het rapport van de EFAMA met de acht aanbevelingen maart 2010

8/9/2019 het rapport van de EFAMA met de acht aanbevelingen maart 2010

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Revisiting the landscape o

European long-term savings A call or action rom theasset management industry

March 2010

sponsored by


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Revisiting the landscape o European long-term savings A call or action rom the asset management industry

i

Table o contents

Foreword iii

Acknowledgement v

Overview o eight recommendations ix

Long-term savings recommendations ix

Retail investment product distribution recommendations ix

Recommended industry actions to underpin improvements ix

Introduction 1

I. Challenges in long-term savings and distribution o retail 3investment products

1. Long-term savings challenges 3

2. Distribution challenges 4

II. Overview o recommendations 5

A. Recommendations to improve provision o long-term savings 5

A1. Increase total European retirement savings by encouraging governments 5to introduce compulsory long-term saving schemes (with opt out clauses)that are organised with employer and/ or industry scheme support

A2. Increase the consumer-riendliness o long-term investments by introducing 6a personal retirement plan that has consistent certication standards acrossEurope

A2.1. Basic requirements or Ocially Certied European Retirement Plans 7A2.2. Associated supervisory standards or Ocially Certied European 9

Retirement Plans (OCERP) and OCERP providers

A3. Give all product providers equal access to suitable and ecient OCERPs in 10order to oster competition or the best investor solutions

B. Retail investment product distribution recommendations 12

B1. Ensure harmonisation o distribution standards or packaged retail investment 12products (PRIPs) across product categories

B2. Improve quality and transparency o activities at the point o sale 13

B2.1. Disclose the nature o distributors services 13

B2.2. Full disclosure o all cost items and remuneration arrangements 14

B2.3. Introducing a standardised advisor certicate 15

B2.4. Consider granting investors the right to withdraw rom an 16investment decision

B3. Promote urther condence in UCITS as a trustworthy investment vehicle 16

B3.1. Strengthen industry risk measurement and management capabilities 17

B3.2. Establish a European-wide und-type classication with regard to 17portolio holdings

III. Additional industry initiatives to underpin commitment 19

C. Recommended industry actions to underpin improvements 19

C1. Promote nancial literacy and competence o individual investors and 19nancial advisors

C2. Set industry aspirations or improved business conduct and perormance 19

IV. Concluding remarks 21


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iii

Foreword

It is my pleasure to introduce this report commissioned by EFAMA. In deciding to sponsor thisinitiative, our ambition was to take a proactive stance in learning rom the challenges thrown upby the recent nancial crisis. This may not have been a crisis that we triggered, but we havecertainly been severely aected. Investors have been badly shaken and we must rebuild theircondence in our abilities and our integrity. This is even more important or an industry thatacts as the custodian o individuals private savings or retirement. Our contribution to theEuropean economy is vital and we are an important resource or its citizens. I am constantlyimpressed by our industrys ambition to help investors build their nancial security.

Pension solutions in Europe, where demographic challenges are orcing governments to act, areragmented and oten inadequate. We in the industry have a key role to play in building an EU

pensions ramework. With the UCITS vehicle we already have one o the most robust underlyinginvestment products or retirement plans but the successul development o long-term savingsand private retirement products also relies on the quality o distribution, on educating investorsabout the optimum solutions, and on better knowing client needs.

We are on the brink o a new period. The uncertainty that resulted rom the crisis, starklyillustrated by the exceptional volatility o fows into UCITS, makes it imperative that we plan ournext steps careully. We must shit rom a cyclical post-crisis response to taking more holisticstructural measures in line with EFAMAs strategic agenda 2009-2011. It would be a graveerror or the asset management industry to use the early signs o recovery as a chance to sitback and revert to the pre-crisis ways o doing business. We need to seize the opportunitiesthat the crisis has presented. This calls or action and leadership and EFAMA has a key role toplay in enabling bold decision-making while remaining steadast in our commitment to investorsand asset managers duciary duties.

Five years ago, EFAMA set out on a journey ocused on deepening the single market andincreasing the global competitiveness o the European investment management industry. Wehave made substantial progress in that time. Since then, new tactical and strategic prioritieshave emerged or the industry to tackle, such as the Alternative Investment Fund ManagementDirective, while PRIP, the new acronym or packaged retail investment products, has emergedas one o the most important recent contributions to levelling the playing eld in distribution.Our buy side role has also been enhanced and the need or strong corporate governancedemonstrated once again. The planned review o MiFID will provide a unique opportunity todraw upon on the last two years o experience. Understanding, managing and circumscribinginvestment risk continues to be a undamental task, and has encouraged calls or urtherharmonisation. Finally, UCITS IV will help drive down cost and promote the attractiveness oEuropean unds with a set o claried roles and responsibilities or depositories.

Despite all these positive developments, the message that the interviewees or this report aresending the industry, regulators and legislators is that more needs to be done in the eld olong-term savings and distribution i asset management is to remain the ultimate custodian oinvestors long-term savings. The industry is ready to play its part, and wants to help improvethe daily lie o European citizens.

The objective o this report is to set out some practical recommendations that ocus onsupporting the investor. It comes at an apposite moment as Michel Barnier has just assumedthe role o EU Commissioner or the internal market and services and the European Commissionhas just released its agenda 2020. The eight recommendations described here should guidethe industry in its dialogue and collaboration with legislators, regulators and supervisors.I believe that the best outcomes or investors including renewed trust in nancial services are likely to come rom the right balance between regulation and sel-regulation.

Jean-Baptiste de FranssuPresident of EFAMACEO Invesco Europe


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On behal o the EFAMA board, Claude Kremer (vice-president) and Peter De Prot (directorgeneral), I would very much like to thank all the contributors to this report, especially theinterviewees, McKinsey & Company, Inc., and the entire steering committee. Their support hasbeen invaluable over the past ew weeks in helping us putting together this call or action romthe asset management industry. For me, the recommendations are an inspiration or EFAMA inits mission to represent the collective interests o our industry and better serve the long-termneeds o tens o millions o investors.


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v

Acknowledgement

The recommendations outlined in this report have been distilled rom interviews with theollowing industry representatives:

EFAMA Corporate Members

Nam Abou-JaoudCEO Dexia Asset Management Juan AlcarazCEO Allfunds Bank and Santander AssetManagement, Member of the PresidentAdvisory Council of EFAMA

James BroderickHead of JP Morgan Asset Management,Member of the Board of EFAMA

James CharringtonHead of International Retail BusinessBlackRock

Gregory EhretHead of EMEA State Street GlobalAdvisors

Dr. Joachim FaberCEO Allianz Global InvestorsMember of the President Advisory Councilof EFAMA

John FraserChairman and CEO UBS Global AssetManagement, Member of the PresidentAdvisory Council of EFAMA

Dario FrigerioFormer CEO Unicredit Asset Management

Robert HigginbothamPresident and CEO EuropeFidelity Investments International

Dr. Wolfgang MansfeldMD Union Investment

Roderick MunstersCEO RobecoMember of the President Advisory Councilof EFAMA

William NottCEO M&G Securities


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Other contributors

Martin E. BeaulieuEVP, Head of Global Distribution MFS

Andrew LaingDeputy CEO Aberdeen Asset Management

Dr. Zeno StaubHead of Vontobel Asset Management

Diana MackayFormer CEO Lipper FMICEO Mackay Williams LLP

Guillaume PracheMD EuroInvestors.orgSecretary General Euroshareholders

Ronald WuijsterHead of Strategic Portfolio ManagementAPG Asset Management

Renaud de PlantaManaging Partner, Pictet & Cie

Allan PolackCEO Nordea Savings & Asset ManagementMember of the President Advisory Councilof EFAMA

Paul-Henri de la Porte du TheilFormer CEO Crdit Agricole AssetManagement

Thomas RichterMember of the Board of Managing DirectorsDWS Investment

Massimo TosatoExecutive Vice Chairman Schroders PlcMember of the Board of EFAMA

Non-EFAMA Members


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In addition to the industry representatives mentioned above, this report has also drawn on thevaluable contributions o the ollowing individuals who acted as a Steering Committee or thisexercise. They sought to ocus on the main points that arose rom the interviews, aware thatthey did not necessarily represent their own personal views:

Chair: Jean-Baptiste de Franssu, CEO o Invesco Europe and President o EFAMA;y

Elizabeth Corley, CEO Allianz Global Investors Europe;y

Robert Higginbotham, President Fidelity International;y

Laurent Ramsey, CEO Pictet Funds, member o the Board o EFAMA;y

Richard Saunders, CEO Investment Management Association, member o the ManagementyCommittee o EFAMA;

Stean Seip, MD Bundesverband Investment und Asset Management, member o the Boardyo EFAMA.

