EU agrees rules to boost retail investment in capital markets

The EU has agreed measures to boost investment by private individuals in stocks and bonds in the bloc, as part of long-standing efforts to strengthen the wider economy by encouraging retail investment.

The retail investment push is part of the EU’s decade-long Capital Markets Union, designed to support the free movement of capital across the bloc’s financial markets and increase the amount of funding available for European companies.

It aims to encourage individuals to move funds out of bank deposits – where many typically hold their money, generating low returns – and into stock and bond markets.

Stéphanie Yon-Courtin, a member of the European parliament who led the development of the measures, said they would “move [the] savings and investment union from theory to reality”.

“These rules bridge the gap between protecting consumers and helping businesses thrive in Europe,” she said, adding that “we focused on preventing abuse while keeping advice accessible”. 

Officials are seeking to ensure that investors receiving financial advice, a common route to investing among EU citizens, get the best value for money. 

Under the rules agreed on Thursday by the European Parliament and EU member countries, financial advisers and investment platforms will be obliged to provide clear information on the costs and charges associated with any investment product and to ensure that products provide value for money.

The European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority will set up value-for-money benchmarks for insurance-based financial products so that investors can compare costs and performance. 

Firms offering other investment products must compare their value for money against similar products.

EU officials have long lamented the region’s low levels of retail investment. Last year, EU households put 41% of their financial assets into bank deposits and 20.6% into investment funds and listed shares, according to the European Fund and Asset Management Association. 

Inducements – incentives received by financial advisers from fund managers and others – have been allowed if they are used to fund research and other services, as long as firms mitigate any potential conflicts of interest. The rules agreed on Thursday will bring in a new inducement test to ensure that financial advisers act in the best interests of their clients and to enable customers to distinguish inducements from other fees.

Financial advisers will also have to assess individuals’ suitability for investments based on measures such as knowledge and experience and their ability to absorb partial or total losses.