COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules and Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document
Date: 2023-05-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: capital markets union, consumer information, disclosure of information, electronic document, financial legislation, investment, investment company, investment transaction

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 278 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules                          and                          Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document {COM(2023) 278-279 final} - {SEC(2023) 330 final}  
 
 
Contents 

1. 

2. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ......................................................... 2 

PROBLEM DEFINITION ................................................................................................................. 7 

3.  WHY SHOULD THE EU ACT?.......................................................................................................21 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ...........................................................................22 

5.  DESCRIPTION OF THE POLICY OPTIONS ...............................................................................24 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW DO THEY COMPARE?

 .............................................................................................................................................................33 

7. 

PREFERRED COMBINATION OF OPTIONS .............................................................................59 

8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? ............................65 

ANNEX 1: PROCEDURAL INFORMATION .........................................................................................67 

ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) ...........................................70 

ANNEX 3: WHO IS AFFECTED AND HOW? ........................................................................................88 

ANNEX 4: DISCLOSURES AND MARKETING COMMUNICATIONS ..........................................103 

ANNEX 5: FINANCIAL LITERACY .....................................................................................................129 

ANNEX 6: INVESTOR CATEGORISATION .......................................................................................140 

ANNEX 7: INDUCEMENTS ....................................................................................................................146 

ANNEX 8: ENHANCED SUITABILITY AND APPROPRIATENESS ASSESSMENTS .................200 

ANNEX 9: SUPERVISORY ENFORCEMENT .....................................................................................226 

ANNEX 10: PROFESSIONAL QUALIFICATION OF FINANCIAL ADVISORS ...........................246 

ANNEX 11: EVALUATION OF THE RETAIL INVESTOR PROTECTION FRAMEWORK .......256 

ANNEX 12: SME TEST ............................................................................................................................310 

ANNEX 13: GLOSSARY ..........................................................................................................................313 

ANNEX 14: VALUE FOR MONEY - BENEFITS AND COSTS ..........................................................318 

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1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

1.1 General context 

This impact assessment concerns the package of measures that will constitute the Retail investment 
strategy, which is an initiative originating from the 2020 CMU Action Plan. The strategy seeks to place 
the retail investor centre stage, ensuring the development of a regulatory framework that empowers 
consumers to take informed financial decisions and adequately protects them in the single market. The 
assessed  package  of  measures  concerns  improvements  to  the  retail  investor  protection  framework. 
Strong safeguards for retail investors are a pre-requisite for a well-functioning, transparent market that 
establishes the necessary conditions for trust and confidence.  

With respect to the general economic context against which the measures in the strategy are considered, 
the EU market for retail investments remains, by international standards, characterised by low levels 
of retail investor participation.  In 2021, approximately 17% of EU27 household assets were held in 
financial securities (listed shares, bonds, mutual funds and financial derivatives), amounting to EUR 5 
610 billion, corresponding to 38.6% of GDP). In comparison, households in the US held around 43% 
of their assets in  securities1. The retail  investor base in  the EU  amounts to  an estimated 50 million 
households, i.e. about a quarter of all EU-27 households2. According to a recent Eurobarometer survey3, 
around half of the respondents did not consider that they had sufficient means to invest, while around 
another  quarter  gave  other  reasons  for  not  investing  (see  below).  Households  in  the  EU-27  receive 
around EUR 450 billion per annum in income from their financial wealth4, while paying between an 
estimated EUR 100 and 300 billion per annum to financial service providers.5 This range represents the 
revenues of financial service providers from retail business. 

A large share of households’ financial wealth is  held as bank deposits at  negligible nominal  yields, 
even though assets invested in stock markets have made substantial gains in recent years. That suggests 
that a large proportion of consumers may have missed out on the opportunity to benefit from capital 
market investment returns. 

1 Based on Eurostat’s sectoral national accounts (international data cooperation, NAID_10). If claims against insurers and 
pension entitlements were added, the numbers would change to 46% for the EU and 72% for the US. In consequence, the 
share of bonds, stocks and investment funds held by EU-27 households is much smaller than that of their US counterparts, 
i.e. 2.3%, 13.2% and 25.7% of all domestic economic sectors’ holdings respectively in the EU versus 6.5%, 47.8% and 
59.5% of the bonds, stocks and investment funds in the US. 
2 This is derived from the following sources: 26% of the respondents to the 2022 Eurobarometer claimed to have or have 
had an investment product (bonds, stocks, or funds), 22% said to have or have had a private pension or retirement product. 
28% of the respondents to the retail investment study replied to have already invested in financial products. 26% of the 
respondents to this survey indicated they had a securities account. The 2017 ESCB’s households’ and consumer finance 
survey  revealed  that  3.2%  of  the  households  had  bonds,  8.6%  publicly  traded  shares,10.2%  mutual  funds  and  28.4% 
voluntary pensions or life insurance products. 
3 Eurobarometer survey on Retail Financial Services and Products, October 2022. 
4 Eurostat, Non-financial accounts, 2021. This number includes positions that are not considered subject of retail 
investment such as interest on bank deposits, dividends from non-listed shares and technical reserves of non-life 
insurance. 
5 The  lower  bound  was  derived  from  an  estimated  need  for  400,000  to  500,000  financial  advisors.  If  these  receive  the 
average pay in the financial sector of 59,000 EUR, the wage bill including, social security contributions, would be EUR 23 
to 29 billion. If, furthermore, it is assumed that the share of output to compensation is the same for financial advisors, which 
implies the same ratio other costs and profits for financial advice as in the total financial sector, retail investors would need 
to pay around EUR 100 billion for financial advice. The upper range stems from the amount derived in input-output tables 
for  the  output  of  the  financial  sector  for  the  purpose  of  households’  private  consumption.  This  upper  number  includes 
receipts and payment for financial services that are not related to retail investment, i.e. for bank deposits and loans, payment 
services, risk life and non-life insurance. 

2 

 
 
                                                           
Retail participation varies widely across Member States, reflecting different historical, economic and 
social  conditions.  It  is  even  more  heterogeneous  within  Member  States:  participation  rates  increase 
with the education level, degree of financial literacy and income. Older segments of the population hold 
larger savings, whereas younger generations tend to be less risk averse when it comes to investing.  

INVESTMENT EXPERIENCES ACROSS EU MEMBER STATES, % OF SURVEY RESPONDENTS HOLDING SPECIFIC FINANCIAL PRODUCTS 

Source: Eurobarometer 509, ‘Retail financial services and products’ 2022 

The reasons that retail investors are not investing may be manifold. In many cases, they may not be 
able to save and invest due to a lack of financial means. Other reasons may reflect more risk averse 
cultural  preferences.  In  October  2022,  the  European  Commission  published  the  results  of  a 
Eurobarometer survey looking at retail financial services and products6, which indicated that 26% of 
respondents have, or have had, an investment product, although around half of respondents considered 
that they did not have the means to invest. Other reasons for not investing reflect concerns about the 
risks,  uncertainty  about  the  potential  returns,  lack  of  understanding/complexity,  preference  to  put 
money elsewhere and lack of trust in advisors (see Eurobarometer chart).  

 REASONS WHY PEOPLE DO NOT INVEST 

6 Eurobarometer survey on Retail Financial Services and Products, October 2022  

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Source: Eurobarometer 509, ‘Retail financial services and products’ 2022 

The Eurobarometer survey indeed reflects a number of problems for retail investors. Retail investors 
perceive  investment  products  to  be  generally  complex.  Yet,  although  financial  literacy  levels  vary 
considerably across Member States, too many consumers have poor understanding of the investment 
environment. The OECD/INFE 2020 International Survey of Adult Financial Literacy has shown that 
on average, consumers could only reply to around 60% of questions on basic knowledge concepts and 
financially prudent behaviours and attitudes. Only 26% of all adults responded correctly to questions 
on both  simple and compound interest  –  which  are crucial concepts  for  investment7. Evidence also 
suggests  that  a  significant  proportion  of  consumers  is  dependent  on  advice8:  that  is  likely  to  be 
especially the case for retail investing.   

