The vote, which allows inducement and goes against the fee-based model, is likely to dent ETF inflows from retail investors and has been described by market participants as a regulatory step back.

Guillaume Prache, managing director of the European Federation of Financial Services Users, a research body acting on behalf of consumers, told IndexUniverse.eu:  “This is a huge step back from the regulations we see now and even from the first version of the Markets in Financial Instruments Directive (“MiFID I”). The constraints on financial advisors are much weaker now.”

Prache said: “It will have an impact on the ETF industry too, in particular on the plain vanilla ETFs. These ETFs are not promoted by advisors in Europe to retail investors because they don’t offer commission. Instead they look to index funds sold from within universal banking groups, which can cost up to twelve times more and offer commission to intermediaries. This move is bad news for investor protection.”

The MiFID I text says that a distributor of financial products can only receive commission if two preconditions are met: these are that full disclosure on the existence and amount of any commission has been given to the investor in a manner that is fully comprehensive; and that any payment of commission must be in the investor’s best interests. However, in the European Parliament’s amendments to the MiFID II text, the second requirement has been taken out completely.

However, the rules will still allow member states to ban commission if they want, a direction in which the UK’s Financial Services Authority (FSA) is heading, for example, as part of its retail distribution review (RDR).

Some ETF providers are sceptical, however, on how big the impact of a loosening of the commission rules might be.

Nizam Hamid, managing director and head of product development at European ETF provider, Lyxor, said: “It is unclear whether it will impact the ETF market as this depends on whether your expectations of growth have been dependent on the ETF market being more retail-oriented. The market user base is currently split 80/20 between institutions and retail investors,  and even with RDR in the UK we are not expecting that to change dramatically. We see increased retail participation as a gradual and long-term process and not specifically driven by a RDR-type environment."