Reprieve for execution-only deals

Small investors who use execution-only share dealing can breathe easy - for the moment at least.

The system had been under threat from a proposal going through the European Parliament.

The Investment Services Directive required stockbrokers to run suitablility checks on all investments by clients, to assess their knowledge and experience.

Critics had complained this could increase the cost of a trade to £100.

But at committee stage on Tuesday, the relevant section was exempted.

However, it still has to be ratified the by full Parliament at the end of September and then the Council of Ministers.

The cheap and cheerful execution-only service means customers don't pay for advice but can buy or sell for as little as £10.

Available over the phone or online, it has opened up the stock market to many people who might otherwise have balked at the high cost of transactions.

Forced to pay

But the European plan meant people would be forced to pay for advice they did not want.

It was feared many would find themselves priced out of investing in shares.

And with no customers, those brokers dealing mainly in execution-only transactions faced closure.

This is just nanny state-ism. Theresa Villiers, MEP

ProShare, which represents small investors, says two-thirds of trades using market brokers are currently execution-only.

It says the system offers a valuable and efficient way for small investors to trade.

Fully responsible

"There is little evidence from the UK experience of execution-only dealing that investors using these services do not understand that they are fully responsible for their own decisions," ProShare told the European Parliament in its submission.

"Other than account-opening checks, we do not see the need for a suitability test."

MEP Theresa Villiers has been one of those leading opposition to the plan.

"This is just nanny state-ism," she argues.

We don't want to cut out the choice that already exists for investors. Diane Hay, Proshare

"There is no reason why investors shouldn't, if they want to, be able to make their own decision.

"There are a lot of very well informed, very expert people out there who are quite happy to take their own decisions and if they do that the cost of buying and selling sharses could be as much as 20 times cheaper than when they go to a broker and get advice."

Diane Hay, chief executive of ProShare, had hoped there would be an exemption on the relevant clause.

"There will be changes as a result of this," she says. "We're not going to see things carry on exactly as before.

"But what we don't want to see are suitability tests every time any investor wants to trade shares.

"There are good things here but we don't want to cut out the choice that already exists for investors and is so important to the UK market."

Lobbying

The UK investment industry had been lobbying hard against the proposal, joined by countries such as Germany, which has a strong execution-only sector.

"If the European Parliament is serious about introducing more consumer protection measures, what about getting a link between the financial ombudsman services?" says Brian Mairs of the Association of Private Client Investment Managers and Stockbrokers

"No country in Europe has a financial ombudsman service like we have, that has quite as many of the checks and balances we have."

"We think this is too much legislation which isn't going to act in the client's interest because it's going to put up charges enormously," says Hilary Cook of Barclays Private Clients.

Some European goverments had been keen to impose suitability checks on would-be investors.

But for the time being, it seems small investors will be able to continue using the no-frills system that helps them manage their portfolios cheaply and efficiently.