The Steering Committee would like to thank McKinsey & Company, Inc. or coordinating andsupporting the interview process.


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ix

Overview o eight recommendations

Long-term savings recommendations:

A1. Increase total European retirement savings by encouraging governments to introducecompulsory long-term saving schemes (with opt-out clauses), that are organised withemployer and/or industry scheme support;

A2. Increase the consumer-riendliness o long-term investments by introducing a personalretirement plan (reerred to as Ocially Certied European Retirement Plan (OCERP))that has consistent certication standards across Europe;

A3. Give all product providers equal access to suitable and ecient OCERPs in order to oster

competition or the best investor solutions.

Retail investment product distribution recommendations:

B1. Harmonise distribution standards or packaged retail investment products (PRIPs) acrossproduct categories;

B2. Improve quality and transparency o activities at the point o sale;

B3. Promote urther condence in UCITS as a trustworthy investment vehicle.

Recommended industry actions to underpin improvements:

C1. Promote nancial literacy and competence o individual investors and nancial advisors;

C2. Set industry aspirations or better business conduct and perormance.


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Introduction

The nancial crisis caused record-breaking declines in the nancial assets o Europeanindividual investors, but it has also aggravated and highlighted long-standing issues theseinvestors ace in the areas o long-term savings and the distribution o retail investmentproducts.

Long-term savings:y Occupational pension unds, which represent an important part ooverall long-term savings, are vital in securing many investors living standards at retirementage. During the crisis, some pension unds came under pressure and had to make quickinvestment decisions that ran contrary to their long-term objectives. Given the toughnancial situation many o their sponsors (i.e., employers) are in, it is questionable whetherall the unds can deliver ully on their promise. This could leave investors with less money

than expected at retirement. Taking this together with the state o public nances, whichhave long ignored the impact o demographic change on the sustainability o their pay-as-you-go (PAYG) systems (longevity risk1), it seems increasingly clear that Europes long-termsavings systems will not be sustainable without taking actions that include strengtheningindividual contributions;

Retail distribution:y Volatility in asset fows (e.g., the dierence between gross and net sales,or shits rom asset management products to bank deposits) has reached a level during thecrisis that is undamentally at odds with the long-term nature o most asset managementproducts. This has meant that many investors have withdrawn assets prematurely, thuscementing losses and missing the benets o subsequent recoveries. This raises questionsas to whether the orces at work that drive individuals investment decisions are optimallystructured and regulated.

This report seeks to address the main challenges in these two areas o concern, and to derivea set o practical recommendations with the dual objective o:

Providing individual investors with additional solutions to meet their long-term investmentygoals more closely, specically in pensions, and

Building a strong oundation or investor trust in the wider nancial services sector,yespecially in the asset management industry.

This dual objective places the individual investor at the heart o the eort. Together with anassessment o the state o the industry and existing European regulatory rameworks, it servesas starting point or the recommendations described herein.

O particular concern or the group o 23 interviewees is the need to ensure a level playingeld or dierent long-term investment products and to create sucient transparency atthe point o sale. More concretely:

Long-term savings: All European countries ace severe challenges in getting their citizensto engage in long-term savings that provide adequate returns, or example to secure theirstandard o living upon retirement. Today, the lack o a level playing eld:

Leads to regulatory arbitragey as diering regulatory standards applied to dierent butcompeting products can create incentives or some providers to develop products that aresubject to the least regulation or attract the most state aid, rather than ocusing on trueinvestor needs;

Adds to complexity costsy as vast dierences between national legislation make it hard orproviders o long-term investment products to realise eciencies o scale that could stemrom unied approaches to marketing products and managing long-term assets;

1 In a report entitled Social impact o thecrisis Demographic challenges and thepension system, the EUs economic and

scientic policies department states thatthe impact o the crisis on pensions is inthe order o 5 to 15%, while the impacto ageing is doubling the burden on theyounger generation, an increase in theorder o more than 100% in many Memberstates.


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Impedes competition or best investor solutionsy as dierences in transparencyrequirements and/or allowable risk exposures across product categories make comparingdierent solutions and products dicult. This makes it harder or investors to drive thequality o long-term investment products;

Retail distribution: Previous industry and regulatory eorts have ocused on investmentproduction rather than distribution. Product regulation has been particularly thorough on assetmanagement products, while to some extent ignoring other (substitute) investment products.This has led to distorted competition between dierent product types at the point o sale. Inaddition, given the impact that the right combination o investment products has on overallreturns, and given that asset allocation is typically done at the point o sale, the ocus oregulation should shit rom production to distribution. This is the point at which the individualinvestor is signicantly exposed to the risk o making bad investment decisions. In this report,thereore, reerences to distribution and point o sale reer not just to the sale o productsbut also where appropriate to the provision o advice i.e., identiying client needs and advising

on the best way to meet those needs.

The recommendations o this report build on the worldwide success o UCITS and seek toembrace the objectives expressed by the European Commission in its strategic goal or 2020,i.e., to increase connectivity through the single market to the benet o European investors.Recommendations all into three categories: recommendations to address long-term savingschallenges, recommendations to address distribution challenges, and nally actions rom theasset management industry that underpin commitment to improvements in both areas (seepage VI).

The challenges and recommendations discussed in this report are, o course, not the only areasin which the asset management industry should act. Others have been highlighted in theoreword o this report and also need attention.

This paper seeks to be practical rather than academic. It ocuses on distilling a ew quicklyapplicable high-impact measures alongside other more undamental actions that will beessential to ensuring sustainable long term savings and strengthening distribution mechanisms.

The ndings are not trying to reinvent the wheel. Existing regulatory rameworks especiallyasset management-oriented UCITS already enjoy a global reputation as state-o-the-art interms o investor protection. They have also helped the asset management industry in Europemarket its products and services successully across the EU and beyond and survive thenancial crisis in reasonable shape. Nevertheless, recent events, together with broader industrytrends towards convergence o product categories and diversication o distribution models,challenge both the role o asset managers (and other industry participants) as well as thevalidity o todays regulations in a post-crisis era.

The recommendations in this report are inormed by the perspective o asset managementrms as opposed to other types o nancial services providers. However, the 23 intervieweesrmly believe that the recommendations are in the best interests o European citizens andinvestors.

Some o the recommendations put orward in this report could be adopted by the industryalone. Others could be initiated only in partnership with or led by European and nationallegislative/regulatory bodies. The interviewees recommend that EFAMA seeks to work withindustry members and policymakers to help put the proposed changes into practice.

Chapter II gives an overview o some o the key challenges retail investors ace today. Chapter IIIelaborates on the specic recommendations or long-term savings and distribution, outliningtheir potential impact on the identied challenges. Chapter IV adds to these specicrecommendations by putting orward two proposals that underpin the industrys commitmentto the recommendations. Chapter V contains some closing remarks.


