EU proposing Commission Disclosure.

Members of the European Parliament (MEPs) are still deciding how fee transparency would work as a key vote that would enforce European brokers to tell clients how much commission they make has been delayed by European political wrangling.

The Economic and Monetary Affair Committee (ECON) is responsible for coming up with the final wording of the Insurance Mediation Directive (IMD) II has pushed back a vote on the final proposals to December. Proposals are likely to force compulsory commission disclosure by 2015. The European Commission, drafted by proposals, said doing so would protect consumers and help restore trust in the financial services market.

An ECON member said the committee was still hammering out a compromise on the section which will determine how much information brokers will have to disclose about fees and commissions.

 

What the Commission Disclosure proposal will mean.

The biggest change will be a new legal obligation as brokers will have to disclose the commissions paid on their sales to their clients. Alongside this, the IMD may also force price comparison sites to disclose how much they make from referrals.

The initial introduction period would most likely allow for this disclosure to be “on request”, so if a customer asked then you’d have to disclose but the long-term arrangement is for this to be a standard. They can ask what brokers earn if they wish but, in reality, are not interested. All they are concerned with is whether the headline price is acceptable and they are unconcerned about margins.

Full disclosure and transparency is the most likely outcome of the proposals but for most brokers, this should not be a major issue provided they prepare well and put a correct value on their services. A typical broker employee handles a commission income of £65,000 a year, which is the equivalent of about £300 a day. Allowing for back-office support, pay and skill variations, charge out rates should be in the region of £500 to £1,500 a day. This would be for all work on a client’s business. For most clients, this would justify the commission received while for some, it could be excessive and reduced, for others, inadequate and additional charges made. This process would be time consuming but well-run brokers could manage it without destroying profitability.

 

The steps of the Commission Disclosure proposal decision.

If the proposals are passed at the ECON meeting on December 2nd, they will then be voted on by the European Parliament in January. During this voting, the proposal will be either approved or rejected and sent back to ECON.

If the European Parliament approves the proposal, the report will enter further negotiations between the European Parliament, Council and Commission. After all these negotiations, the Parliament will have the final vote and the proposal would then be enforced as law by the Commission.

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