Trust levels in investment services are also very low. Consumers regularly rank investment services 
among the worst performing services, including on comparability and trust9. Lack of trust in financial 
advice was also mentioned in the Eurobarometer as one reason for not investing.  

Finally, if they do invest, retail investors may not always get the best deal: products and services offered 
to retail investors often carry high fees and commissions which have a negative impact on their return 
on investments. For example, in 2021, retail clients were charged on average around 40% more than 
institutional investors across asset classes10. Retail investors are heavily dependent on advised services, 
and retail investment products11 in the EU are largely distributed through a commissions-based model 
where  distributors  receive  fees  and  commissions  from  product  manufacturers  for  the  products  they 
recommend and sell to retail investors. The existing rules do not sufficiently mitigate the conflicts of 
interest  which  are  inherent  in  this  distribution  model,  and  which  lead  to  the  distribution  of  more 
expensive products and deliver suboptimal outcomes for retail investors.  

The risk of suboptimal outcomes for retail investors is exacerbated by the current economic climate 
and the significant shift from a low interest rate environment towards high inflation and rising interest 
rates. The increasing cost of living and erosion of savings means that it is even more important that 

7 See: OECD/INFE 2020 International Survey of Adult Financial Literacy 
8  According  to  Eurobarometer,  45%  of  Eurobarometer  respondents  make  decisions  about  personal  finances  based  on 
recommendations of bank staff or other financial advisors. 
9 See the consumer scoreboard under Consumer Markets Scoreboard - Making markets work for consumer - 2018 Edition 
(europa.eu) 
10 ESMA, Performance and Costs of EU Retail Investment Products, 2022, page 6. 
11  See page 26 of the 2018 Report on the Distribution systems of retail investment products across the European Union.  
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returns on retail investments are not eroded by high fees and that the legal framework is effective in 
facilitating  an  efficient  market  that  offers  better  investment  outcomes.  Against  the  backdrop  of  an 
ageing EU population and longer life expectancy, long-term investments in capital markets could help 
people achieve higher sustainable returns and a complementary income for their retirement, while at 
the same time providing long-term orientated capital to the economy. 

Furthermore,  retail  investments  are  affected  by  new  trends.  As  is  true  in  many  other  areas, 
digitalisation  has  a  profound  impact  on  retail  investments.  Digitalisation  offers,  for  example,  easy 
access to a wide range of services, products at lower cost, low-cost automated sales (sometimes with 
additional  investment  support),  robo-advice  and  digital  information  ensuring  transparency  and 
facilitating  the  comparability  of  products.  That  is  also  the  case,  for  instance,  for  tools  to  enhance 
financial literacy. Many retail investors, especially from younger generations, are increasingly turning 
to online investment opportunities. However, digitalisation may also create risks, such as facilitating 
investment  fraud  or  misleading  marketing  practices  from  influencers  using  social  media  and  other 
online  channels.  The  existing  rules  on  investment  services  were  conceived  for  the  more  traditional 
(face-to-face) distribution channels. They may need to be adapted to better target the needs of retail 
investors and to accompany them in their investment journey.  

There  is  also  an  increasing  focus  on  sustainable  investing  by  retail  investors,  who  want  their 
investments  to  also contribute to  tackling the climate and biodiversity  crises. This  needs to be duly 
reflected  in  the  legal  framework,  in  particular  with  respect  to  disclosures  and  the  professional 
certification of advisors.  

It  is  also  important  to  stress  that  there  are  limits  to  what  legislative  changes  to  the  retail  investor 
protection framework can seek to achieve. For example, different rules across Member States in the 
area of taxation (e.g. with respect to withholding tax) add to the challenges retail investors face when 
considering  purchasing  products  outside  their  home  Member  State.  Although  these  are  significant 
issues, taxation affecting retail investing is outside the scope of this strategy and thus not addressed in 
this  impact  assessment12.  Another  important  issue  that  is  not  addressed  in  this  strategy  relates  to 
consumer redress, in case retail investors enter into a dispute with their provider. The issue of improving 
redress procedures will be subject to a separate initiative planned for 202313. 

While  strengthening  protections  might  increase  the  overall  level  of  trust  and  confidence  for  retail 
investors,  these  changes  alone  may  not  lead  to  more  people  investing.  However,  by  creating  the 
conditions for a healthy investment environment that ensures a high-level of trust and integrity as well 
as better investment outcomes, it is likely that they would indirectly increase the currently observed 
low participation rates. 

1.2 Political context 

In  line  with  the  Commission’s  stated  objective  of  “an  economy  that  works  for  people”,  and  as 
announced  in  the  2023  work  programme14,  the  Commission  is  seeking  to  ensure  that  the  legal 
framework for retail investments sufficiently empowers consumers, helps them ensure improved and 
fairer  market  outcomes  and  ultimately  creates  the  necessary  conditions  to  grow  retail  investor 
participation in the capital markets.  

In its September 2020 New Capital Markets Union Action Plan, the European Commission announced 
its intention to come forward with a strategy for retail investments in Europe that seeks to ensure that 

12 Such issues are dealt addressed in other initiatives, as described in the European Commission’s Action plan for fair and 
simple taxation supporting the recovery strategy, COM(2020) 312 final. 
13 The upcoming review of the ADR Directive in 2023 will aim to ensure that consumers and traders have fair, cost-effective 
and user-friendly tools to solve their disputes and obtain redress where their rights are infringed.  
14 See Commission work programme 2023 COM(2022) 548 final. 

5 

 
                                                           
retail  investors  can  take  full  advantage  of  capital  markets  and  that  rules  are  coherent  across  legal 
instruments.  

1.3 Legal context 

The EU already has in place a legislative framework at EU level governing retail investor protection, 
which has been developed over several decades. The level of consumer protection has significantly 
strengthened over the years, in particular following the 2008 financial crisis.  

The current legislative framework covers, with varying levels of harmonization, most aspects of the 
retail  investor’s  journey,  ranging  from  the  marketing  of  financial  products  and  pre-contractual 
disclosure of information to financial advice. It consists of different EU-level legal instruments that 
aim to harmonise EU rules and create an integrated financial market on a sector-by-sector basis under 
which investors are effectively protected, efficiency is promoted, and the integrity of the overall market 
is safeguarded. The rules are spread across a number of different EU legal instruments described in the 
following table. They provide a legal framework which is developed in more detail at levels 2 and 3 
and which together form the basis of the acquis on retail investor protection. 

Table 1: the EU legal framework governing retail investor protection 

Legislation  Description 

MiFID II15  

IDD 16 

PRIIPs 17 

UCITS 18 

AIFMD19  

Solvency 
II20 

PEPP21  

Sectoral legislation setting the rules for the single market for investment services and activities aiming 
to ensure a high degree of harmonised protection for investors in financial instruments. 

Sectoral legislation that sets out the rules on how insurance products are designed and distributed in 
the EU and aims to harmonise regulation of the insurance market and to improve consumer protection 
standards. 

Cross-sectoral legislation that sets out the obligations for those who produce or distribute packaged 
retail and insurance-based investment products to provide investors with key information documents 
(PRIIPs key information documents / PRIIPs KIDs). The regulation sets out rules on the contents of 
the KIDs and their presentation, as well as how PRIIPs KIDs should be provided to retail investors. 

