past performance in their investment advice. Most worrying still are the extreme divergences between platforms in terms of asset allocation and expected returns. It is astounding to find that, for instance, the recommended equity exposure ranges from 9% to 95% between platforms for exactly the same investor profile. Projected annual returns also vary greatly between the different providers, ranging from +1.80% to +12.8% for the “Millennial” profile, and from +1.60% to +7.40% for the “Baby Boomer” one. Add in the fact that most of the Robo Advisors project lower returns for longer investment horizons, and there is ample reason for concern. Even though some of the platforms improved somewhat in terms of “suitability”, the very high discrepancy between the different asset allocations, risk profiles, and expected returns - both between platforms and between investor profiles - remains alarmingly high. Further reading: Press Release: European Robo Advice Market fails to take off, despite showing Promise for Individual Investors | |
In February 2021, BETTER FINANCE was heard by Commissioner McGuinness on financial consumers’ issues | | |
BETTER FINANCE thanks Commissioner McGuinness for her interest in the plight of EU Citizens as financial consumers and individual savers and investors. During a very positive bilateral meeting on 3 February with the Commissioner, BETTER FINANCE was able to address key issues for financial users such as Capital Markets Union, Employee Share Ownership, MiFID II and Market Access, performance disclosure and the PRIIPs Key Information Document, Sustainable Finance and Corporate Governance, the Ecolabel, Digital Finance and Online Comparison Tools… A couple of days later, on 5 February, BETTER FINANCE participated in a roundtable meeting with the European financial sector chaired by Commissioner McGuinness. Representatives from consumer and business associations were invited to evaluate the relief measures adopted to mitigate the economic impact of the COVID-19 crisis. Topics included measures aimed at supporting consumers dealing with over-indebtedness and measures to assist businesses impacted by Covid19-induced shutdowns of the economy, with the aim of identifying practical relief measures to alleviate the impact of the coronavirus crisis. During a third meeting on 17 February, BETTER FINANCE - joined by CFA Institute and CEPS – highlighted that, as zero-interest rates persist, it is becoming increasingly urgent to address concerns of fairness, inclusion, pension adequacy, and greenwashing for financial consumers. All participants also pointed to the need for the “buy-side” to be heard more in EU policy debates on financial services. The vast majority of EU citizens are indeed sold products that currently often destroy their purchasing power from the start, such as bank savings accounts, capital guaranteed life insurance, those numerous pension products that are mostly invested in fixed income and highly packaged, fee-laden and complex products. Only a few have the qualifications to invest more directly into capital markets and into simpler, more cost-efficient products with a better return potential such as listed equity and bonds, low-cost “clean share” equity funds and equity index ETFs. And even these finance-savvy individual investors face many issues in accessing those products. Unfortunately, most of the policy recommendations from the High-Level Forum on Capital Markets Union from last June regarding consumers and retail investors – which would have gone a long way towards addressing these serious issues - have been rejected – or at best postponed - by the European Commission in its September 2020 CMU Action Plan. Following our meetings with Commissioner McGuinness, BETTER FINANCE now looks forward to addressing these issues together with the European Commission. More information: Final report of the High Level Forum on the Capital Markets Union - A new vision for Europe’s capital markets | |
Financial Users' experts further increase Participation in European Policymaking | | |
BETTER FINANCE is happy to announce that Aleksandra Mączyńska, Executive Director at BETTER FINANCE, was selected to join the new Consumer Policy Advisory Group of the European Commission's DG Justice and Consumers. Earlier, in February, BETTER FINANCE already announced that the European Banking Authority’s Banking Stakeholder Group (BSG) selected one of its previous vice-chairs, Alin Iacob, to join the BSG again. Alin Iacob is the Chairman of the Association of Romanian Financial Services Users (AURSF). AURSF has been a member of BETTER FINANCE, the European Federation of Investors and Financial Services Users, since 2014 and joined its Board in 2016. After serving two mandates as a member of the EBA Banking Stakeholder Group from 2013 to 2018, including as Vice Chair for his second mandate, and then as a member of the EIOPA Insurance Stakeholder Group, Alin Iacob will again join the EBA BSG representing the interests of financial services users for a third mandate. BETTER FINANCE is also pleased that, following a call for the renewal of its Corporate Finance Standing Committee (CFSC) Consultative Working Group (CWG), the European Securities and Markets Authority (ESMA) decided to select Jella Benner-Heinacher from DSW, Germany's leading association for private investors and BETTER FINANCE Member, as well as José F. Estévez from one of BETTER FINANCE’s Spanish member organisations, AEMEC, the Spanish Association of Minority Shareholders. Besides Mr Iacob’s very valuable role as the representative of financial services users at the heart of the EBA, Ms Benner-Heinacher, Vice-President of BETTER FINANCE, and Mr Estévez, Chair of BETTER FINANCE’s Legal Committee, will further strengthen the voice of EU Citizens as individual investors in ESMA’s policy deliberations and decisions.” | |
Joint BETTER FINANCE and CFA Institute Statement on the overdue PRIIPs Regulation review and UCITS funds’ exemption | | |
