Inducements in France: no ban but transparency « Il disincentivo agli incentivi nella disciplina sui servizi d’investimento: tendenze europee e nazionali a confronto » Il Salone Del Risparmio Milano, 18 Aprile 2013 Stéphane JANIN Director, Head of International Affairs Division AFG (French Asset Management Association)

2 Agenda 1. Current industry landscape in France regarding fund distribution and mandates 2.What is the current regulatory framework in France for inducements (investment advice + mandates)? 3.AFG’s position

3 1. Current industry landscape in France regarding fund distribution and mandates -Regarding fund distribution, as in many Continental EU countries, the main distribution channels are banks and insurance companies: Independent Financial Advisers (IFAs) play a minor role, as compared to the UK: -Banks + insurance companies = 85% of fund distribution -IFAs = 10% of fund distribution -Platforms/internet = 5% of fund distribution -Regarding mandates (« discretionary portfolio management »), many asset management companies managing mandates make use of external investment funds to widen their choice and improve the performance for the investors

4 2. What is the current regulatory framework in France for inducements (investment advice + mandates)? -Both for investment advice and mandates (discretionary portfolio management), MiFID 1 (Art. 26 MiFID Level 2) was transposed by Art of AMF General Regulation: 1.Either the commission is paid or provided to or by the client 2.Or it consists of proper fees that enable or are necessary for the provision of collective or discretionary porftolio management (e.g. custody costs, regulatory levies or legal fees) and which cannot give rise to conflicts of interest with the duty to act honestly, fairly anf professionnally in the best interests of the clients 3.Or the commission can be paid to third parties if two conditions are satisfied: -The client is clearly informed of the existence, nature and amount of the fee. However, service providers may disclose the essential terms of the arrangements in summary form, provided that they disclose further details at the request of the client, and -The commission must be designed to enhance the quality of the service to the client and not impair compliance with the duty to act in the best interests of the client.

5 3. AFG’s position (1/2) -For fund subscriptions through investment advice: -The Continental EU model is very different from the UK -Retail investors go to their bank or insurance company, and subscribe the funds of the group. It is natural (as for car dealers with car makers: a Renault dealer proposes Renault cars): such distributors are not expected to offer a large range of fund managers (contrary to IFAs) -Investors are not ready to pay for advice: only 28% of French wealthy investors would be ready to pay, vs. 51% in favour of commissions (pan-European study, Cerulli survey, September 2012) -There was no market failure identified in France -For mandates: -Inducements create an incentive for mandate asset managers to make use of external investment funds, which allows a wider choice of investments, and therefore the best performance for the investors -It is also a way to keep and to develop an open architecture, to the benefit of fund managers (in particular the ‘boutiques’: there are more than 600 asset management companies in France, which are a permanent stimulus for innovation and competition vis-à-vis the largest asset management companies)  Transparency on the existence of inducements is enough, and is currently done (including in mandate contracts)

6 3. AFG’s position (2/2) -If a general ban of inducements were to be decided at EU level: -For investment advice, it would lead to: -Direct payment of distribution costs by the investor: he would refuse and would then subscribe only banking products (which may be less performing and with hidden costs) -Rotation of portfolios (‘churning’) by distributors, to compensate the loss of retrocessions by more fees on the buying and selling of investment funds => It would be detrimental for investors -For mandates, it would lead to: -As for advice, a refusal for investors to pay for fund selection -A narrower choice of investment funds to be put in portfolio, potentially leading to a lower overall return for investors  It would be detrimental for investors, in particular the less affluent investors, which are not ready to pay higher fees and would be pushed out of the market  It would be detrimental for the development of open architecture  Compromise solution at EU level: European Parliament: ban of inducements only for independent investment advice and independent mandate management?

7 Thanks! Stéphane Janin,