Sectoral  legislation  setting  the  rules  for  the  creation,  management  and  marketing  of  collective 
investment schemes.  

Sectoral  legislation  setting  the  rules  for  the  management  and  marketing  of  alternative  investment 
funds (AIFs). 

Solvency II is the prudential regime for insurance and reinsurance undertakings in the EU aiming at 
promoting transparency, comparability and competitiveness in the insurance sector. 

Sectoral legislation setting out the rules on the pan-European Personal Pension Product (PEPP) which 
is a voluntary personal pension scheme that offers EU citizens a new option to save for retirement.  

15  Directive  (EU)  2014/65  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on  markets  in  financial 
instruments.   
16  Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution. 
17 Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information 
documents for packaged retail and insurance-based investment products. 
18  Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the  coordination  of  laws, 
regulations  and  administrative  provisions  relating  to  undertakings  for  collective  investment  in  transferable  securities 
(UCITS). 
19 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund 
Managers. 
20 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit 
of the business of Insurance and Reinsurance (Solvency II). 
21  Regulation  2019/1238  of  the  European  Parliament  and  of  the  Council  of  20  June  2019  on  a  pan-European  Personal 
Pension Product (PEPP) 

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However, while this approach ensures that investor protection rules are adapted to the specific needs 
of the relevant sector, it also results in a patchwork of rules viewed from the perspective of a retail 
investor.  

To address the problems on the retail investments market, further efforts are required at EU level to 
modernise and update the investor protection rules and establish coherent  and consistent regulatory 
requirements across the Union. 

This  impact  assessment  also  considers  the  interplay  with  other  ongoing  initiatives  in  the  area  of 
financial services. For example, the Open finance framework will aim to facilitate the access and re-
use of customer data, with consent, across a range of financial services and enable data sharing and 
third party access for a wide range of financial sectors and products, in line with data protection and 
consumer  protection  rules.  The  Open  finance  initiative  runs  in  parallel  with  the  Retail  investment 
strategy and coordination of the two will take place especially with regards to standardisation and/or 
portability of customer data.    

2. 

PROBLEM DEFINITION 

2.1 What is/are the problems? 

Financial markets  are complex, which makes it difficult  for many retail  investors to  understand the 
investment products and services on offer, including their costs, risks, and benefits. This complexity 
has different impacts on the behaviour of retail investors: some refrain from investing and keep their 
money in bank deposits, whereas others may seek to attain higher levels of knowledge before they feel 
able  to  make  informed  choices.  The  search  for  information  and  learning  entails  costs,  which  deter 
investment. Since retail investors will wish to avoid frustrating investment experiences and the risk of 
taking wrong decisions, their investment decisions are preceded by their assessment of trust in their 
own decision-making capacity and the quality of information and advice available to them. Information 
and  financial  advice  have  the  character  of  ‘credence  goods’  since  complex  information  hinders 
investors’ ability to judge their quality or that of related financial advice22. Complexity makes retail 
investors vulnerable to cognitive biases and the use of non-rational factors that may not best suit their 
needs. They struggle to understand critical aspects, such as how financial incentives paid by product 
manufacturers to distributors can bias the advice that they receive.  

The  relationship  between  financial  service  providers  and  retail  investors  is  characterised  by  a 
fundamental  information  asymmetry,  which  intensifies  such  consequences.  Apart  from  providing 
technical  services  in  the  administration  of  households’  financial  wealth  holdings,  financial 
intermediaries’  main  added  value  is  in  helping  investors  overcome  the  information  gap.  Financial 
intermediaries’  revenues  can  be  understood  as  the  remuneration  retail  investors  pay  to  receive 
information and advice.23 However, investors’ search costs imply market power for financial service 
providers in the form of their ability to charge higher prices than if they were operating in a competitive 
environment.24 While some investors follow the recommendations of advisors blindly, others refrain 
from  asking  for  advice.25The  broad-ranging  EU  regulatory  framework  focuses  on  protecting  retail 
investors  and  aims  to  address  the  risks  that  stem  from  information  asymmetry.  It  covers  disclosure 

22 “Credence goods” are characterised by the consumers’ inability to judge the quality of the good after purchase. For such 
goods, market incentives are distorted, resulting in the provision of goods that do not fit the needs of consumers and/or 
charged at a too high price. Market mechanisms can overcome these vulnerabilities only under specific conditions that 
reveal quality and value to customers, See Balafoutas, L. and R. Kerschbamer, ‘Credence goods in the literature: What the 
past fifteen years have taught us about fraud, incentives and the role of institutions’, Journal of Behavioural and 
Experimental Finance, Vol. 39 (20220), pp.1-16. 
23 See Inderst, R. and M. Ottaviani, ‘Financial Advice’, Journal of Economic Literature, Vol. 50:2 (2012), pp. 494-521. 
24 See Campbell, J.Y et al., Consumer Financial Protection’, Journal of Economic Perspectives, Vol. 25 (2011), No. 5, 
pp.91-114.  
25 See Annex 10 on financial advice 

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requirements, product oversight and governance rules as well as rules addressing conflicts of interest 
and  governing  the  “point  of  sale”  of  investment  products  and  services.  Setting  standards  on  the 
information  given  to  retail  investors  reduces  their  learning  costs,  while  regulating  the  services  of 
financial intermediaries contributes to enhancing retail investors’ trust. 

Despite the existence of those safeguards, the evidence (the evaluation of the framework in Annex 11, 
the results of the public consultation, the retail investment study and advice from the ESAs) points to a 
failure  of  the  legislation  to  reach  its  intended  outcome.  As  a  result,  retail  investors  are  often  not 
purchasing products that are in their best interest.  

There are two key problems that persist in the area of retail investor protection:  

1. 

Retail  investors  lack  salient,  comparable  and  easily  understandable  investment  product 
information, while being inappropriately influenced by marketing communications.  

Salient, comparable and easily understandable information about investment products is important to 
help  retail  investors make well-informed decisions.  That  purpose is  however is  hindered by several 
factors that limit the ability of investors to use and understand the information they need – some related 
to  deficiencies  in  the  retail  disclosure  framework,  others  related  to  insufficient  levels  of  financial 
literacy.  As  evidenced  in  the  Evaluation  (Annex  11),  while  the  retail  disclosures  framework  has 
increased  investor  protection,  the  information  documents  provided  to  retail  investors  are  rarely 
engaging  and  their  layout  is  frequently  very  dense  and  not  reader  friendly.  Insufficient  levels  of 
financial literacy make it harder for investors to find and assess available information and reflect it in 
their investment decisions. While financial service providers are legally required to provide different 
types of information to retail investors on financial products or services, the rules do not appear to be 
fully  achieving  their  intended  objective  of  increasing  understandability  and  improving  investment 
decisions. It is not possible to quantify the size of this problem, but evidence points to such deficiencies 
as being one of the pieces of the puzzle that together affect retail investors’ trust and willingness to 
invest.   

The behavioural testing and mystery shopping exercise in the Retail investment study showed that the 
current disclosure rules are not sufficiently helping consumers overcome the underlying complexity of 
retail investment products. As a consequence, there is further potential for disclosures to better help 
retail  investors  make  their  decisions.  Furthermore,  a  recent  IOSCO  study  demonstrated  that  retail 
investors are increasingly exposed to the influence of social media and online marketing26. The current 
framework has not been sufficiently adapted to the increasing use of digital channels for retail investing. 
In  addition,  the  current  framework  does  not  reflect  the  growing  need  of  inclusion  of  sustainability 
preferences of retail investors. 

