France’s “Value for Money” Regulation Faces Scrutiny: What’s at Stake for Asset Managers and Investors?
A recent meeting between key French financial authorities – the French Asset Management Association (AFG), the Prudential Control and Resolution Authority (ACPR), France Assureurs, the French Financial Markets Authority (AMF), and the Treasury – signals growing concerns over the implementation of the “Value for Money” regulation. Introduced in 2023, the regulation aims to protect French savers investing in unit-linked life insurance products from excessive management fees. However, industry leaders, like Bertrand Merveille of BDL Capital Management, argue the current approach is flawed.
The Core of the Controversy: Active vs. Passive Management
The ACPR has been pushing insurers to delist funds that charge high commissions relative to their performance over a five-year period. While the intention is sound, the AFG contends the regulation doesn’t adequately differentiate between active and passive investment strategies. Bertrand Merveille describes the current system as “self-censorship” due to its lack of legal basis.
Active management, which involves fund managers actively selecting investments with the goal of outperforming the market, typically carries higher fees. Passive management, such as Exchange Traded Funds (ETFs), aims to replicate a market index and generally has lower costs. The concern is that the “Value for Money” framework unfairly penalizes active managers, potentially leading to a market dominated by low-cost ETFs.
The Risk of “Americanization” of European Savings
Merveille warns that an overemphasis on low-cost ETFs could inadvertently shift investment towards US markets. He points out that ETFs are predominantly sold by American companies, with underlying assets largely concentrated in the US, and voting rights often exercised by US entities. This trend, he argues, could weaken the financing of European small and medium-sized enterprises.
This concern reflects a broader debate about the potential impact of passive investing on market dynamics and corporate governance. While ETFs offer diversification and low costs, critics argue they can reduce the incentive for active engagement with companies and potentially exacerbate market bubbles.
BDL Capital Management Leads the Charge for Regulatory Pause
Bertrand Merveille, Managing Director of BDL Capital Management, has been a vocal critic of the “Value for Money” regulation. He recently participated in a tripartite meeting with the Treasury to request a suspension of the controversial device. His firm believes a pause is necessary to reassess the framework and ensure it doesn’t stifle innovation and competition within the French asset management industry.
News Asset Pro reports that Laure Delahousse, Director General of the AFG, shares similar criticisms and requests.
Implications for the Future of Asset Management
The debate over “Value for Money” highlights a fundamental tension between cost transparency and investment performance. While investors rightly demand value for their money, a sole focus on fees can overlook the potential benefits of skilled active management. The outcome of this regulatory debate could have significant implications for the future of the asset management industry in France and potentially across Europe.
Finascope reports that Merveille believes the mechanism for monitoring the cost-to-value ratio of funds is “ill-calibrated, illegal and penalises the French asset management industry.”
FAQ
Q: What is the “Value for Money” regulation?
A: It’s a French regulation requiring insurers to delist funds with high fees relative to their performance.
Q: Why is there controversy surrounding this regulation?
A: Industry leaders argue it doesn’t adequately distinguish between active and passive investment strategies.
Q: What is the potential impact of the regulation?
A: It could lead to a market dominated by low-cost ETFs and a shift in investment towards US markets.
Q: Who is Bertrand Merveille?
A: He is the Managing Director of BDL Capital Management and a prominent voice criticizing the current implementation of the “Value for Money” regulation.
Did you know? The French prefer life insurance as their primary investment vehicle after the Livret A savings account.
Pro Tip: When evaluating investment funds, consider both fees *and* long-term performance. Don’t solely focus on the lowest cost option.
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