Shaped by the Rules. How Inducement Regulation Will Change the Investment Service Industry

Inducement regulation is intended to target the conflict of interests between financial advisors and their clients. Nonetheless, it may also represent a 'public policy device' meant to conform the activity of European distributors with investor protection goals; indeed, by selecting the conditions under which distributors can freely collect inducements, the European regulator simultaneously shapes the market for financial services. Accordingly, 'spot advice' (which poorly performed in the past) is indirectly banned by the quality-enhancement provision set forth in art. 24 MiFID II, and the acknowledged importance of on-going monitoring of the portfolio opens up the collection of inducements linked to the provision of 'periodic advice'. Since this new regime will probably increase the overall costs of investment advice enlarging the 'advice gap', the European regulator tries also to foster the development of FinTech permitting the collection of inducements even outside the strict provision of investment advice. Nevertheless, the concerns regarding investor protection raised by FinTech services (which allow only a mere 'self-assessment' of the investor's profile) suggest a broader interpretation of inducement regulation, with the purpose of enabling investment firms to provide low-cost financial advice capable of effectively encompassing every stage of the investment relationship, from the early assessment of clients' characteristics and objectives to the on-going management of the investments ('simplified advice').