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I. Challenges in long-term savings anddistribution o retail investment products

Beore delving into the recommendations, it is useul to examine briefy the challenges that the23 interviewees identied, which investors ace and that the industry has to overcome in bothocus areas.

1. Long-term savings challenges

Within the range o long-term savings schemes that could be developed urther, the intervieweesocused more specically on retirement plans given the existing challenges acing pensions in

Europe.

They believe there are our stakeholders that need to be looked at (Exhibit 1): the investor, thelegislator/regulator, the retirement plan provider, and the product provider, e.g., the assetmanager.

Investorsy can be unaware o the need to save or the long-term as they still expect that thebenets rom PAYG and traditional occupational pension schemes will suce. Others simplydelay investment decisions, as they are unsure as to what the best solution or their needs is.Investors also have insucient incentives to save privately or retirement. Finally, they tendto have limited stamina or long-term savings, preerring to ocus on short-term returns andliquidity;

To date, relevanty legislation/regulation has been product-ocused. This has led to sizeableinconsistencies at a national level in the scal treatment o similar long-term investmentproducts. This in turn has given certain product providers privileged access to state-aidedretirement plans, which hinders true competition or best investor solutions. Additionally,

Exhibit 1: Main challenges identied in long-term savings

Main challenges in long-term savings

Legislator/regulator

Investor

Lack of awareness of need to save for the long-term and tendency to procrastinationLack of awareness of need to save for the long-term and tendency to procrastination

Insufficient incentives to save privately for the long-termInsufficient incentives to save privately for the long-term

Limited stamina for long-term savingsLimited stamina for long-term savings

Inconsistencies at a national level in the fiscal treatment of similar investment productsInconsistencies at a national level in the fiscal treatment of similar investment products

Hindered true (cross-border) competition for best investor solutionsHindered true (cross-border) competition for best investor solutions

Limited transferability of long-term assets across plans, pillars, and countriesLimited transferability of long-term assets across plans, pillars, and countries

Limited attractiveness of design of long-term savings productsLimited attractiveness of design of long-term savings products

PRIP

provider

Retirementplan provider

Not always sufficient transparency provision towards investorsNot always sufficient transparency provision towards investors

Only limited asset/investment product choicesOnly limited asset/investment product choices

Not enough flexibility with regard to tailoring to individual customer needsNot enough flexibility with regard to tailoring to individual customer needs

Source: Interviews with CEOs o European asset managers, pension unds, and investor protection associations. 2 When reerring to plans, savings, assets,etc., the words pension and retirementare used synonymously in this paper.


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there have been only limited attempts to harmonise national rameworks, which hashindered retirement plan and product providers rom competing at a European level, andlimiting transerability o long-term assets across plans, pillars, and countries;

Retirement plan providersy do not always provide investors with sucient transparency(e.g., on the actual investment part o retirement provisions) and commonly oer onlylimited asset/investment product choices. Retirement plans also do not show enoughfexibility with regard to tailoring to individual customer needs;

Faced with this situation,y some PRIP providers tend to ocus more on regulatory arbitragethan solely on investor needs. In some cases, this has reduced the attractiveness o long-term saving products.

2. Distribution challenges

The ollowing challenges in distributing retail investment products expressed by the 23interviewees cut across investors, product providers and, o course, distributors themselves(Exhibit 2).

Investorsy can sometimes be challenged by the complexity o product choice and design.They also lack prompt proo o quality regarding their purchases/investments and sucientnancial education and engagement, all o which means they cannot infuence the qualityand price o the services they are oered;

Distributorsy oering investment advice may not be given suciently strong incentives toact in the best interest o their clients, independently o existing regulatory rameworks. Thiscould lead them to not always providing the best possible advice, potentially being biasedtowards certain PRIP providers/PRIP categories;

PRIP providersy may not always show appropriate consideration or investor needs, notablywhen it comes to product design. Oten this is due to inadequate inormation fows betweenproduct providers and distributors and limited knowledge o ultimate client base.

Exhibit 2: Main challenges identied in distribution

Main challenges in distribution

PRIP

provider

Distributor

Investor

Investors confronted by complexity of product choice and design

Investors with lack of prompt proof of quality regarding their investments

Distributors not always providing the best possible advice

Distributors not given sufficiently strong incentives to act in the best interest of their clients

Distributors potentially biased towards certain PRIP providers/PRIP categories

PRIP providers not always showing appropriate consideration for investor needs

Investors lack sufficient financial education and engagement

Source: Interviews with CEOs o European asset managers, pension unds, and investor protection associations.


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II. Overview o recommendations

The asset management industry representatives had many dierent recommendations toaddress the challenges outlined above. Within these, a priority list o three recommendationseach or long-term savings and retail distribution was dened, together with two enablingproposals to underpin improvements in these two areas (Exhibit 3).

Contributors recognised that the measures outlined in this paper should lead to greater benetsor investors, even i these are at the cost o other industry participants (i.e., distributors andretirement plan/PRIP providers). O course, meeting investors needs should increase the long-term viability o the European long-term savings market in general, and the European assetmanagement industry in particular.

The recommendations require dierent levels o industry and/or regulatory involvement the role o each will be described below.

Exhibit 3: Synthesised recommendations or long-term savings and distribution

DistributorPRIP

provider

PRIP

provider

Retire-

ment plan

provider

Long-term savings Distribution

Increase total European retirement savings

by encouraging governments to introduce

compulsory long-term saving schemes (with

opt-out clauses), that are organised with

employer and/ or industry scheme support

Increase the consumer-friendliness of long-term investments by introducing a personal

retirement plan that has consistentcertification standards across Europe

(referred to as "Officially Certified European

Retirement Plan"; OCERP)

Give all PRIP providers equal access to the

development of suitable and efficient

OCERPs in order to foster competition for

the best investor solutions

Harmonise distribution standards for

packaged retail investment products

(PRIPs) across product categories

Improve quality and transparency ofactivities at the point of sale

Promote further confidence in UCITS as

a trustworthy investment vehicle

Promote financial literacy and competence of

individual investors and financial advisors

Set industry aspirations for improved business

conduct and performance

Regu-

latory

action

Indus-

try

commit-

ment

Regu-

latory

action

Indus-

try

commit-

ment

A

A1

A3

A2

B

B1

B3

B2

C1

C2

C

Investor


A. Recommendations to improve provision o long-term savings

A1. Increase total European retirement savings by encouraging governmentsto introduce compulsory long-term saving schemes (with opt outclauses) that are organised with employer and/or industry schemesupport

Evidence rom both within and beyond Europe suggests that introducing compulsory savingsschemes is a viable way to enorce regular personal contributions. Eective implementationwould increase employees retirement assets, reducing dependency on national PAYG systemsand thereore positively aect member states budgets, notably in periods o low growth.


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Compulsory saving schemes should have three cornerstones:

Automatic enrolmenty o all citizens with an opt-out clause. Such systems have alreadydemonstrated their advantages, and are being introduced in some countries, such as in theUK in 2012;

Employers would helpy collect contributions (the state or proessional associations wouldassume this role or the unemployed, sel-employed, or small businesses). This would reducecosts due to both the scale o the operation and the bargaining power employers couldexercise, or example in dealings with retirement plan providers;

Granting they best available tax benets at a national level or compulsory retirementprovisions. This would reduce investors inclination to opt out.

Together, these cornerstones could ensure healthier retirement savings despite the pressure on

public and occupational schemes.

It is clear that the legislative power or such an undertaking lies within the separate nationallegislative bodies, which would determine minimum/maximum contributions, and the rules oropting out. In principle, recommendation A1 could be implemented on a stand-alone basis atnational level. However, a unied certication standard or European personal retirement plansthat set (i) minimum standards and (ii) conditions or granting best available tax benets thatare applicable to other retirement provision options would reduce national bodies eorts topromote compulsory savings and strengthen investors ability to reach their long-terminvestment goals.