2. 

Shortcomings in the investment product manufacturing and distribution process related to 
the payment of inducements and the extent to which product design reflects cost-efficiency 
and value for the retail investor.  

Evidence  suggests  that  some  products  offered  and  recommended  to  retail  investors  do  not  deliver 
satisfactory investment results and do not best serve their interests, nor correspond to their investment 
objectives, needs and preferences. Both EIOPA27 and ESMA28 have found that certain products offered 
to retail investors (e.g. certain structured investment products or insurance-based investment products) 
have in recent years offered very low if not negative returns, especially after deduction of fees29.  

26 IOSCO report on retail distribution and digitalisation https://www.iosco.org/library/pubdocs/pdf/IOSCOPD715.pdf 
27  EIOPA Cost and past performance report 2022 
28 ESMA Performance and Costs of EU Retail Investment Products 2022 
29 See page 38 EIOPA’s 2022 cost and performance report or page 37 of ESMA’s Performance and Costs of EU Retail 
Investment Products 2022. 

8 

 
 
 
                                                           
Particularly costly are products that include the payment of inducements for financial intermediaries in 
the distribution process. Despite the existing safeguards to mitigate the resulting conflicts of interest, 
investors are still advised products that do not offer them the best value nor help them to achieve their 
long-term investment goals. The European Court of Auditors (ECA) concluded in its special report on 
investment funds30 that investors were not sufficiently protected against, among other things, biased 
advice from financial intermediaries incentivised by inducements. 

Jointly, these problems have the following consequences: 
1. 
2. 

Investors may not be duly protected or treated fairly; 
Some investors do not achieve good outcomes on their investment due to poor quality products, 
making it harder to accumulate capital to finance their retirement needs or other life goals; 
As  retail  investors  achieve  suboptimal  results  and  do  not  understand  why  their  financial 
products  did  not  yield  a  satisfying  performance,  their  confidence  in  capital  markets  may  be 
undermined and their willingness to invest in the first place discouraged;  
The resulting lower retail investor engagement may constrain efforts to achieve a more efficient, 
developed and integrated capital market within the EU. 

3. 

4. 

Consumer  organisations  have  long  expressed  concerns  about  consumer  protection  standards  (one 
organisation set up a website displaying cases of financial detriment31), however actual data covering 
cases  of  consumer  detriment  in  financial  services  remains  underdeveloped.  While  questions  about 
consumer detriment are frequently asked in surveys, the wording of the questions differs, comparisons 
over time are generally not available and country rankings are dissimilar across surveys. Although the 
interpretation of such diverse survey data is difficult, the results suggest that distrust in retail investment 
markets is present everywhere and that a non-negligible share of investors have experienced frustrating 
experiences.  In  both  the  OECD/INFE  2020  survey  and  the  2022  Eurobarometer  on  retail  financial 
services, the share was  3.7% as an average of participating EU Member States.  In a study32 for the 
Commission  in  2018,  more  than  half  of  the  surveyed  consumer  protection  bodies  reported  having 
received frequent complaints about unsuitable products and inappropriate advice. National competent 
authorities receive a considerable number of complaints about poor investment advice and mis-selling, 
which further illustrates the presence of consumer detriment on retail investment markets33. 

Table: Surveys on retail investors detriment – difference to average of available EU Member States measured in 
standard deviations, a positive number indicates that consumers have less trust than the EU average. 

CMM 2017 

Trust in providers to 
respect the rules and 
regulations 
protecting 
consumers (inverted 
scale) 

Extent of detriment 
suffered as a result 
of problems 
experienced with 
investment 
products or supplier 

OECD 2020 
Accepted advice 
to invest in a 
financial product 
later found to be 
a scam, such as a 
Ponzi scheme? 

EB 2022 
Have you ever 
considered your 
basic rights were 
breached when 
taking out an 
investment 
product? 

RIS 2022 
Disagree with “I 
trust financial 
advisors act in 
the best 
interest of their 
clients” 

BE 
BG 
CZ 
DK 
DE 
EE 
IE 

0.2 
1.8 
0.2 
-0.5 
-1.1 
0.1 
0.5 

-0.5 
0.2 
0.7 
-1.4 
0.2 
0.2 
-1.0 

N/A 
0.4 
N/A 
N/A 
0.9 
-0.5 
N/A 

-0.9 
-0.4 
-0.9 
-1.6 
0.2 
-1.2 
-0.9 

N/A 
N/A 
N/A 
N/A 
1.7 
N/A 
N/A 

30  European  Court  of  Auditors,  Special  report:  Investment  funds,  EU  actions  have  not  yet  created  a  true  single  market 
benefiting investors, 2022, Special Report 04/2022: Single Market for investment funds (europa.eu) 
31 https://www.thepriceofbadadvice.eu/ by BEUC. The website was created in 2018, but lists scandals prior to that 
year, recognising that mis-selling is often detected with a considerable delay. 
32 Deloitte (2018), Distribution systems of retail investment products across the European Union, page 106.  8 
consumer protection agencies and 15 alternative dispute resolution agencies participated in the survey. 
33 see ESMA, ‘Monitoring retail markets via complaints data’ Trends, Risks and Vulnerabilities, 1/2017 pp. 37-43. 

9 

 
 
 
 
                                                           
EL 
ES 
FR 
HR 
IT 
CY 
LV 
LT 
LU 
HU 
MT 
NL 
AT 
PL 
PT 
RO 
SI 
SK 
FI 
SE 

-1.2 
1.7 
-1.3 
1.3 
0.5 
-1.0 
-0.5 
0.6 
-1.2 
-2.1 
-1.2 
0.9 
-1.2 
1.3 
0.9 
0.1 
0.2 
0.3 
0.2 
1.7 

N/A 
N/A 
N/A 
-1.0 
0.6 
N/A 
N/A 
N/A 
N/A 
-0.8 
N/A 
N/A 
-0.3 
0.0 
-1.4 
2.1 
N/A 
N/A 
N/A 
N/A 
CMM European Commission’s consumer market monitor, OECD (2020) is the OECD/INFE 2020 International Survey of Adult Financial 
Literacy. EB is the Eurobarometer Flash No 509/2022, RIS the Retail investment study. Numbers were obtained by deducting the 
country observation from the sample’s average and divide this difference by the sample’s standard deviation. 

-0.8 
-1.0 
0.2 
N/A 
-0.2 
N/A 
N/A 
N/A 
N/A 
N/A 
N/A 
-0.8 
N/A 
-0.2 
N/A 
-1.0 
N/A 
N/A 
0.0 
1.9 

0.6 
0.2 
-0.6 
-0.1 
1.3 
0.7 
0.1 
-0.8 
-2.1 
-0.5 
2.2 
-0.6 
-0.7 
1.0 
0.8 
-0.6 
-0.6 
-0.6 
0.0 
-2.5 

2.7 
0.8 
0.1 
0.0 
0.0 
-1.6 
-0.8 
-1.5 
-0.4 
1.1 
1.9 
0.6 
-0.5 
1.0 
0.8 
0.1 
-0.1 
-0.4 
-0.5 
-1.4 

2.2 What are the problem drivers? 

Problem 1 – Informational deficiencies 

Problem  driver  1:  information  provided  to  investors  is  not  always  useful  or  relevant  for  their 
decision-making process 

Current EU legislation imposes obligations on firms and their intermediaries to provide ex ante and ex 
post information about retail investments to their customers. Disclosure requirements are intended to 
alleviate the information asymmetry between financial service providers and retail clients by ensuring 
that retail investors receive clear and comparable information, which would ultimately help them to 
make an informed choice. However, the relevance of disclosures is inherently limited by the fact that 
not all consumers are able or willing to read and understand this information. 

