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European Commission’s Retail Investment Strategy (RIS)
The European Commission, through its Retail Investment Strategy (RIS), aims to boost the participation of Retail investors in capital markets by enhancing their confidence through legal and regulatory measures.
Observations in the European Financial Landscape
This initiative arises from several observations within the European financial landscape:
- Firstly, only 17% of European households’ assets are invested in risky assets.
- Furthermore, the European Commission highlights a major disparity between fees paid by institutional and retail investors. Retail investors pay almost 40% more than institutionals.
- Last but not least, 45% of Europeans do not trust the advice received from their financial intermediaries.
The European Commission considers that the current legal framework is not effective enough to provide the requirement level of transparency of management of conflict of interests and do not guarantee that retail investors are sold cost-effective products.
European Commission’s Proposed Measures for Enhancing Retail Investment Strategy
The European Commission published a proposal of Omnibus Directive amending several pieces of existing legislations: MiFID II, IDD, Solvency II, UCITS, AIFMD. Major impacts will affect producers and distributors of financial products. The magnitude of impacts will depend on how existing legislations have been translated and implemented.
More concretely the content of the RIS proposes measures across 8 key pillars to address these issues:
- Modernize rules related to information on financial instruments
Objective: Make information about investment products and services easy to access and understand.
- Develop benchmarks to compare asset performance
Objective: Ensure that investment products bring real value for money to retail investors.
- Ban inducements
Objective: Ensure that financial advice is aligned with retail investors’ best interests.
- Review the conflict of interests’ policy
Objective: Ensure that financial advice better meets the needs and objectives of retail investors.
- Ensure that financial advisors are fit to give advice
Objective: Boost financial literacy so retail investors make better decisions.
- Avoid misleading advertising
Objective: Protect retail investors from misleading marketing, including on social media.
- Downward revision of eligibility criteria to be recognized as a professional investor
Objective: Reduce administrative burdens and improve accessibility for sophisticated investors.
- Improve cooperation between different competent authorities
Objective: Ensure that rules are properly and effectively applied in a coherent manner across the EU.
What does it mean for market participants?
Producers and Distributors of Financial Products must see RIS as a Game Changer
Beyond adaptations concerning advisor’s qualifications, standardization of disclosures & warnings, but also marketing communication practices that we can consider as having a low or medium impact, the 3 topics below could be considered as having a high impact on business activities:
RIS will bring to retail investors and decrease the gap between institutional and retail prices
The Retail Investment Strategy (RIS) aims to narrow the gap between institutional and retail pricing structures, revolutionizing the landscape for retail investors. The RIS implements stringent measures to enhance transparency and fairness, empowering retail investors with equitable access to financial markets and products.
Through standardized regulations and increased scrutiny of pricing practices, this strategy aims to create a fair playing field, promoting greater trust and participation among retail investors.
Implications of the Retail Investment Strategy on Financial Institutions
Overall, the RIS seems geared towards improving the confidence of individual investors, which could positively influence their participation in financial markets. However, banks will need to adapt to the new standards, leading to operational adjustments and additional costs.
After the strong reactions of banks on benchmarks and ban of inducements, the final version of the directive is likely to evolve even further. One thing is certain, the implementation of the directive will occur early 2026.
Once again, producers and distributors of financial products will have to review the way they promote and sell financial products. Time has come to rethink how investment business operates and what value the business offers to its customers versus operating expenses.
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An Article by Nicolas Fortomaris, Senior Manager Investment At Dynafin