A2. Increase the consumer-riendliness o long-term investments byintroducing a personal retirement plan that has consistent certicationstandards across Europe

Irrespective o how widely recommendation A1 is adopted, those interviewed saw a clear needor a simple personal retirement plan, with unied standards across Europe. This should takethe orm o a simple wrapper, which could orm part o both Pillar 2 and Pillar 3. Thoseinterviewed saw the absence o such a vehicle as a critical barrier to enabling EU citizens tosave more or their retirement.

Unied standards or such personal retirement plans should protect investors retirementassets, allow or adequate investment choices to build wealth, as well as oster transparencyand attractiveness rom a long-term savers point o view. Plans that meet these standards andreceive certication rom the appropriate regulatory body will be termed an Ocially CertiedEuropean Retirement Plan (OCERP) in this report.

The design o OCERPs should allow plan providers (insurance companies, banks, or assetmanagers) to raise retirement savings in both Pillars 2 and 3.3

OCERPs are designed to be retirement plans, not the underlying investment products. As such,OCERPs are open to all providers as long as their products allow the OCERP to meet itscertication standards.

The introduction o OCERPs would create a level playing eld or retirement plan providersacross Europe. This chapter now details OCERP certication standards (A2.1), and theassociated supervisory standards in the EU (A2.2).

3 This is consistent with the call or osteringand better recognition o the two-layerstructure o the private pension marketin EU policy papers/initiatives on privatepensions by the European Federationor Retirement Provision (EFRP), c. EURegister ID: 5199259747-21


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A2.1. Basic requirements or Ocially Certied European Retirement Plans

OCERPs would create a new market segment or which a level playing eld is needed to ensureair competition or the best personal retirement plans. Thereore, a unied certicationstandard should be introduced that allows national legislators to approve plans based onuniorm European guidelines.

Conceptually, an OCERP could be designed as a European Personal Pension Account (EPPA),i.e., an account in which an individual accumulates savings, retirement claims, and/or otherinsurance-related claims, all o which are dedicated exclusively to providing retirement income.4

In addition to the eedback received rom interviewees, the requirements developed belowintegrate the eedback received by EFAMA on EPPA and the main ndings o two independentstudies commissioned by EFAMA.5 They also take into account the proposal developed by theEuropean Financial Services Round Table or the creation o Pan-European Pension Plans.6

The basic requirements or OCERPs are that they should (i) be transparent, (ii) acilitateinvestment choice, (iii) be transerable/portable, (iv) provide adequate fexibility, and (v) bemanaged cost-eciently and saely.

TransparencyOCERPs should be domiciled in an EU member statey or within the EEA (EuropeanEconomic Area) to ensure that they all under European regulation and the associatedtransparency requirements;

Transparency on all costs.y The OCERP provider would ormally reconrm costs o theretirement plan to investors annually in an itemised statement. This gives investors moreinormation and could encourage competition between providers, i.e., insurance companiesand asset managers;

Transparency on accumulated savings.y The OCERP provider should inorm investors otheir total savings at least once a year in order to increase the level o inormation theyreceive, and give them the opportunity to adjust annual contributions.

Individual choiceIndividual choice allows people to structure their retirement investments according to their ownneeds and preerences. There are valid concerns about individuals ability to make the rightdecisions when it comes to planning or their retirement, hence the need or the regulator tosupport this individual choice. In this context, the ollowing should be required:

OCERPs shouldy limit the range o underlying products in which individuals can invest, andput in place mechanisms to help individuals make well-inormed choices;

OCERPs shouldy oer a deault investment option (i.e., a selection o underlying investmentproducts that refect an appropriate asset allocation given the investors basic characteristics,e.g., age) to help individuals who are unable or unwilling to make investment choices;

OCERPs shouldy provide solutions or dealing with investment risk during the accumulationand pay-out phases. This requirement would seek to ensure adequate investment returnsover the long term, while seeking to avoid individual exposure at the point o retirement tounnecessary market risk.

The solutions or the accumulation phase should oer a range o investment options.These might include guarantees o certain benets or sophisticated asset allocation orinvestment approaches that ensure an automatic reduction over time o the share o riskyassets in the OCERP portolio. This would mitigate the risk o investors alling victim to apotential market collapse just beore they retire.

4 More inormation on the EPPA proposalis available on: http://www.eama.org/index.php?option=com_docman&task=doc_details&gid=156&Itemid=35.

5 See Oxera report entitled Dened-contribution pension schemes: risks andadvantages or occupational retirementprovision and Maurer report entitledRethinking retirement income strategies how can we secure better outcomesor uture retirees. Both reports can bedownloaded rom the EFAMA website atthe ollowing addresses:http://www.eama.org/index.

php?option=com_docman&task=cat_view&gid=29&Itemid=-99,http://www.eama.org/index.php?option=com_docman&task=cat_view&gid=261&Itemid=-99.

6 See http://www.er.be/members/upload/publications/76309EPP%202007.pd.


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The solutions or the pay-out (or decumulation) phase should oer the possibility oconverting the accumulated lump sum into a recurring income stream ater retirement,e.g., by supporting the use o pay-out solutions such as drawdown plans and variable/deerred annuities.

Transerability/portabilityTranserability between countries and/or employers and/or pillars is essential within theEuropean Union to support the ree movement o people and labour. As such,

Investors should be allowed toy merge pension or retirement accounts managed bydierent providers rom dierent (ormer) employers without incurring unnecessarylosses. This recommendation would also lower complexity costs or providers and thuspotentially or investors;

OCERP assets accumulated in one member state should be transerable to another.y

Pay-outs should be taxed in the country in which any (potential) tax break was granted inthe accumulation phase;

OCERPs should also be transerable between pillar 2 and 3 schemesy , so that, or example,employees moving to sel-employment can keep their retirement assets.

It must be clear, however, that not all contracts provide identical benets, (e.g., with regardto potential coverage o biometric risk within an OCERP) and that there could be someadministrative costs associated with transers. Regulation o the administrative costs, however,should stop plan/product providers rom introducing prohibitively excessive charges, e.g., orpay-outs beyond national borders.

FlexibilityFlexibility urther increases the attractiveness o the underlying investment products (and thusthe OCERP), and should help overcome investors limited stamina or long-term investments.As such,

OCERPs should oery fexible withdrawal/borrowing options or specic reasons, such asbuying owner-occupied real estate, covering old-age health care expenses, etc. Tax breaksshould stay in place i withdrawals are returned within a set time rame, giving investorsfexibility and increasing their propensity to save;7

The EC should also requirey fexible suspension rights in OCERPs in specic cases, i.e.,the right to oset retirement provisions or a set period. Specic cases could includeunemployment, having children, buying owner-occupied real estate, and/or venture creation.Investors should be able to make up or suspended payments within the same scal yearwithout losing (potential) tax breaks or government subsidies.

Any product provider that wants access to OCERPs (i.e., insurance companies, banks, assetmanagers) would need to ensure its products provide such fexibility.

Cost-eciency and saetyFinally, to ensure cost-ecient OCERPs that benet investors and to protect investors rom anOCERP providers potential bankruptcy, the regulator should impose:

Institutional management o OCERP provisionsy , i.e., contributions rom the sameemployer/employee group should be managed by a set o product providers selected by theemployer (potentially pre-selected by the OCERP provider) in order to ensure sucient scaleand advantageous bargaining positions;

Management o OCERP investments in individual accountsy to allow transparency on thevalue o the individuals portolio and ensure less disruptive (and thus less costly) asset/investment product transers rom one plan to another.

