The initial goal of the ban was, in anticipation of the Mifid II Directive, to increase cost transparency and to prevent banks from selecting funds based on the commission fees they offer. In the run-up to the commission ban, there was widespread fear that banks would respond by cutting their fund ranges to focus more on in-house products. Interestingly, one private bank fund selector said that, contrary to these expectations, he has started to invest more in external funds as they have become cheaper following the introduction of rebate-free share classes.
But the inducement ban has indeed triggered a response by the banks, albeit a less radical one. AA Advisors, the fund selection arm of ABN Amro, introduced its own single manager funds, a hybrid between an in-house fund and an external fund. These funds basically delegate the portfolio management to an external manager, within a mandate set by AA Advisors, while charging lower fees than most third-party funds.
When they still received kickbacks, some private banks and wealth managers used to pass on distribution fees directly to their clients while others did not. Some of the private bank fund selectors we spoke to said they have recently switched to using all-in fees. Before the 1st of January 2014, advice was usually ‘free’ for clients in the sense that it was included in the administration costs of a mutual fund. Most banks now charge a certain percentage of a client’s assets as an all-in fee or a, slightly lower, advisory fee. But this again is under scrutiny of Dutch regulator AFM, which questions the validity of calculating these fees based solely on the total assets administered for a client.
Finally, clients have not massively started to drift looking for cheaper providers of investment services, sources within the industry told us. This feeling is underpinned by a recent poll among local retail investors commissioned by the AFM. It found that most investors do not have a clear idea whether their total costs of investment have changed following the ban on distribution fees.