The European Commission has adopted a new “Retail Investment Package” that seeks to “empower retail investors.” The new policy is part of the European Union’s ongoing Capital Markets Union action plan. During the past few years, the Commission has been gathering and researching the proposals, including a study looking at key retail investor issues such as disclosures, advice, inducements, and suitability.
According to the Commission, retail investors struggle to gain access to “understandable” information, are overly influenced by marketing, and some investments do not have “value for the money.”
Unlike the US, where over 50% of households hold equity investments, in the EU, just 17% of householders hold securities like public equities or bonds. The Commission aims to boost retail investor participation in the capital markets while increasing confidence and trust, helping individuals earn a better outcome.
At the same time, by improving capital markets, the EU hopes to channel private money into the economy to generate growth and fuel innovation.
The Commission describes the program as follows:
- Improve the way information is provided to retail investors about investment products and services, in ways that are more meaningful and standardised, by adapting disclosure rules to the digital age and investors’ growing sustainability preferences;
- Increase transparency and comparability of costs by requiring the use of a standard presentation and terminology on costs. This will ensure that investment products bring real value for money to retail investors;
- Ensure that all retail clients receive at least annually a clear view of the investment performance of their portfolio;
- Address potential conflicts of interest in the distribution of investment products by banning inducements for “execution-only” sales (i.e. where no advice is provided) and ensuring that financial advice is aligned with retail investors’ best interests. Stricter safeguards and transparency will also be introduced where inducements are allowed;
- Protect retail investors from misleading marketing by ensuring that financial intermediaries (i.e. advisors) are fully responsible for the use (and misuse) of their marketing communication, including where it is made via social media, or via celebrities or other third parties they remunerate or incentivise.
- Preserve high standards of professional qualifications for financial advisors.
- Empower consumers to make better financial decisions, by encouraging Member States to implement national measures that can support citizens’ financial literacy, regardless of their age, and social and educational background.
- Reduce administrative burdens and improve the accessibility of products and services for sophisticated retail investors, by making the eligibility criteria to become a professional investor more proportionate.
- Enhance supervisory cooperation to make it easier for national competent authorities and European Supervisory Authorities to ensure that rules are properly and effectively applied in a coherent manner across the EU and to jointly fight fraud and malpractices.
The announcement did not mention access to private securities, such as those issued by approved online capital formation platforms.
A Fact Sheet is available here.
A Q&A section may be accessed here.