7 Pre-requirements (e.g., real estate

appraisal, business plan certication bystate-approved start-up consultant) and/or cap on withdrawal/borrowing (e.g.,percentage o real estate value) to bediscussed in order to protect individualinvestor rom bad investment/reallocationdecisions.


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9

Creation oy segregated accounts (i.e., ring-encing the OCERP assets rom the providersbalance sheet assets), which would increase investor protection in case o product providerbankruptcy and allow economies o scale.

A2.2. Associated supervisory standards or Ocially Certied EuropeanRetirement Plans (OCERP) and OCERP providers

The national regulatory body that has the authority to authorise retirement products shouldaward OCERP status. Once certied in one member state, OCERP providers should be ableto market OCERPs throughout the European Union.

To achieve this objective, it is essential to agree on a legal ramework to:

Provide OCERPs with a European Passport;y

Regulate the conditions under which nancial institutions, in particular insurance companiesyand asset managers, could provide OCERPs across Europe.

One option to put this into practice would be or the new European Commission to prepare aproposal or a new Directive on the regulation and supervision o OCERPs and their providers.

An alternative approach would be or the European Commission to propose an adaptation othe Directive 2003/41/EC on the activities and supervision o institutions or occupationalretirement provision (IORP)8.

Although the IORP Directive has only a limited track record9, it could be used as the basiscreating a single market or pan-European personal retirement plans. For this to be possible,the IORP Directive should be adapted to:

Include a section describing the proposedy unied ramework or pan-European pension orretirement plans. This should draw on this reports proposal on OCERPs and emphasisethat these plans could be oered in Pillars 2 and 3;

Include a section describing the proposedy regulatory requirements or OCERP providers.In principle, insurance companies, asset managers and banks should be allowed to provideOCERPs under existing Directives. Alternatively, OCERP providers could be requested tocomply with the IORP Directive. However, to improve eciency, this approach should becoupled with the proposal in the next paragraph;

Create a level playing eldy by allowing all regulated providers to oer OCERPs withoutrequiring that they establish a separate new legal entity with a separate governance

structure. Instead, the Directive should extend the approach oered in Article 4 to allnancial institutions, which already benet rom a Community legislative ramework;

Use the opportunity oered by the revision o the Directive toy address other outstandingissues that have been raised in the context o the review o the Directive by CEIOPS andthe European authorities.

In developing a regulatory ramework or OCERP and OCERP providers, it is important torecognise that the OCERP itsel, so long as it is simply a wrapper around investment products,will have no need or additional solvency requirements. Existing EU capital and solvency ruleswould continue to apply to providers already subject to those rules. As a transparent wrapper,the OCERP would not embody any guarantees and hence not need capital backing. O course,i an OCERP were designed in a particular member state to include guarantees within thewrapper, the relevant solvency rules would have to apply.

8 See http://ec.europa.eu/internal_market/pensions/directive_en.htm.

9 As o June 2008, only 70 cases o cross-border activity had been reported underthe new IORP Directive (CEIOPS: 2008Report on Market Developments).


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11

Although only some asset managers are likely to opt or OCERP provider status and oer thewhole retirement solution, all providers will have a keen interest in contributing to OCERPs byoering the underlying investment products. Interviewees are aware that investors might needmore education to be convinced o the benets o having pure asset management products inan OCERP. They are also sure that once this has been successul, the asset managementindustry can live up to its societal role and contribute to the long-term sustainability o theeconomy by delivering on the long-term goals o hundreds o millions o European long-termsavers.

Exhibit 4: (A) Impact o recommendations on challenges in long-term savings

Immediate impactImmediate impactSubsequent impactSubsequent impactDegree to which synthesized recommendat ions are able to address challenges in long- term savings

Introduce a personal retirement plan ("OfficiallyCertified European Retirement Plan"; OCERP)that has consistent certification standards

across EuropeGive all PRIP providersequal access to the

development ofsuitable and efficientOCERPsMain challenges

PRIPprovider

Legislator/regulator

Investor

A1 A2 A3

Increase totalEuropean retirement

savings by encoura-ging governments to

introduce compulsorylong-term savingschemes

Limited stamina for l ong-term savings Inconsistencies at a national level in thefiscal treatment of similar investmentproducts Hindered true (cross-border) competitionfor best investor solutions

Insufficient incentives to save privatelyfor the long-term

Lack of awareness of need to save for

the long-term and tendency toprocrastination

Limited transferability of long-termassets across plans, pillars, andcountries

Limited attractiveness of design of long-term savings products

Not enough flexibility with regard totailoring to individual customer needs

Only limited asset/investment productchoices

Not always sufficient transparencyprovision towards investors

Retirementplan

providers

Trans-parency

Indi-vidualchoice

Port-ability

Flexi-bility

Costefficiency


Summary

Overall, the three recommendations or long-term savings address all the relevant challengesidentied in Chapter 1 (Exhibit 4). Individual recommendations have relatively little overlap,

thereore implementing all three collectively is crucial i the challenges are all to be overcomeeectively.


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B. Retail investment product distribution recommendations

The validity o the ollowing recommendations is subject to ull implementation o PRIP in orderto ensure same rules across product categories. Also, when reerring to distribution, theserecommendations include selling and advising.

B1. Ensure harmonisation o distribution standards or packaged retailinvestment products (PRIPs) across product categories

Dierent investment product categories have dierent transparency and selling rules. Theresulting distorted competition hampers investors ability to compare alternative investmentoptions and weakens their position with both distributors and product providers.

In order to create a level playing eld, the same distribution standards should apply across allretail investment product categories.

In this context, the asset management industry, as represented by the contributors to thiseort, welcomes the EU initiative on Packaged Retail Investment Products (PRIP). PRIPsobjective is to introduce a horizontal approach that will provide a coherent basis or theregulation o mandatory disclosures and selling practices at European level, irrespective o howthe product is packaged or sold.13

In order to establish an eective level playing eld, the scope o PRIP should be extended tocapture the ull universe o substitute investment products.14 This could eliminate existinginequalities and thus improve comparability across product categories.

Building on UCITS and MiFID rameworks, PRIPs should oblige product providers to publish aconsistent and standardised Key Inormation Document (KID) containing, or example,investment policy, risk/reward prole, charges, past perormance, etc. some tailoring toproduct specicities might be required.

Synthesisedrecommendations

Increase total European

retirement savings by

encouraging governments to

introduce compulsory long-

term saving schemes (withopt-out clauses), that are

organised with employer

and/ or industry scheme

support

Increase the consumer-

friendliness of long-term

investments by introducing a

personal retirement plan thathas consistent certification

standards across Europe(referred to as "Officially

Certified European Retire-ment Plan"; OCERP)

Give all PRIP providers equal

access to the development of

suitable and efficientOCERPs in order to foster

competition for best investor

solutions

A1

A3

A2

Recommended regulatory actionContribution of the AM industry

Promote introduction of compulsory long-termsavings schemes at a national level with

automatic enrolment and an opt-out clause

Encourage national legislative bodies to involveemployers (or states/professional associations)

in the contribution collection process

Promote granting of best available tax benefitsat a national level for compulsory retirement

provisions (or alternatively, for certified

retirement plans)

Define unified certification standards for eligibleretirement plans with regard to transparency,

investment choice, portability, flexibility, and

cost-efficiency/safety

Define a certification process and associatedsupervisory standards for OCERPs, e.g., by

adapting the IORP Directive to

Allow for a European OCERP Passport Regulate the conditions under which

financial institutions could provide

OCERPs across Europe

Ensure equal access for all PRIP providers toOCERPs as long as they comply with the

OCERP certification standards

-

Individually prepare for meeting all recommendedOCERP certification standards, e.g., by developing

solutions (i) for dealing with investment risk during

accumulation/payout phases or (ii) with sufficient

flexibility, e.g., withdrawal/borrowing options

Contribute to the development of a fair andbalanced proposal for unified certification standards

and harmonised tax treatment of OCERPs Launch an Industry Research Group to

Explore opportunities for innovation in personalretirement plans

Further investigate the practicality of the outlinedOCERP recommendations

-


Exhibit 5: (A) Contributions o the AM industry and the regulator to implement long-termsavings recommendations

13 Communication rom the Commission tothe European Parliament and Council onPRIP COM (2009) 204.

14 EFAMA supports the Commissionsproposal to use a broad approach basedon a principles-based economic denition,

to include among them structuredproducts under the Prospectus Directive,structured term deposits, unit-linkedinsurance products as well as all insuranceproducts with an investment/accumulationcomponent and unds (including closed-endunds).