Specific disclosure requirements are laid down across different legal instruments including sectoral, 
product and horizontal consumer protection legislation (e.g. PRIIPs, UCITS, MiFID, IDD, Solvency 
II, DMFSD, the Prospectus Regulation, etc.).  

The  evaluation  of  the  legal  framework,  supported  by  evidence  from  the  Retail  investment  study, 
concluded  that  while  EU  disclosure  rules  have  generally  led  to  improved  (notably  in  terms  of 
completeness  and  clarity  of  information)  and  more  comparable  documents  for  retail  investors,  the 
existing requirements do not always help them make informed investment decisions. The following 
reasons have been identified (see Annex 4 for a more detailed analysis): 

a) The information provided is complex and not sufficiently engaging for retail investors.  

Retail  investors  currently  receive  abundant  information  about  different  (key)  aspects  of  investment 
products and services. While this may be useful for financially literate consumers and relevant from 
the point of view of consumer protection (for instance in the case of mis-selling and litigation), or may 

10 

 
 
serve  supervisory  objectives34,  in  other  cases  such  comprehensive  disclosures  may  be  of  limited 
usefulness  in  supporting  retail  investors  in  their  decisions,  as  they  are  too  complex  to  be  read  and 
understood by many. EIOPA concluded in its advice that “…despite existing obligations for disclosures 
to be fair, clear and not misleading, the use of jargon or unnecessarily complex terminology is still 
prevalent, and information is not necessarily presented in a clear or engaging way to consumers”35. 
Respondents to the public consultation indicated that disclosure documents for retail investors were 
overly  elaborate  (even  for  simple  products),  complex  and  too  technical,  potentially  leading  to 
information overload36.  

The Retail investment study also underlined that disclosure documents “are rarely engaging and that 
their  layout  is  frequently  very  dense”37  and  that  in  practice  consumers  often  did  not  read  them.  In 
particular, the study concluded that costs disclosure rules and practices were complex and sometimes 
inconsistent,  making  use  and  comparison  of  this  information  challenging  for  retail  investors.  For 
example,  retail  investors  faced  multiple  cost  items  in  the  vast  majority  of  product  information 
documents that were reviewed. The behavioural experiment in the Retail Investment study showed that 
even when using simplified information documents, a significant proportion of consumers was not able 
to choose the most financially advantageous product for them in terms of costs38.  

b) Disclosures to investors are not adapted for the digital environment. 

The  EU  legal  framework  (see  Table  1)  provides  for  comprehensive  requirements  on  the  type  of 
information and the way that information should be provided to retail investors. Increased digitalization 
and  the  development  of  new  technologies  and  tools  are  transforming  how  financial  services  are 
provided. Financial service providers are changing the way they interact with their (potential) clients, 
and  these  new  trends  enable  them  to  adopt  new  approaches39.  However,  the  existing  disclosure 
requirements do not fully cater for these new trends and evolving user needs and expectations (notably 
from younger generations of investors). The PRIIPs framework also does not provide for a sufficient 
level of flexibility to allow for the presentation of information from the key information documents to 
retail investors in a layered way40, which can be considered a regulatory gap. The size of these problems 
cannot  be  measured,  but  they  pose  inconvenience  to  users  and  reduce  willingness  to  read  key 
information documents41.  

In the evidence presented by the Joint ESA advice on digital finance, respondents to the surveys and 
interviews expressed concerns that the EU disclosure framework was potentially outdated, which could 
hinder the ability of consumers to make informed decisions about products and services42. The ESAs 
concluded that digitalization trends are not adequately captured and although the current framework is 
“supposed to be technology-neutral, it was mainly designed without considering digital distribution, 

34 See EIOPA advice on retail investor protection, page 35 para 50.  
35 See EIOPA advice on retail investor protection, page 36, para 54. 
36 44% of respondents, including one consumer organisation, companies/business organisations and business associations 
representing banking, insurance and investment management as well as NGOs ranked disclosure as the area with the biggest 
room for improvement, following financial literacy (63%) and preceding digital innovation (39%).  
37 See Retail investment study, page 163. 
38 See Retail investment study page 164.  
39 ESMA advice on retail investor protection, page 23. 
40 While the current legal text does not entirely prevent digital use of KIDs, including possible layering of information, it 
also does not encourage it. Specifically, it prevents changes to the order of the PRIIPs KIDs sections which would limit 
layering to presenting the information in a menu to display the headings and hide/unhide the information, which may not 
be sufficient. 
41 While this may not necessitate legislative action on its own, changes at L1 could allow more flexibility to find a more 
suitable solution for making PRIIPs KIDs more adapted to the digital environment.  
42Joint European Supervisory Authority response to the European Commission’s February 2021 Call for Advice on digital 
finance and related issues, 31 January 2022, point 164. 

11 

 
                                                           
and certainly before the “app-revolution”43. Likewise, the Retail investment study suggested putting 
greater emphasis on the digital environment44.  

c) Insufficient ex post information on costs and performance. 

While many regulatory disclosures focus on the pre-contractual stage, the periodic ex post disclosures 
to retail investors, focusing on the costs and performance of the products in their portfolio, are more 
limited.  As  identified  in  the  EIOPA  advice  on  retail  investor  protection,  in  the  area  of  IDD,  some 
Member States have developed national practices beyond the outdated rules in Solvency II, but there 
is currently no common standard for ex post periodic disclosure in EU legislation which would improve 
the comparability of different IBIPs and help inform investors of the costs and performance of their 
portfolio.  In  addition,  both  the  MiFID  and  IDD  rules45  require  investment  firms  and  insurance 
distributors  to  provide  investors  with  annual  information  on  costs  and  charges  related  to  financial 
instrument(s), investment and ancillary services and IBIPs. However, as regards investment services, 
this requirement only applies to situations where there is an ongoing relationship between the client 
and the investment firm and does not cover in the same report the performance of the portfolio of the 
investor, taking into account the performance of the financial products and the costs and fees borne by 
the investor.  

As a result, a significant group of investors does not receive appropriate ex-post information in an easily 
accessible  and  comprehensible  way,  which  limits  their  possibilities  to  effectively  monitor  the 
developments of the investment product purchased, including performance and costs paid.   

d)  Limited  visibility  and  comparability  of  Environmental  Social  and  Governance  (ESG) 
information in standardized disclosure documents. 

The increasing demand for sustainable investment, that takes account of ESG risks or impacts, is not 
adequately reflected in key information documents for retail investors, in particular in the PRIIPs key 
information documents46 prepared under the PRIIPs legal framework. This represents a regulatory gap 
with  respect  to  changing  expectations  of  consumers  regarding  the  role  of  disclosures.  Under  the 
Sustainable Finance Disclosure Regulation (SFDR), new information must be collected by financial 
product  manufacturers  and  presented  on  their  websites,  notably  on  the  treatment  of  sustainability-
related risks and principal adverse impacts of investments. Such disclosures may be rather complex for 
retail investors to navigate and may not be sufficiently visible to them. While current provisions allow 
for the inclusion of some additional information in the PRIIPs key information documents, there is no 
guarantee that without further policy intervention this will happen systematically and coherently in a 
way  that  facilitates  comparability  of  retail  investment  products  based  on  their  ESG  characteristics. 
Unless  specified in  law,  there is  a significant  risk that different  providers  would prioritize different 
information,  which  may  make  it  harder  for  retail  investors  to  compare  products  based  on  such 
information.  

