From 1 April, advisers and intermediaries for mortgages, life assurance, investment insurance and other complex financial products must provide transparency regarding their commissions. Every consumer consulting an intermediary will be informed as to the total payment made by banks and insurers if the intermediary recommends a product.
Advisers and intermediaries working on a commission basis are paid by the providers (banks and insurers) of the products that they sell. Consumers who receive advice from these intermediaries do not pay directly for this advice. The costs, including the payment to the adviser, are included in the price of the financial products that a consumer buys.
The rules regarding transparency of commissions formally took effect on 1 January 2009. A transitional arrangement has been in force until 1 April whereby the intermediaries concerned already had to state the commission they received, but the AFM would be lenient in cases where this was not possible, for instance because the commission agreements with the provider were not yet known.
After 1 April, the AFM will check that intermediaries are actually informing their clients of the amount of their commission. Banks and insurers do not have to provide transparency regarding the compensation of their own advisers. They are however obliged to inform their clients that costs are charged for the provision of advice. Providers will also have to be transparent regarding the amount of the costs of the product.
Transparency regarding commissions is part of a series of changes to the remuneration of intermediaries. In addition to stating the payment, new requirements have been set with regard to the amount of the commission and for what services or products commission can be paid and received.
The requirements for commission to be appropriate (the inducements standard) state that no commissions may be paid unless the payment enhances the quality of the service and is not detrimental to the client's interests. One of the implications of this is that commissions may not be paid unless actual tasks are performed in exchange. The payment of bonuses to intermediaries for achieving sales targets is also prohibited.
The AFM is currently working on a guideline which should help to determine whether commissions are appropriate and therefore may be paid and received. This document will be published for consultation purposes in the second quarter of this year.
The new rules on commissions for advisers are the result of the harmonisation of commission rules being carried out by the Ministry of Finance in consultation with the market parties concerned. In addition to commission transparency and the requirements that the commission is appropriate, this includes rules relating to the ratio between initial commission and continuing commission, repayment of commission on early termination of a financial product and plans for a further reduction of bonuses.
A service provision document will also be made mandatory in 2009 which must clearly state to clients of intermediaries what services they receive and how advisers and intermediaries are remunerated.
The AFM intends to inform all those involved regarding the new rules and requirements as thoroughly as possible.
On the website of the AFM (www.afm.nl), providers, intermediaries and advisers can find further information on the new rules at http://www.afm.nl/marktpartijen/default.ashx?FolderId=2504
Consumers with questions relating to the remuneration of intermediaries can also go to www.afm.nl using the link http://consument.afm.nl/consumenten/aanpak/faq/provisie.aspx
The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.
The AFM is committed to promoting fair and transparent financial markets.
As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.