20 July 2023

Commissioner McGuinness at the DG FISMA Roundtable on the distribution of retail investment products

...I think we have a shared objective, that we very much want to support retail investment in Europe – even if at the moment we mightn't agree on how that can be achieved.

So there are three topics I want to deal with:

• First of all, the problems with retail investment in Europe,
• How we're tackling some of them with the Retail Investment Strategy,
• And how the process we're kicking off with this roundtable can help create a dynamic retail investment culture in the European Union.

So I think it's clear that the European retail investment market is not living up to its full potential.

So it's worth spending a little time reminding ourselves what the situation is.

We lack the vibrant, confident investment culture found in other advanced economies.

We do save a lot in the European Union, but most of us don't invest.

And that has particular implications for our future personal finances, especially in retirement.

Only 17 percent of EU household assets are held in financial securities, compared to 43 percent in the US.

Indeed in some Member States that figure is even lower.

According to the Eurobarometer that we are publishing today, most Europeans are not confident that they will have enough money to live comfortably through their retirement years.

So why aren't we investing?

One factor may be how much money people have to invest – and of course this is outside the financial sector's control.

But even a small amount of money invested wisely every month can bring significant returns over the long term.

And there are many reasons why people don't do that.

First, we know that too many Europeans have only a limited understanding of the financial system.

Many are put off by the system – and don't see it as being for them.

Where people do invest, they are very reliant on advice.

Unfortunately, here we know that trust in financial advisers is low.

In today's Eurobarometer, nearly half of respondents were not confident that investment advice they receive is actually in their best interest.

It's also worth pointing out that products for retail investors tend to be expensive.

According to ESMA, in 2021 retail investors paid around 40 percent more than institutional investors.

Some products, especially complex ones, carry high costs.

Especially where inducements are involved.

And of course high costs eat into net returns.

So it's hardly surprising that many EU citizens choose to put their money elsewhere: in property, in other projects, or simply leave it in low-yielding savings accounts.

But there are some positives too.

Technology is already changing retail investment – opening it up to a wider population, especially young people.

New banking apps and investment platforms allow easy, low-cost access to investing with very small initial amounts.

But there are also risks involved in this – if there are not enough safeguards, or where people don't understand what they're investing in.

So overall, the situation means that people aren't making the most of their hard-earned money.

But we also need to address the issue of retail investors if we're serious about the big project of Capital Markets Union.

Because we won't have a fully functional Capital Markets Union without retail investment.

Through capital markets, money can be reinvested into businesses and made to work for the broader European economy.

And with our focus on green and digital, we need to have more money flowing towards sustainability.

So I suppose the big question to us all is, what can we do about this situation?

Now part of the answer lies in regulation and supervision.

And that's what the European Commission is aiming to address with the Retail Investment Strategy.

It includes measures on:

• Disclosures and information
• Value for money for products offered to retail investors
• Stronger conditions on tests on appropriateness and suitability
• Common standards for financial advisors
• Action against misleading marketing, including by social media finfluencers
• And encouraging Member States to support financial literacy.

On inducements, as you know, the Commission decided against a full ban at this point.

Instead, our proposal would ban inducements where no advice is provided. It would strengthen companies' obligations to act in the best interest of the client, and boost transparency requirements where inducements are paid.

And we propose to review the situation in three years' time....

 more at Commission

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