Problem  driver  2:  retail  investors  tend  to  be  unduly  influenced  by  enticing  marketing 
communications through digital channels and misleading marketing practices    

Marketing communications can play a key role in determining consumer behaviour and influencing 
investment decisions. Retail investors who are subject to misleading marketing communications are 

43 See page 43, para 3.5.1 of the Advice of the ESA joint committee on PRIIPs, and page 36 of the EIOPA advice on retail 
investor protection. 
44 See pages 15 and 106 of the Retail investment study 
45 Delegated Regulation (EU) 2017/565 Article 50.9, Article 29(1)  
46 See Table 1: the EU legal framework governing retail investor protection and Annex 9 for more detail on PRIIPs key 
information documents. 

12 

 
                                                           
more likely to be mis-sold an unsuitable/inappropriate financial product or service, even where correct 
information is provided through regulatory disclosures47. There is a growing trend towards marketing 
through digital channels, which brings certain benefits but also risks48 to retail investors, including the 
risk of biasing investors’ choice, unsolicited offers, offers targeting an inappropriate segment, a push 
towards unsuitable products, increased misconduct, as well as difficulties for competent authorities to 
control digital marketing and enforce the relevant rules. 
Online platforms closed fora such as (moderated) chat groups, and influencers (or “finfluencers”49) are 
an increasingly important channel to inform and influence retail investors50. Financial influencers in 
particular have received much attention in recent years, although they represent only one of many new 
digital phenomena.  

The current rules require inter alia that marketing communications are clearly identifiable as such and 
that the information they contain is consistent with any information the firm provides to clients in the 
course of providing investment services.  

Several shortcomings have been identified with respect to the application of the existing framework, 
indicating that it is not yet fully able to address all the challenges of these new trends:   

1. 

2. 

3. 

Marketing communications, particularly in the online environment, may tend to overemphasize 
the potential benefits of the product and hide information on costs and risks51.  
There  may  be  confusion  with  respect  to  the  definition  of  marketing  communications  as  to 
whether online advertising and firms’ private messages to clients and potential clients on social 
media are covered52, both when communicated directly by the firm or through third parties’ 
social media (i.e. ‘finfluencers’ who operate on behalf of financial service providers). NCAs 
are also facing significant challenges in monitoring new forms of marketing communications, 
for instance as regards the use of finfluencers by firms or other developing means to engage 
clients via third parties through social media53. ESMA and EIOPA consider that greater control 
and  oversight  by  investment  firms  and  insurance  companies  is  needed  on  marketing 
communications to ensure a consistent approach across all Member States.  
The existing powers of NCAs to tackle aggressive online marketing practices may not allow 
sufficiently timely intervention54, nor the possibility for NCAs and ESMA to impose the use of 
risk  warnings  for  specific  risky  financial  instruments  which  may  be  subject  to  (aggressive) 
online marketing and advertising campaigns55.  

A majority of respondents to the public consultation considered that there was a need for further EU 
coordination/harmonisation  of  national  rules  on  online  advertising  and  marketing  of  investment 
products56. 

Problem 2 – Shortcomings in the investment product manufacturing and distribution processes 

47 ESMA advice on retail investor protection, page 9, point 22 and EIOPA advice on retail investor protection, page 43. 
48 IOSCO report on retail distribution and digitalisation, page 6. 
49 A “finfluencer” is an in influencer, who is usually active on social media, and generates content on financial topics such 
as investments. 
50 In response to Q.3.7 of the Public consultation, a majority of respondents considered that social media platforms may be 
used as a vehicle by some users to help disseminate investment related information and that this may pose significant risks 
for  retail  investment  (e.g.  if  retail  investors  rely  on  unverified  information  or  on  information  not  appropriate  to  their 
individual situation). 
51 ESMA advice on retail investor protection, pages 10 and 14.  
52 ESMA advice on retail investor protection, page 9. 
53 ESMA advice on retail investor protection, page 11, point 25. 
54 ESMA advice on retail investor protection, page 12, point 27. 
55 ESMA advice on retail investor protection, page 37, point 120. 
56 See 2021 Public consultation, Q3.6 

13 

 
 
                                                           
Problem  driver  3:  some  retail  investment  products  incorporate  unjustifiably  high  levels  of  costs 
and/or do not offer value to retail investors  

High fees reduce the return retail investors can earn from their investment and the benefits they can 
draw from them. The challenge for retail investors to assess whether they get good value for money 
increases in case of complex fee structures. Both ESMA and EIOPA concluded in their monitoring of 
investment  performance  and  costs  that  the  high  level  of  costs  charged  to  retail  investors  can 
significantly impact risk-adjusted net returns and diminish the investment outcome for final investors. 
Product Oversight and Governance (POG) rules, such as in MiFID and IDD, aim to ensure that the 
interests of customers take prime importance during product design and throughout the lifecycle of a 
financial instrument/product,  including  arrangements  for its distribution.  Similarly, both  the UCITS 
and AIFM Directives contain requirements stipulating that investors should not be charged undue costs. 
However, as evidenced in both EIOPA’s57 and ESMA’s58 annual cost and past performance reports, 
even with such rules, some products offered to retail investors offer very low if not negative returns 
(net of costs charged to the customer), calling into question whether they in fact represent value for 
money. The Evaluation (Annex 11) has found that product manufacturing process and rules governing 
the distribution of retail investment products do not fully tackle the issue of cost-efficiency of products 
and  are  not  sufficiently  effective  to  ensure  that  retail  investors  are  offered  products  that  are  cost 
efficient.  The evaluation of additional rules  under the UCITS framework has also  indicated limited 
scope for improvement, although the majority of the costs charged to investors are not under the control 
of UCITS management companies59. 

EIOPA found that some investment products sold to retail investors generate extremely low or even 
negative real returns, disproportionate to the risk that is taken by the investor. EIOPA identified such 
insurance products particularly in low-risk classes. Net returns were mostly in the range -1% to 6% for 
unit-linked and -1% to 3% to hybrids products60. 

ESMA’s cost and performance report documents the substantial variation of costs of funds marketed 
to  retail  investors  across  EU  Member  States  (see  figure  below),  suggesting  that  there  is  little  cost 
pressure from cross-border competition. It also found that retail clients were charged on average around 
40% more than institutional investors across asset classes in 202161. Although some difference between 
investor groups is to be expected, the size of the difference appears excessive. ESMA’s simulations 
yielded negative returns for a number of structured retail products once costs were taken into account 
(see  figure  below).  There  does  not  appear  to  be  a  strong  correlation  between  total  costs  and  the 
underlying asset type, and as total costs do not appear to be lower for products that are more often sold 
to  retail  investors,  this  would  suggest  that  “economies  of  scale  do  not  appear  to  materialise  in  the 
market for SRPs” (structured retail products)62.  

57 EIOPA Cost and past performance report 2022 
58 ESMA Performance and Costs of EU Retail Investment Products 2022 
59 On average, around 60% of the costs do not go to the UCITS management companies  according to EFAMA Market 
insight, September 2021. These findings are confirmed by other sources of evidence including those discussed under the 
topic of inducements.   
60 EIOPA Cost and past performance report 2022, page 18 
61 ESMA, Performance and Costs of EU Retail Investment Products, 2022, page 6. 
62 ESMA Performance and Costs of EU Retail Investment Products 2022, page 37 

14 

 
                                                           
Figure 1: Cost differences when investment funds are charged to either retail investors or institutional investors,  

Note: Sum of subscription fees, ongoing costs and redemption fees. 
Source: ESMA 2022 Cost and Performance report, with data from ESMA and Refinitiv Lipper 

Figure 2: Returns of structured retail investment products across payoff types in the moderate scenario 

Note: Means and ranges of returns of various structures retail investment products. 
Source: ESMA 2022 Cost and Performance report. 

