Remarks by Executive Vice-President Dombrovskis and Commissioner McGuinness at the press conference on the Retail Investment Package
Executive Vice-President Dombrovskis:
Good afternoon, ladies and gentlemen.
Europeans should feel confident about investing in capital markets.
This is important for them to earn the returns they need for their life projects and families, and to prepare for their retirement.
Retail investment is also vital for funding the EU economy.
A significant part of this potential funding comes, directly or indirectly, from European households.
However, while Europe has one of the highest individual saving rates in the world, people are much more reluctant to invest in capital markets and financial products.
In 2021, for example, around 17% of EU households' assets were held in financial securities – like listed shares, bonds, mutual funds, financial derivatives.
By contrast, households in the United States held around 43% of their assets in securities.
So, why this difference? Why does Europe not have a similar culture of retail investment that we see elsewhere?
There are several reasons – and problem areas – that are responsible for weakening the ability of retail investors in the EU to take full advantage of capital markets.
To start with, people do not always get the best deals available or appropriate value for money.
Some investment products have unjustifiably high costs.
Instead, investors could be offered different, and perhaps cheaper, products better suited to their needs.
In addition, some of the information provided is extremely complex, making it difficult for people to understand and to compare financial products.
They can justifiably expect clear information provided so that they can make informed choices.
These days, many retail investors - especially younger people - are turning to online investment opportunities.
But there can be risks too, with unrealistic and sometimes misleading marketing information – for example, from influencers using social media or other online channels.
Lastly, people should be able to get reliable advice from financial experts when they make decisions.
Unbiased and fair advice that they can trust.
Advice that comes without any conflict of interest linked to the payments and commissions that financial advisers receive from product makers, such as asset managers or insurers.
I am aware that this is a controversial area, and I will return to the issue of inducements shortly.
Taken together, the issues that I have mentioned create a problem of trust – because in the EU, people have very low trust in investment services.
This often deters them from investing at all.
So what does today's package aim to achieve?
Above all: it puts consumers' interests first, informs and treats them fairly, and protects them in the single market.
It will boost their trust and confidence to make the investment decisions that suit them best.
As I said, Europe's economy needs retail investors.
Our proposals are designed to encourage more of them to participate in capital markets.
This is important for the Capital Markets Union to succeed, because capital markets need to work for people. We need to make Europe an attractive, safe place for people to invest.
Today, we are proposing to improve EU laws concerning retail investment.
These include simplifying and reducing the information presented to retail investors, and making sure that products represent value for money by not charging undue or unreasonable costs.
We want to ensure high professional standards for investment advisers, including in the growing area of sustainable investment. And we want to tackle any bias in the advice so that advisers act in the best interest of the client.
For this reason, we propose banning inducements or commissions on advice-free sales of investment products – or what are known as “execution-only” sales, where no financial advice is delivered. Mairead will give you more details.
We will also tighten disclosure and marketing rules to protect people from misleading communications and practices that emphasise a product's benefits but downplay the risks.
And we are strengthening supervisory enforcement, particularly when it comes to digital channels and the cross-border provision of services.
As you can see, our strategy addresses a wide variety of issues facing retail investors in Europe.
Its core focus is to promote and protect consumer interests, to encourage them to participate more in capital markets and to keep Europe's retail investment sector competitive.
Thank you, and I now hand over to Mairead.
Thank you, Valdis.
And just to pick up on the points that Valdis has made.
First off, this is a very consumer facing proposal.
It's important then for our Capital Markets Union, as Valdis outlined.
And that's important for the investment in the green and digital future.
So we want people to be on board with this.
But there are barriers, and that has already been outlined.
I'll go through some of the details that we're now working with in this package.
So first, we will update disclosures.
And here we want retail investors to get useful information that they can understand, in a format they will be able to use – and in particular in a digital era.
The second point, we are introducing measures to make sure that products offer retail investors value for money.
Any costs and charges should be justified and in line with the returns of the product.
Third point, already addressed by Valdis, in terms of addressing conflicts of interest when it comes to financial advice.
As you know, we are not proposing a full ban on inducements, or commissions, or indeed however you determine the practice linked to inducements.
At this stage, we have made the assessment very carefully that it would be too disruptive to have a ban overnight.
However, we are banning inducements for execution-only sales, where no advice is involved.
We are introducing stricter requirements on when inducements can be paid.
And we are strengthening the safeguards for advice in the insurance sector.
Fourth point, we are providing for more personalised investment advice.
So advisors or brokers have to conduct tests before selling an investment product on what's appropriate and suitable for their client.
We want to reform those tests to make them work better.
And we want to make it easier to provide simple advice on simple products that fit the needs of most retail investors.
A fifth point, again around the marketing – including social media – where citizens can engage with the financial industry.
Marketing should be fair and clear – and it should not be misleading.
A sixth point, which is something I try and refer to anytime I have a public opportunity.
We are looking very closely at financial literacy – and this is about money and how people interact with it.
So that citizens can get the best from the money that they earn.
And here what I want to achieve in this package is an awareness raising – I want retail investors to be able to ask the right questions.
None of us can know the entirety of the financial system.
But we would like to think that citizens would have the confidence to ask questions where they are being offered advice.
And that the industry also acknowledges the need to provide clarity in the advice that they are giving.
So we're talking about empowering citizens to make the decisions that are right for them.
And in that vein, this is really a Member State competence.
But we are getting very good cooperation at Member State level, because there is an awareness that financially aware citizens make good choices, and this benefits society across the board.
When it comes to the advisors, we want financial advisors to be better trained and indeed to continuously upskill.
And finally, we're looking to improve cooperation among national supervisors, as well as with European supervisors – so that the rules we have are applied consistently, no matter where you are in the European Union.
So briefly and in closing this is quite a broad package of measures that we're proposing today.
Disclosures, financial advice, marketing, financial literacy – all part of what we're doing.
We've had very strong engagement from consumer organisations, from the industry, and it has helped us in my view come forward with a very ambitious package.
It can make a very real difference to help retail investors get more access and fairer access to the financial system.
I now look forward to your comments and questions. Thank you.