Retail investment strategy: Council and Parliament agree on package to empower consumers while boosting markets 03:20 The Council and the European Parliament agreed on an[...]

The Council and the European Parliament agreed on an updated retail investment framework to empower and protect consumers when they invest. It will also help to foster trust and increase competitiveness in the EU's financial markets.

The new rules will provide a wider range of efficient investment and financing opportunities for citizens and businesses. This will also contribute to the EU's savings and investments union (SIU) and to the simplification of financial services regulation - both priority initiatives to improve how the EU's financial system channels savings into productive investments.

At the same time, the updated legislation will offer consumers the same level of clear information, fair treatment and high protection regardless of which investment products, marketing and distribution channels they use. The package modernises and simplifies investor protection rules so that they are coherent across different financial sectors.

Value for money

To ensure that retail investors can compare investment products and get real value for money from their investments, retail investment firms will be obliged to identify and quantify all costs and charges borne by investors related to the investment products they advise. Based on agreed standards (peer groupings for products under the markets in financial instruments directive (MIFID), the directive for undertakings for collective investment in transferable securities (UCITS), and the alternative investment and managers directive (AIFMD), and supervisory benchmarks for products under the Insurance Distribution Directive (IDD), including national supervisory benchmarks introduced during a period of four years from the entry into force of the new rules), they must also assess whether total costs and charges are justified and proportionate. If not justified and proportionate, such products should not be approved for sale.

The rules also improve the standardised information about investment products, such as Key Information Documents (KIDs), that firms must publish to ensure that consumers can make informed investment decisions. Information on investments regarding costs, risk and expected returns will be made more visible and accessible for consumers. The updated templates that firms must use in this regard will be developed and made available by the relevant European supervisory authorities. The text also provides that 30 months after the entry into force of the new PRIIPs rules, information in KIDs will have to be provided in a machine-readable format to allow for ease of comparison and to be in line with digital development.

Client journey

In addition to the enhanced rules on inducements, the text builds on other mechanisms to maintain a high level of investor protection while avoiding unnecessary burdens for investment firms, insurance companies and insurance intermediaries.

The suitability test already performed by such firms under existing legislation ensures that clients are recommended investment products suitable to their financial situation, needs and objectives. This matches investment products to individual profiles and safeguards against unsuitable offers.

Under the new simplified framework, however, advisers providing recommendations to consumers related to diversified, non-complex and cost-efficient instruments will no longer have to assess the client's investment knowledge and experience as part of the suitability assessment.

Inducements

The agreed package introduces safeguards to combat conflicts of interest for financial advisers by introducing strengthened rules on inducements - fees, commissions, monetary or non-monetary benefits received by an investment firm in relation to investment services it provides to a client.

The updated legal texts strengthen the obligation on firms and advisers to act honestly, fairly and professionally in accordance with the best interest of its clients in mind. They must ensure that an inducement will lead to a tangible benefit for their client and that the inducement cost is published clearly and separately from other fees and commissions borne by the investor.

Member states wishing to introduce an inducement ban will still be allowed to do so.

Financial literacy and 'finfluencers'

The package introduces new provisions to spur action in the area of financial literacy, by encouraging member states to help citizens feel more empowered to understand the risks and benefits involved in investing, as well as to critically assess the financial advice they receive.

Such actions range from the provision of appropriate financial literacy material for citizens, to ensuring that investment firms' marketing communication is fair, clear and not misleading.

The text also draws particular attention to the activities of financial influencers or 'finfluencers' who offer sometimes superficial financial advice, largely through social media.

Professional clients

More experienced investors may not necessarily need the same level of protection as the average retail investor. The updated framework will allow more retail investors to be treated as professional clients.

Such investors will still need to fulfil two out of three criteria to be considered professional:

• they carried out 15 significant transactions over the last three years, 30 transactions over the previous year, or 10 transactions over €30,000 in unlisted companies over the last five years (in existing legislation this criterion currently stipulates 10 transactions per quarter over the previous four quarters)
• the size of their portfolio has exceeded €250,000 on average over the last three years (currently €500,000 at the moment of their request for exemption)
• they have worked and carried out related activities in the financial sector for at least one year or, in a newly added alternative criterion, can provide proof of education or training in these activities and an ability to evaluate risk.

However, the training and education alternative criterion may not be combined with the portfolio criterion to qualify an investor for an exemption.

Company managers and directors of financial companies subject to a fit and proper assessment under the rules in the already existing financial regulations, as well as employees of alternative investment fund managers (AIFMs) who possess a level of knowledge and experience regarding those funds, will also be treated as professional clients.

Next steps

Technical work will now continue to finalise the legal texts early in 2026. Member states will have to transpose the new rules 24 months following their publication in the EU's official journal. They will start applying 30 months following their publication, with the exception of the new rules under PRIIPs which would start applying 18 months following their publication.

Background

The package takes the form of a directive containing targeted amendments to a number of other EU directives in the area of financial services such as the markets in financial instruments directive (MIFID), the Solvency II directive, the directive for undertakings for collective investment in transferable securities (UCITS) and the alternative investment and managers directive (AIFMD), and a regulation amends the packaged retail and insurance-based investment products (or 'PRIIPs' regulation).

• Savings and investment union (background information)
• Retail investment package: Council agrees on its position (press release, 12 June 2024)
• Retail investment strategy (background information)