External factors such as taxation relevant for the distribution of investment products

Consideration required of both product characteristics and relevant external factors

Investment firms must have adequate procedures and measures in place to ensure that (the distribution of) investment products align with the investment objectives of the target audience. In practice, this means that a firm must periodically – and when prompted by circumstances – determine whether an investment product still suits the target group. In doing so, firms must not only consider information about the product itself, such as return and risk, but also external factors like inflation and taxation – insofar as they are relevant to the target audience. If a product no longer meets the objectives, appropriate action must be taken. This could involve adjusting the target audience or the product’s distribution strategy.

Highlight: Box 3 – investments taxed more heavily than savings

A concrete example of an external factor to be considered is Box 3 taxation. For the 2025 provisional tax assessment, the Dutch Tax Authority uses a deemed return of 5.88% to calculate the benefit from investments. This benefit is taxed at a rate of 36%. This means Box 3 taxation can amount to 2.12% (= 36% x 5.88%) of the invested capital. If the expected return of a defensive investment product – after deducting costs – is lower than the (marginal) tax burden, the product may no longer meet objectives such as wealth preservation or growth. Investment firms must take this into account when determining the target audience and distribution strategy.

AFM call to action: use the ‘Guidance on scenario analyses from the client’s perspective for the PARP standard’

In 2024, the AFM published the ‘Guidance on scenario analyses from the client’s perspective for the PARP standard’. This provides tools for financial firms to assess whether a product still meets objectives under various scenarios. The AFM will consider the use of these tools in future compliance assessments.