If insurance or investment intermediaries earn money through commissions, the worst case for consumers is that they may not be sold the product that best fits their needs, but rather the product that will earn the intermediary the highest commission payment. Trail commissions create conflicts of interest and undesirable incentives and have been proven to result in less appropriate recommendations of financial investment products. They are therefore wholly incompatible with the principle that providers of investment advice and other services must always act ‘in the best interest of the client’ as set out in the EU’s Financial Markets Directive MiFID II.
European legislators should therefore implement a comprehensive ban on trail commissions for traditional and insurance-related investment products, especially also on financial services comparison platforms. A European ban on commissions would also create opportunities for more cross-border competition in the investment market, as commission- based sales models often incentivise national providers to sell in-house (and therefore domestic) products.