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Furthermore, distributors should comply with specic selling rules, i.e., (i) avoid, manage ordisclose any conficts o interest that might arise in the sales or advice process, (ii) assess thesuitability o investment products in meeting investors needs, and (iii) disclose remunerationarrangements.

As PRIP is still in development phase, the regulator should ensure (i) that it adequately capturesproduct specicities (e.g., speciying counterparty risks o structured products) withoutcompromising on a consistent ruling across categories, (ii) uniorm implementation in allmember states.

Once eective, PRIP will give investors a better view o the potential consequences o theirinvestment decisions. Additionally, a level playing eld at the point o sale is established as allPRIPs are subject to the same regulatory ramework.

Finally, eective implementation will oster air competition among product providers but also

among distributors. This should ultimately lead to increased incentives or product delivery thatcorrespond with the needs o investors.

All participants encourage EFAMA to continue to oer its support during the regulatorsconsultation processes, while ully acknowledging the regulators leading role in advancing thisinitiative.

B2. Improve quality and transparency o activities at the point o sale

Harmonising distribution standards across product categories might not be sucient toovercome all the challenges o distribution, as omissions or room or interpretation in currentDirectives can lead to business practices at the point o sale that are not in the spirit o investorprotection.

The regulator should thereore seek to improve the quality and transparency o activities at thepoint o sale by adding to existing regulations. Specically, it should:

Disclose the nature o distributors servicesy

Ensure ull disclosure o all cost items and the principles o remuneration arrangementsy

Introduce a standardised advisor certicatey

Consider granting investors the right to withdraw rom an investment decision.y

These additions would ease implementation, ensure eectiveness and extend the impact o

PRIP or all the investment products mentioned under recommendation B1. In order to ensurea level playing eld, it is essential to ensure consistent application o these requirements or allPRIPs, i.e., all recommendations outlined below apply to product providers and/or distributorsacross product categories.

B2.1. Disclose the nature o distributors services

Todays requirements on disclosure and suitability o advice under MiFID aim to give investorsthe necessary transparency regarding the nature o the services the distributor is oering(knowing that as part o their services, distributors across Europe do not always provideinvestment advice). However, there is reason to believe that this is not enough to ensure thatthe aims are always met. Thereore, MiFID should also set standards as to how exactly thisdisclosure should take place, notably at the point o sale (e.g., design o disclosure orm, etc.).


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A crucial requirement or eective implementation is that the inormation is providedproactively, in an understandable ormat and early in the sales/ advisory process.

In this respect, the customer needs to know the nature o the advice he or she is receiving.In particular, the ollowing inormation should be disclosed:

The distributors duties to the clienty , including general duties under MiFID. In particular theadvisor should make clear at the outset o the provision o advice whether she/he is actingindependently and will be remunerated solely by the client, or whether she/he will receiveremuneration rom a product provider or distributor.

The range o investment product categoriesy on which the distributor advises, e.g., mutualunds, investment products within lie insurance policies, etc.;

The number and names o product providersy on which the distributor advises, identiying

any product providers with whom the distributor has a potential aliation;15

The basic principles o the ee arrangementsy that the distributor has with dierentproduct providers and distributors or dierent product categories together with a table ocomparable commissions/revenues payable on related, competing PRIPs by notably clariyingMiFID Level 2 Art. 26;

The basic criteria and process or selecting productsy on the distributors shel;

Restoring the balance between investors and distributor helps the ormer better comparethe oering o dierent distribution channels, with the understanding that clients are notnecessarily best served by incurring the lowest possible cost but rather by nding the rightproduct combination that meets their investment goals. It ultimately increases competition orproducts that best serve investors needs. Eective implementation would also lead to morecompetition between distribution channels or the most client-centric distribution model.

B2.2. Full disclosure o all cost items and remuneration arrangements

For all PRIPs, the advisor should additionally be obliged to disclose proactively all cost itemsand the principles o all remuneration arrangements. The UCITS Key Inormation Document(KID) as oreseen by CESRs advice or UCITS IV Level 2 already requires UCITS to meet a veryhigh level o disclosure or und costs. In addition, MiFID Level 2 Art. 26 (inducements) and 33(cost disclosure) provide relevant disclosure requirements at the point o sale. However, varyinglevels o implementation o the Directive weaken the impact o these rules or the investor.Furthermore, the scope o MiFID does not require all PRIPs to adhere to the high standards thatapply to UCITS.

This disclosure must be delivered in a orm that the investor can easily understand, comprisingall items and arrangements whether they be (i) direct or indirect, (ii) one-o or recurring, (iii) atthe time o purchase, in the holding period, or at the exit o the investment. The UCITS KIDshould be a benchmark or all PRIPs.

The investor should understand exactly what he or she is paying in order to make betterinormed investment decisions.

In detail, the distributors obligations towards its clients should include:

Communication o product/solution costs (including perormance ees) as given by theyproduct provider and clear specication o any kind o distribution ees/margin;

An indication o which part o the ees is paid by the investor directly, any ongoing chargesyand any ees paid out o any PRIP, as already provided by the UCITS simplied prospectusand, in the uture, by the KID (e.g., or UCITS unds);15 E.g., corporate integration, exchange o

goods and/or services not related to thenancial product itsel, e.g., IT, marketing,etc.


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15

Disclosure o all inormation (in particular the costs mentioned above) at the point oysale beore the customer is bound by any contract, so that he or she is ully aware o thedistributors remuneration or selling the PRIP. As ar as UCITS are concerned, CESR hasissued clear recommendations to the European Commission with the support o the industry.

To be eective, recommendation B2.2 would need to be enorced prior to any sales (be itadvice or execution only). Repeated non-compliance on the part o the advisor should lead tothe suspension o the advisor certicate detailed in recommendation B2.3.

More transparency on cost should lead to investors being able to drive the prices o servicesoered and/or increase the quality o advice provided.

The regulator should keep in mind that the requirement to disclose the actual cost or advicecould lead to distributors having to withdraw rom the business i they cannot attract customersor to revert to non-regulated products.

For asset managers, clear disclosure o costs could give them increasing bargaining power withdistributors. This assumption, however, only holds as long as the level playing eld detailed inrecommendation B1 is achieved.

Interviewees also acknowledged that one o the challenges acing the industry relates toinvestors education and their ability to understand product descriptions, which can be verytechnical.

B2.3. Introducing a standardised advisor certicate

Although MiFID has included advice in the range o investment services, some improvementsshould be considered to meet investors expectations better. In particular, the intervieweesbelieve that:

The distributor or advisor must ensure that she/he and the client have a commonyunderstanding o the clients investment goals, their investment time horizon and their riskwillingness;

The distributor or advisor must ensure that she/he has a clear understanding o the productsybeing recommended to the client, e.g., return/risk prole;

The distributor or advisor must ensure she/he is equipped to ollow up and explain theyproducts perormance at any time ater the investment decision has been taken.

