The AFM calls on financial undertakings to be more aware when it comes to active and passive investment

Update 2 January 2018: the guideline has been withdrawn because of MiFID II has come into force.

The Netherlands Authority for the Financial Markets (AFM) published the 'Guideline on active and passive investment in the interest of the client' on 20 October 2011. In this guideline, the AFM calls on financial undertakings to be more aware when handling active and passive investments, in the interest of the client. In addition, the guideline also contains a number of recommendations for providers of investment products, financial undertakings that include these investment products in their product range and the advisers or portfolio managers who select these investment products for their clients. By means of this guideline, the AFM wants to induce financial undertakings to place the central focus on the interest of the client as regards active and passive investment.

Many financial undertakings choose actively managed investments over passively managed investments on behalf of their private clients, while passively managed investments constitute an alternative that is at least as good if not better.

Based on scientific research, it cannot be argued that active investments are by definition better than passive investments and vice versa. Scientific research is critical of the performance of active funds. Financial undertakings should realise that it is exceptionally difficult to select active funds in advance, which, following deduction of the costs, will achieve a higher return than the index. What is more, both active and passive investments as a group achieve a lower return than the index following deduction of the costs. Financial undertakings should consequently not automatically choose active or passive investment. Although various financial undertakings are taking steps to focus centrally on the interest of their clients when choosing active or passive investment, the AFM observes that not all parties are sufficiently aware of passive alternatives or sufficiently consider the choice of either active or passive investment. The AFM defines active investment as the composition of a portfolio that consciously deviates from the index in order to achieve additional return when compared with this index. Passive investment is defined as following the return of a certain index.

The AFM encourages financial undertakings to do, inter alia, the following:

  • Look critically at the current product offer and advisory practice. The AFM expects, for example, a very critical attitude on the part of financial undertakings and consumers with respect to active funds that stay close to the index and charge high costs. The same applies to Exchange Traded Funds (ETF’s) that invest with borrowed money (leverage) or that invest in order to benefit from a drop in the value of the underlying index by generating precisely the reverse share price movements (inverse). In addition, the AFM expects an extra critical attitude with respect to ETF's with risk profiles that may deviate strongly from the risk profile of the underlying index, such as synthetic ETF's that do not purchase the underlying index, but conclude a swap with respect to the returns of the underlying index.
  • As regards (investment) advice and portfolio management, make a balanced consideration between active and passive investments for the client per asset class.
  • Point out objective information concerning active and passive investments to the client. The AFM also considers it a good example if insight is provided, with respect to (investment) advice, into how the performance of active and passive investments per asset class relates to the performance of the relevant benchmark.

The selection and considerations of investment firms as regards active and passive investment form part of a wider invest process. A broader perspective concerning the selection and considerations during this investment process is provided in the 'Guideline recommendations for careful investment advice and portfolio management', which will be published in November 2011.

The 'Guideline active and passive investment in the interest of the client' is based in part on a study of scientific literature concerning active and passive investment.    


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.

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