2023-07-29 18:51:32
Admittedly, I had to collect myself a little first. sort my thoughts I was too annoyed by what the EU Finance Commissioner Mairead McGuinness published in a guest article at WELT a few days ago.
Among other things, it said: “We want retail investors to be able to make investment decisions that really bring them benefits while at the same time ensuring that they are protected and treated fairly.”
Sounds great? This is deceptive. These words are just a nice paraphrase of the EU’s plan to end the practice of so-called “Payment for Order Flow” (PFOF).
Read more about the capital market
Upcoming “multi-crisis”
Above all, neo-brokers use this method to offer favorable conditions for securities trading and thus reduce the costs for savers and investors. This is how these providers have managed to make the purchase of shares, ETFs or savings plans affordable for everyone. Since then, the chances of the capital market have also been available to the little man. The EU wants this to change soon.
Brokers earn on the trading venues
But why does she want that? For this purpose, the current practice must be briefly explained. PFOF refers to reimbursements (also known as kickbacks) that neobrokers such as Trade Republic or Scalable Capital receive from their trading partners (e.g. stock exchanges) for forwarding millions of customer orders on their platform.
also read
The EU officially declares that it sees a conflict of interest in its ban plans. Brokers motivated by PFOF could be tricked into offering clients not the cheapest exchange, but the one for which they get money. The ban is intended to give investors access to more markets, facilitate price comparisons and thus secure competition.
also read
As far as the official version. But what happens in reality? In reality, the democratization of investing is losing momentum – and small investors are losing their share in the growth of global prosperity.
All those who have gotten to know the stock for what it is in recent years – an important part of private old-age provision – are now faced with obstacles again. Stones in the form of higher costs and more bureaucracy. All this under the guise of supposed protection for small investors.
In truth, the EU with its “small investor protection strategy” incapacitates the little man. In turn, almost no one is protected. After all, what should savers be protected from? Have they been protected from intrusive insurance agents in the past? Or from bank advisors who have been selling their own company’s expensive and complicated pension, equity or mixed funds for decades?
also read
Both critics and proponents of neobrokers have commissioned numerous studies. For example, the financial supervisory authority BaFin has found that execution via PFOF-granting trading venues is predominantly advantageous for customer orders with smaller volumes. If transaction costs were taken into account, the results for customers were mostly better than on the reference markets.
So far, nobody has been able to uncover the emergence of a kind of “gambler mentality”. Young people in particular were prematurely attested by the Brussels warnings that they could plunge into financial misfortune with just a few clicks on their smartphones.
The opposite is the case. Even young people and those with little financial means have discovered the capital market for themselves due to the low hurdles and costs. Exactly those who have been excluded from it so far.
also read
Bond market anomaly
And yes, they also invest in individual stocks. So it’s not greed that drives them. This is shown by the number of shareholders, which has been increasing for years, although we have certainly not experienced any glorious stock market years recently.
This is also reflected in the type of products in which investments are made. Above all, they are index funds that are as broad as possible, often based on the world index MSCI World. All investment strategists agree that such investment products are the ideal foundation for long-term private old-age provision.
also read
EU regulation will impede this development and probably even stop it. Citizens are simply not trusted to make the right financial decisions themselves. A classic case of patronizing. This paternalism should end the era of cheap participation in the stock market. Savings plan orders for one euro will then be a thing of the past.
As for the explanation for the bureaucrats in Brussels, it should be said again: the basic idea is correct: theoretically, kickbacks mean that the neo-broker does not choose the best trading venue, but rather the one with the highest reimbursement. But the special situation in Germany with the neo-brokers and the regional exchanges and the competition between all sides mean that small investors still get good prices.
The idea of not taking kickbacks from ETF providers is also misleading. Because the competition among ETF providers is so great because it is the perfect comparison that no one can afford to set bad prices. Dear Commissioner McGuinness: The kickbacks are good for making free small savings plans possible!
It is doubtful whether this message will be received directly by the EU Commission. But there is still hope. The EU plan will not take effect for Germany until 2026, so there is still enough resistance to develop. These days are already emerging the first petitions against the ban.
In addition, every German citizen can contact their responsible representative in the EU Parliament. In three years, a protest by small savers that can be heard and felt can be organized. It would then be the culmination of the democratization of financial investments.
You can listen to our WELT podcasts here
In order to display embedded content, your revocable consent to the transmission and processing of personal data is required, since the providers of the embedded content as third-party providers require this consent [In diesem Zusammenhang können auch Nutzungsprofile (u.a. auf Basis von Cookie-IDs) gebildet und angereichert werden, auch außerhalb des EWR]. By setting the switch to “on”, you agree to this (which can be revoked at any time). This also includes your consent to the transfer of certain personal data to third countries, including the USA, in accordance with Art. 49 (1) (a) GDPR. You can find more information about this. You can withdraw your consent at any time via the switch and via privacy at the bottom of the page.
“Everything on shares” is the daily stock exchange shot from the WELT business editorial team. Every morning from 5 a.m. with the financial journalists from WELT. For stock market experts and beginners. Subscribe to the podcast at Spotify, Apple Podcast, Amazon Music and Deezer. Or directly by RSS-Feed.
#Equities #ETF #cheap #savings #plan #incapacitation #saver