Thereore, everyone advising on retail investment products should prove their capabilities by

achieving a standardised advisor certicate or equivalent standards o advisor educationand competence. These could be dierentiated by products, product complexity, or customertypes. Such a certicate should be mandatory or all PRIP distributors that have direct retailinvestor interaction (including insurance advisors), in order to increase the quality o service atthe point o sale.

A standard certicate would increase investor trust as it would ensure that advisors assessingthe suitability o products or the individual investor ully understand the products eatures aswell as their duties towards their clients. Additionally, it would urther level the playing eldacross distribution channels, which dier undamentally in their advisor requirements or haveno requirements at all.

Given previous industry eorts at the national level, sel-regulation alone does not seemeasible or the eective implementation o this recommendation. The European regulatorcould, however, dene high-level guidelines or an advisor certicate and the certicationprocess, which would then be subject to urther detailing on a national level. These high-levelguidelines should be a result o the ongoing MiFID review o the rules or business conduct.


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In the light o national dierences in existing standards, training programs, and educationallevels o asset managers sales orces the interviewees recommended that EFAMA investigatethe easibility o introducing a European-wide sales orce certication program that would(i) certiy members existing training programs, (ii) monitor compliance, and (iii) promote thecertication within its sphere o infuence. This should have an indirect but signicant eect onthe quality o advice provided at the point o sale. Additionally, and to urther support thedistributors/ advisors ability to understand and explain the products they sell/ advise on, thegroup o interviewees called or more simplicity in marketing and sales support materials, aswell as increased eorts in the training and development o the sales orces o PRIP providers.

B2.4. Consider granting investors the right to withdraw rom an investmentdecision

The interviewees raised the idea o giving investors the right to withdraw rom an investment

decision within a sensible time rame.

This recommendation, while requiring urther investigation given the increased complexity itwould entail, aims to reimburse a portion o the transaction ee i the customer decides towithdraw rom an investment decision. This could lead investors to engage more ully in theadvisory process. Furthermore, investors would be more likely to solicit additional externaladvice and make more eort when comparing oerings. Any right would o course excludereimbursements or losses due to market fuctuations etc.

Distributors could commit themselves to make such a right to withdrawal standard practice.The regulator should intervene only i such a negotiated agreement does not prove eective.

In either case, restrictions on the types o reimbursement should be part o the negotiatedagreement or regulation.

Eective implementation o this recommendation, which all parties recognise as highly complex,should enable investors to veriy the inormation provided by the advisor during the advisoryprocess (e.g., via objective third-party sources) and reely reconrm the investment decisiontaken. The interviewees believe that EFAMA should commit to investigating the concernsexpressed by some o them regarding the easibility and impact on complexity costs thatultimately would be borne by all remaining investors.

B3. Promote urther condence in UCITS as a trustworthy investmentvehicle

UCITS should be promoted more strongly as a trusted pan-European investment vehicle. The

wide spectrum o asset classes and investment strategies allowed within UCITS has provedbenecial in optimising risk/return proles that were not previously possible. On the other hand,this extension o allowable asset classes and investment strategies has made it dicult orinvestors and advisors to keep track o the UCITS universe and what it represents. This suggeststhat a comprehensive classication is needed regarding (i) risk/return proles o UCITS and(ii) und type based on a UCITS portolio holding.

An ideal classication would allow investors (and advisors) to compare dierent UCITS, and thusto distinguish suitable products. Such a classication would lay a strong oundation or investortrust in UCITS.

However, a simplistic risk/return classication o UCITS into basic and complex unds based onasset classes is not advisable, given that complex does not automatically equate to high-risk,and basic does not necessarily mean sae. Furthermore, a uniorm und-type classicationwith regard to portolio holdings has not been established ully at a European level.


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In order to move ahead, it is recommended that the asset management industry:

Strengthen industry risk measurement and management capabilitiesy

Scales up eorts to establish a European-wide und type classication with regard toyportolio holdings.

B3.1. Strengthen industry risk measurement and management capabilities

CESR has already advised the European Commission on including a risk/return indicator in theUCITS KID. CESRs proposed methodology to calculate such an indicator the Synthetic Riskand Reward Indicator (SRRI) is based on historical volatility o the respective und andprovides a visual, standardised numerical scale or these risk categories.16 The EuropeanCommission will make the nal decision on the concrete methodology or computation o the

SRRI in its Level 2 proposals or UCITS IV.

Although not ully convinced o the benet o the SRRI in its current orm especially in thelight o expected distortions that applying the SRRI would have i restricted to asset managementproducts interviewees suggested that EFAMA sponsors an industry initiative to develop aninventory o risk management practices rom which it can derive proposals or strengtheningrisk analytics capabilities, and to promote where relevant more rigorous product stress testing.This initiative would be independent o any roll-out o the SRRI, yet it would help the industryby providing urther indicators to investors to help them make decisions.

B3.2. Establish a European-wide und-type classication with regard toportolio holdings

Conusion around available UCITS unds can stem rom the lack o a robust, mutually agreedstandard or und-type classication regarding the underlying portolio holdings. There is a callor EFAMA to scale up its eorts within the European Fund Classication Forum (EFCF).

This group was ounded in 2002 with the objective to:

Develop a robust und-type classication at a European level that allows UCITS unds to beycompared easily;

Commit national asset management associations to promote and use consistently the undyclassication endorsed by EFAMA;

Set up a system o independent and transparent controls o the classication results. Such ay

system would ensure adequate monitoring and accountability or the und type classication.

Several milestones have been achieved (e.g., dening classication criteria and process,nominating an independent classication administrator), but ull harmonisation has yet to bereached. In the months ahead, it is recommended that EFAMA develops a strategy to achievethis goal and works together with CESR/ESMA to see how it could be implemented acrossEurope (along the lines o what is being done or money market unds).

For the overall eort, described under B3.2, EFAMA is seen as the appropriate partner toengage with und rating agencies and other bodies whose role is to distribute inormation onund investment perormance. An industry-wide consultation would seek to promote morediscipline and better standards o classication that would be used widely in marketing anddistribution eorts.

It is recognised that in some countries und classications are driven by national regulators.

16 For structured products, implicit volatilityis extracted rom a Value-at-Riskcomputation; c. CESR/09-949.


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Exhibit 6: (B) Impact o recommendations on challenges in distribution

Immediate impactImmediate impactSubsequent impactSubsequent impactDegree to which synthesized recommendations are able to address challenges in distribution

Synthesised recommendations for distribution

Improve quality and transparency of

activities at the point of saleHarmonise

distribution stan-

dards for packaged

retail investment

products (PRIPs)

across product

categoriesMain challenges

B1 B2

Disclose the nature

of distributor's ser-

vices and of all cost/

remuneration items

Introduce standar-

dised advisor cer-

tificate and

potentially investor

withdrawal right

Promote further confidence in UCITS

as a trustworthy investment vehicle

B3

Strengthen

industry risk

measurement and

management

capabilities

Establish European-

wide fund-type clas-

sification regarding

portfolio holdings

Distributors not givensufficiently strong incentives toact in the best interest of theirclients

Distributors not always providingthe best possible advice

Distributors potentially biasedtowards certain PRIP

providers/PRIP categories

Investors with lack of promptproof of quality regarding theirinvestments

Investors confronted bycomplexity of product choiceand design

PRIP providers not alwaysshowing appropriateconsideration for investor needs

PRIPprovider

Distributor

Investor

Investors lack sufficient financialeducation and engagement


Synthesisedrecommendations

Harmonise distributionstandards for packaged

retail investment

products (PRIPs)

across product

categories

Improve quality andtransparency of

activities at the point of

sale

Promote further

confidence in UCITS as

a trustworthyinvestment vehicle

B1

B3

B2

Recommended regulatory actionContribution of the AM industry

Create equal transparency requirements and sellingrules for all retail investment products by advancing

the PRIP initiative, provided PRIP captures the full

universe of retail investment products, in particular

Ensure adequate capturing of productspecificities without compromising on a

consistent ruling across product categories

Ensure uniform implementation of the newdirective in all member states

Demand disclosure of nature of distributor'sservices proactively, in an understandable format,and early in the sales/advisory process (e.g., by

leveraging MiFID review)