On the first of February, BETTER FINANCE and CFA Institute issued a joint statement advising the European Commission, the European Supervisory Authorities (ESAs) and the EU co-legislators against further delaying the long overdue full Level 1 review of the regime on key information documents (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs). Yet, on 3 February, despite the letter, the Level 1 review was de facto relegated to the backburner once again, as the European Insurance and Occupational Pensions Authority (EIOPA) Board of Supervisors adopted the draft revised level 2 rules for the PRIIPs KID. BETTER FINANCE and CFA Institute stress the fact that revising the Level 2 rules before Level 1 is detrimental and not in line with the spirit of EU Law. The Level 1 review is now overdue by more than a year and must be a priority for the EC and the ESAs. The current PRIIPs KID proved detrimental to individual, non-professional investors who do not receive meaningful, intelligible and comparable information about “retail” investment products. Worse, the only recipients of simple, intelligible, and actual cost, risk and performance information – as of 1 January 2022 – will be professional clients, who need it least. The PRIIPs KID will also hamper the EU’s Digital Finance plans, specifically those regarding the development of online product databases and web-comparison tools for non-professional investors, as the necessary standardised and long-term actual performance and cost data will no longer be available. Moreover, the recently announced action for developing national pension tracking systems – as part of the renewed CMU Action Plan – will not be deliverable as EU and local supervisory authorities will have no source of obtaining reliable and standardized actual cost and performance data from any investment product manufacturers (which is already scarce). In addition, it will have an impact on the Disclosure Regulation as part of the Renewed Sustainable Finance Package. Until the full review of the PRIIPs Regulation is finalised, the UCITS KIID exemption should continue as clearly intended by EU Law, and as recommended by the High-Level Forum on the CMU last June. As highlighted on many occasions, the underlying problems with the PRIIPs KID can only be fully addressed as part of the overall Level 1 PRIIPs framework review, based on a thorough impact assessment and consumer-testing. More information: Funds Europe: "Groups urge a halt to Priips KID rules ahead of vote" | |
Save the Date: International Conference "Post-Brexit Capital Markets Union - How to make it work for people?"- | | |
On Thursday 22 April 2021 BETTER FINANCE will hold an International Conference on "Post-Brexit Capital Markets Union - How to make it work for people?". We are delighted to announce that the conference can already count on the participation of Commissioner Mairead McGuinness. The preliminary programme will be announced soon, and registrations will be available in the coming days on the BETTER FINANCE website. Watch this space! Whereas BETTER FINANCE intends to organise a hybrid International Conference, with the possibility of attending physically or remotely, we will have to keep a close eye on evolving Covid-19 measures across Europe. Should professional international travel and physical gatherings still represent an issue, we may have no choice but to hold the conference online only. | |
Coming Up | | |
REPORTS Look out for the release of "BETTER FINANCE's MiFID II and PRIIPs Implementation Study: Are the New Rules Serving their purpose?": More than a year after the entry into force of the revised Markets in Financial Instruments Directive (MiFID II) and of the Regulation on Key Information Document for Packaged Retail and Insurance-based Investment Products (PRIIPs KID), BETTER FINANCE asks the question: “are the new investor protection and disclosure rules serving their purpose?” BETTER FINANCE will also soon publish a research and policy report on "Access to EU equity Trade Data - The Consumers’ Perspective": Transparent and easily accessible trade data are the foundation of efficient and fair capital markets for individual investors, small- and medium-sized enterprises (SMEs) and the economy as a whole. How is the decline of visible and "retail" investor-friendly equity markets in favour of less transparent ones affecting individual investors? | |
BETTER FINANCE welcomes new Brussels Team Members Anaïs joined in February 2021 as Project Manager to deal, amongst other things, with the H2020 project LEVEL EEI. Since her graduation with a Master’s degree as Expert in European Project Management from the University of Caen Basse Normandie in France, she has cumulated 8 years of experience in project and proposal management for French, European and International funders. On the Innovation side, she has worked in different consulting companies in France and Belgium on FP7 and H2020 projects related to many different topics with a focus on Energy. On the International Development side, she worked for the prestigious Institut Pasteur in Paris & the Brussels office of the Deutsche Gesellschaft für Internationale Zusammenarbeit. Martin joined BETTER FINANCE in November 2020 as Research and Outreach Assistant. He obtained a Bachelor’s degree in Information and Communication from the University of Nice and pursued a Master’s degree in European studies at the Free University of Brussels (ULB). He consolidated his communication and reporting skills through several internships, including work for a European news agency, where he developed a strong interest in finance. He has lived in Belgium, France and Germany, where he gained experience in consulting and held project management and editorial positions in the academic field. We are delighted to welcome them as part of the team in Brussels! | |
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