Structured retail investment  products  often  feature high  complexity that  prevents  retail  clients  from 
understanding whether high fees reflect high quality or are instead due to high costs or profit margins. 
They have no means to judge the extent to which misaligned incentives between product manufacturers 
and distributors (which are both profit maximising entities) are driving high fees and the selection of 
products offered to them. 

ESMA found, in its 2021 common supervisory action63, that while firms generally follow the ESMA 
guidelines,  the  definition  of  target  market  is  sometimes  a  formalistic  exercise,  made  at  insufficient 
granularity and which does not always translate into a distribution strategy that enables the product to 

63 ESMA’s Public Statement on the results of the 2021 Common Supervisory  Action on MiFID II Product Governance 
Requirements. 

15 

 
 
 
 
                                                           
reach  the  identified  target  market.    In  particular,  product  “manufacturers’  procedures  insufficiently 
describe how a product’s cost structure is evaluated to ensure compatibility with the product’s target 
market”.  ESMA  stressed  that  the  requirement  on  manufacturers  to  perform  a  charging  structure 
analysis64 is a key investor protection requirement. Similarly, EIOPA issued a supervisory statement 
concerning  the  assessment  of  value  for  money  of  unit-linked  insurance  issues,  such  as:  “high 
complexity, mis-selling, mismatches between actual returns and customers’ expectations products that 
are not designed in a customer-centric manner”65.  

Despite  the  efforts  of  ESMA  and  EIOPA,  the  current  rules  addressing  the  product  manufacturing 
process and rules governing the distribution of retail investment products do not fully tackle the issue 
of product cost-effectiveness and fail to ensure that retail investors are offered products which provide 
value for money. The rules are not sufficiently granular in relation to cost factors, which is problematic 
for their monitoring and enforcement. An additional practical consideration is that the lack of available 
cost  information  relating  to  investment  products  further  increases  difficulties  to  apply  the  rules,  as 
assessments  around  cost  effectiveness  may  be  perceived  as  arbitrary  if  they  are  not  based  on  data 
comparison and objective benchmarks. That poses a challenge with respect to their enforceability. 

Problem driver 4: conflicts of interest caused by the payment of inducements negatively affect the 
quality of investment products offered and investment advice  

Under certain circumstances, current rules (under MiFID II and IDD) allow for the payment of fees, 
commissions or the provision of non-monetary benefits (so called “inducements”) to financial service 
providers by third parties (typically the manufacturer of the product). These rules provide the basis for 
the  “commission-based”  distribution  model  of  retail  investment  products,  whereby  financial 
intermediaries  (e.g. financial advisors) are  remunerated for their services not  by the retail investors 
directly, but by the manufacturers of those products. The rules do not, however, exclude a purely “fee-
based”  model,  whereby  financial  intermediaries  (e.g.  independent  financial  advisors)  are  only  paid 
directly for their services, including advice, by the retail client. Under MiFID II rules, an advisor that 
informs  his  clients  that  the  investment  advice  is  provided  on  an  independent  basis,  cannot  accept 
commissions from third parties but needs to rely on fees from the client. The “fee-based” model has 
had  limited  uptake  in  the  retail  segment  however  and  the  “commission-based”  model  is  currently 
predominant for the distribution of retail investment products in the EU66.  

Conflicts of interest at the level of the distributor are inherent in the “commission-based” distribution 
model, as financial intermediaries receive remuneration from persons other than the retail investor for 
the products they are recommending and selling. These conflicts of interest can be significant, since 
remuneration through inducements can represent an important portion of the incomes of intermediaries 
and the volumes of sales can also influence the bonuses paid to advisors. As an illustration, a survey67 
conducted by the Swedish supervisory authority concluded that commissions accounted for a very large 
proportion of the revenues of most intermediaries in Sweden. Insurance intermediaries derived 99% of 
their  total  revenues  from  commissions,  which  were  also  an  important  source  of  revenues  for 
intermediaries selling securities. The Retail investment study established that non-independent advice 
remains the prevalent model for most distributors of retail investment products in the EU68, suggesting 

64 In relation to manufacturers there is an obligation in MiFID II to consider the charging structure proposed for the 
financial instrument, including by examining whether financial instrument’s costs and charges are compatible with the 
needs, objectives and characteristics of the target market, that charges do not undermine the return expectations and that 
the charging structure is appropriately transparent for the target market. 
65  EIOPA  Supervisory  Statement  on  “Assessment  of  value  for  money  of  unit-linked  insurance  products  under  product 
oversight and governance”. 
66  Study on distribution systems of retail investment products, page 26, in relation to the distribution of investment funds. 
The Netherlands is an exception due to the ban on inducements.  
67 Finansinspektionen, “A necessary step for a better savings market”, 3 February 2016 
68 Retail investment study, page 233 

16 

 
                                                           
that revenues from non-independent advice constitute a large portion (if not a sole stream) of revenues 
from advised services for most of the intermediaries.  

Both  the  Evaluation  and  the  Retail  investment  study  have  identified  significant  shortcomings  with 
respect to the way the existing rules on inducements work in practice. They have underlined, among 
other  things,  that  information  documents  provided  to  consumers  rarely  contain  explicit  information 
about inducements. According to the findings of the Retail investment study, while the disclosure of 
inducements reduces the information gap it appears not to substantially influence a consumer’s choice 
and only a minority of consumers actually understand the concept. The existing safeguards, such as the 
quality  enhancement  requirement  under  MiFID  II,  lead  to  different  interpretations  across  Member 
States  and  firms,  despite  convergence  efforts  by  ESMA.  A  number  of  studies69  have  identified 
shortcomings in the application of these rules. It is thus clear that the current protections in the legal 
framework and the way they are applied  have not resulted in a market with lower inducements and 
better  value  products  for  retail  investors,  nor  have  they  triggered  a  shift  towards  more  independent 
advice70. 

Consumer  and  financial  user  organisations71  have  complained  that  the  existing  safeguards  do  not 
sufficiently mitigate the sale of investment products and services to retail investors that are not suited 
to their needs and/or which are too costly or underperforming. The ECA underlined also that investors 
were not sufficiently protected against, among other things, biased advice from financial intermediaries 
incentivised by inducements72. 

Inducements form a significant part of the overall product costs charged to retail investors and as such 
contribute to  a higher level  of fees for retail  investment  products.  A study  conducted by EFAMA73 
shows that distributors receive around 38% of the costs paid by retail investors through retrocessions 
for actively managed funds. According to a survey conducted by ESMA, the amount of inducements 
paid in some markets can be significantly higher, with retrocessions in France amounting on average 
to 50% of the management fee and with distribution costs in Spain ranging on average between 50% 
and 80%74. A study conducted by KPMG on behalf of a number of banking associations75 also shows 
that inducements are a significant factor in the overall costs charged to retail investors, equalling 100% 
of the entry fees and on average between 49 and 51% of the yearly ongoing fees. Conversely, evidence 
suggests  that  in  jurisdictions  where  the  payment  of  inducements  has  been  banned  (such  as  the 
Netherlands), retail investors are accessing more cost-efficient products with consistently lower levels 
of fees across asset classes for investment funds76. The Retail investment study found that products 
carrying  inducements  are  on  average  between  24  and  26%  more  expensive  than  those  investment 
products on which no inducements are paid77. 