Require advisors to proactively disclose all cost itemsand remuneration arrangements for all PRIPs

Define high-level guidelines for an advisor certificateand the associated certification process (as result of

the ongoing MiFID review of the rules for businessconduct)

-

Support the consultation process of PRIP

Support introduction of a standardised advisorcertificate, e.g., by

Investigating the feasibility of a European-wide certification standard of asset

management sales force training programs

Simplifying marketing/sales support materialsin order to enable distributors/advisors to

better inform investors

Further investigate practicality and feasibility ofgranting withdrawal rights to investors

Strengthen industry risk measurement andmanagement capabilities, i.e.,

Raise an inventory of risk managementpractices and derive proposals for

strengthening risk analytics capabilities

Promote, where relevant, more rigorousproduct stress testing

Scale up efforts to establish a European-wide fund-type classification with regard to portfolio holdingsand develop a strategy to achieve this goal


Exhibit 7: (B) Contributions o the AM industry and the regulator to implementdistribution recommendations

Summary

The recommendations on retail distribution address most o the identied challenges. Thesummarised impact assessment (Exhibit 6) shows that challenges are oten addressed bymultiple recommendations. Yet, implementing all the recommendations is advisable in orderto maximise their impact.


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III. Additional industry initiatives tounderpin commitment

The recommendations thus ar have mainly looked at regulatory intervention, although theasset management industry acknowledges its obligation to contribute to the measures outlined.

In addition, the contributors to this eort have reiterated the need or urther action toreinorce the duciary role o asset managers. Such actions will need a coordinated eort.EFAMA seems to be the appropriate orum to seek ways to:

Promote nancial literacy and competence o individual investors and nancial advisors;y

Set industry aspirations or good business conduct and perormance.y

C. Recommended industry actions to underpin improvements

C1. Promote nancial literacy and competence o individual investors andnancial advisors

This recommendation addresses individual investors lack o nancial literacy and low levels oengagement when dealing with nancial products. Eective promotion o nancial literacywould enable investors to (i) make better inormed investment decisions and (ii) drive thequality o the investment products and services oered in the market.

It is seen as part o EFAMAs responsibility to provide practical support to the EuropeanCommission and European governments in contributing to investor education.

The group o 23 interviewees recommends that EFAMA should be committed to the ollowinginitiatives:

Conducting a y European nancial literacy campaigns survey on existing public andprivate nancial literacy initiatives in EU member states. This survey would aim to sharegood practices in nancial education throughout the EU. It would provide a detaileddescription and impact assessment o existing practices;

Developing an y Introduction to investments glossary that is reely available on EFAMAswebsite. This will provide general investor inormation with a ocus on investment unds,e.g., elaborating on dierent investment purposes, explaining risk and return, dierent

und types, ees, and investment jargon. EFAMA will encourage national asset managementassociations to adopt this glossary.

To be truly eective, any promotion o nancial literacy needs broad-based support rom allnancial services participants. As part o such a joint eort, EFAMA could roll out selectedinitiatives that have been successul in raising investor knowledge and increasing engagement.Additionally, the nancial services industry can provide valuable and practical input at anational level in adjusting school curricula to ensure pupils receive basic economic and nancialeducation.

C2. Set industry aspirations or improved business conduct andperormance

To ensure the best possible investor protection, it is recommended that EFAMA promotes highstandards or the asset management industry. To this end it is suggested that EFAMA reviewsits existing code o conduct.


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Moreover, EFAMA should drive the establishment o a European Industry Research Groupamongst its members. This group would then be asked to develop an industry best practicelibrary that will collect practical recommendations to improve business conduct andperormance according to targets set in the code o conduct. Concretely, it is recommendedthat EFAMA undertakes to:

Identiy best practices throughout the asset management industryy or delivering ona code o conduct, potentially dierentiated by type o asset management company;

Develop a systematic evaluationy or all identied practices. Evaluation should enableEFAMA to certiy quality and award a seal;

Promote EFAMA quality seal to distributors and investorsy in order to generate interestin products rom endorsed asset managers;

Introduce annual awardsy , e.g., or the most client-centric asset managers (selected by anindependent jury).


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IV. Concluding remarks

Every participant in this industry has a role to play in improving the provision o long-termsavings and distribution o investment products or the benet o investors. Only when allstakeholders join orces in this critical endeavour will they be able to shape an even moreattractive market place. Investors will benet by being able to achieve their individualinvestment goals and the wider nancial industry will benet rom the improvement in investortrust. Some o the recommendations above may negatively aect some distributors andproduct providers economics, particularly in the short-term. Once eective, they might evenlead to changes to their business models. It will be up to each o these industry participantsto anticipate these eects and adapt accordingly

The investor is at the heart o this eort. Some interviewees elt that the industry has placed

too little emphasis on the investor or too long, and that the pivotal axis has been betweenproducers and distributors. This imbalance, where it occurs, must be corrected. An investor-centric industry is a prerequisite or the sustainable long-term success o the wider nancialindustry, and is thereore crucial or all participants.

As this report shows, key senior executives rom the asset management industry are committedto meeting the industrys responsibilities and to contributing to improvements in long-termsavings and distribution. But the asset management industry cannot drive the necessarychange alone. Success depends on acilitation and action by European legislative bodies as wellas European-wide regulators.

As duciaries with a ocus on client interests and needs, the asset management industry iscommitted to supporting high standards o ecient, eective regulation, consumer/investorprotection, corporate governance and nancial reporting standards. Thereore, in addition tothe recommendations identied in this report, the authors and sponsors commit to engage ullywith regulators, supervisors and accounting standards bodies to ensure rules, regulations andstandards are:

Evidence-basedy with high quality data available rom the industry to relevant parties,notably through the consultation process;

Eective and ecienty such that cost-benet analyses and impact assessments aresupported by practitioner input that is actual, relevant and o good quality;

Cost eective and practical to implementy such that European consumers benet romenhanced standards without a cost burden.

This report can serve only as a starting point or a promising i challenging journey. Thepressure to reassess the traditional models o oering long-term savings products anddistributing investment products to retail investors has been highlighted by the nancial crisis.Now, it is industry participants turn to drive the necessary changes. In doing so, they will ocourse have to elaborate on the actions required. As the asset management industrys leadingEuropean representative body, EFAMA must reach out to all relevant stakeholder groups todiscuss the recommendations urther and to initiate a joint eort that should lead to successor producers, distributors and crucially investors.


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More about EFAMA

EFAMA is the representative association or the European investment management industry. It representsthrough its 26 member associations and over 40 corporate members approximately EUR 12 trillion in assetsunder management, o which approximately EUR 7 trillion was managed by approximately 52,000 undsat the end o December 2009. Just under 36,000 o these unds were UCITS (Undertakings or CollectiveInvestments in Transerable Securities) unds.

The mission o EFAMA is to:

Support a high level o investor protection through the promotion o high ethical standards, integrity andyproessionalism throughout the industry;

Promote the completion o an eective single market or investment management and the creation o aylevel playing eld or competing saving and investment products;

Strengthen the competitiveness o the industry in terms o cost and quality through seeking and obtainingyimprovements in the legal, scal and regulatory environment.


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Contact point:

het rapport van de EFAMA met de acht aanbevelingen maart 2010

Documents

Transcript of het rapport van de EFAMA met de acht aanbevelingen maart 2010