69 Danish Financial Supervisory Authority (2019), Thematic survey of quality improvement services for investment clients: 
Temaundersøgelse  af  kvalitetsforbedrende  services  til  investeringskunder  (finanstilsynet.dk)  and  Financial  supervisory 
authority of Norway (2020) Temaundersøkelse om etterlevelsen av reglene for returprovisjon (finanstilsynet.no) 
70 Retail investment study, pages 24-25. 
71  Better  Finance  “Research  paper  on  detrimental  effects  of  inducements”  (2022),  BEUC  “The  case  for  banning 
commissions in financial advice" (2019), etc. 
72  European  Court  of  Auditors,  Special  report:  Investment  funds,  EU  actions  have  not  yet  created  a  true  single  market 
benefiting investors, 2022, Special Report 04/2022: Single Market for investment funds (europa.eu) 
73 European Fund and Asset Management Association, Market Insights - Issue #6, September 2021. 
74 ESMA Cost and Performance Report 2021, page 69 – in France, retrocession rates for UCITS funds generally equal 50% 
of the management fees. 
75 KPMG, “Commission-based remuneration vs. Fee-based remuneration: is there a better model for retail  
investors?”, November 2021, pages 40 and 41 
76 Retail investment study, page 293, ESMA Cost and Performance Report 2021. 
77 Retail investment study, page 263. 

17 

 
                                                           
The higher fees charged to retail investors have a significant impact on the net return on investments. 
ESMA indicated in its 2019 Cost and performance report78 that for UCITS funds, the total costs present 
a significant drain on the fund performance, impacting retail investors to a much higher extent than 
institutional investors (as retail clients on average pay twice as much as institutional clients), with costs 
on average accounting for 25% of gross returns in the period from 2015 to 2017. 

The  existence  of  conflicts  of  interest  in  the  distribution  of  retail  investment  products  through  the 
payment of inducements and other monetary incentives, causes product bias (i.e. inducements influence 
the choice for a certain product). This impairs the efficiency of the retail investment market by making 
it more difficult for retail investors to access more cost-effective products79. The resulting biases and 
inefficiencies  can  hinder  retail  investor  participation  across  Member  States  by  undermining  retail 
investors’  trust  in  capital  markets  and  have  a  negative  impact  on  the  internal  market  for  financial 
services.  

With respect to insurance-based investment products (IBIPs), a report by EIOPA80 found that monetary 
incentives from asset managers (managing the assets of unit-linked insurance products) to insurance 
companies are widespread and significant in the industry, totalling EUR 3.7 billion in 2015. According 
to EIOPA, monetary incentives and remuneration received represent a median value of 0.56% of assets 
under  management  (46%  of  total  fund  management  charges)81.  A  majority  of  the  insurance 
undertakings  did  not  disclose  these  monetary  incentives  and  remuneration  nor  passed  on  these 
incentives to their clients. According to EIOPA, these incentives may limit the choice for clients and 
result  in  poor  investment  outcomes,  in  particular  for  products  with  long  investment  horizons,  as 
underlying investment vehicles may at times be chosen on the basis of the highest level of monetary 
incentives and remuneration rather than relevance or cost-effectiveness.  

Evidence  suggests  that  in  many  jurisdictions  certain  simple  and  cheap  investment  products  have  a 
limited market share and are seldom offered or recommended to retail investors, compared to more 
expensive and complex products. Commissions can be an important incentive to offer specific products 
(so-called  product  bias),  for  example,  where  the  fund  commission  can  be  ten  times  higher  for  an 
actively managed fund as compared to an index fund, generating significant conflicts of interest82. The 
Commission’s study on distribution systems of retail investment products83 found that ETFs84 (which 
typically  carry low costs) are amongst  the most  commonly available products  on websites in  many 
Member States but are almost completely absent from traditional distributors’ online offering in some 
Member States. Although marketed online, low-cost ETFs were almost never proposed in traditional 
physical advice distribution channels. The Retail investment study found that ETFs have gained market 
share in certain Member States (e.g. Finland, the Netherlands and Poland), but remain marginal in other 
countries such as France85, where comparatively more expensive products, such as life insurance, were 
advised in the majority of cases86. While it is clear that these pricier products carry different features 
and benefits which may be suitable for different groups of retail investors, desk research, based on data 
provided by ESMA and EIOPA provides an illustration as to how an investor investing EUR 10,000 in 

78 ESMA Cost and Performance Report 2019. 
79 Further explained in Annex 7.B:  the UK inducement ban resulted in cheaper products and increased trust in advice. 
80 EIOPA Report on Thematic review on monetary incentives and remuneration between providers of asset management 
services and insurance undertakings, 26 April 2017. 
81According to the same report, less than 3% of unit-linked assets are directly managed by insurance undertakings; in-house 
asset managers (belonging to the same group as the insurance undertaking) manage 69% of assets; external asset managers 
manage 28% of assets but pay almost 50% of total remuneration. 
82 2022 Consumer Protection Report, Swedish Finansinspektionen (FI), page 16. 
83 Study on distribution systems of retail investment products, page 33. 
84 Exchange Traded Funds which often provide index tracking or other exposure to markets.   
85 Retail investment study, page 69. 
86 Study on distribution systems of retail investment products, page 22. 

18 

 
                                                           
a unit-linked product in the period between 2014 and 2020 would have achieved a significantly lower 
outcome than by investing in ETFs (EUR 2,200 versus EUR 7,600)87.  

The Retail investment study pointed also to challenges regarding inadequate advice and listed a number 
of studies which evidenced the selling of investment products to clients that were not suitable for their 
profile88. At the same time the importance of unbiased advice was emphasised, as consumers tend to 
trust advisors and follow their advice, even when that advice may be evidently inadequate (as evidenced 
by a behavioural experiment conducted as part of the study)89. EIOPA has expressed concerns relating 
to the possible mis-selling of unit-linked products to consumers featuring high costs and commissions 
as well as complex structures90. It also pointed to the need to tackle damaging conflicts of interest and 
address the risk of inducements that lead to product bias and materially impact the cost-efficiency of 
investment products91.  

Finally, the Evaluation points out that the divergences in inducement rules between MiFID and IDD, 
coupled with differences in the way these two frameworks are applied, cause market fragmentation and 
an  unlevel  playing  field  between  distribution  channels  and  Member  States.  In  practice,  different 
standards and levels of protection apply to retail investors, depending on whether a specific product 
(e.g. a UCITS fund) is distributed by an investment firm or an insurance undertaking (e.g. as part of a 
unit-linked product). Many Member States have also introduced stricter national rules on inducements 
under IDD and some also under MiFID (e.g. the Netherlands). On the one hand, this creates an unlevel 
playing field for financial service providers. On the other hand, in a cross-border context, it may expose 
retail investors in host Member States to different, potentially weaker, levels of investor protection. As 
cross-border  distribution  of  certain  retail  investment  products  (e.g.  UCITS  funds92)  increases,  such 
divergences can negatively impact the internal market for financial services. 

87 Calculations based on costs and performance data provided by ESMA and EIOPA. Data on unit-linked products may not 
be fully comparable with data on ETFs due slight differences in methodology and sample size. However, it still provides a 
useful approximation of how both investments would have developed over a 7-year period.  
88 Retail investment study, pages 243 and 244. 
89 Retail investment study, pages 279 to 289. 
90 EIOPA, consumer trend report 2021, page 6. 
91 EIOPA advice on retail investor protection, page 79. 
92 ESMA Cost and Performance report 2021, page 9. 

19 

 
                                                           
2.3 Problem Tree 

2.4 How likely is the problem to persist? 

If  no  action  is  taken  to  remedy  the  identified  problems,  retail  investors  will  continue  to  purchase 
investment products which do not best serve their interests and deliver poor outcomes, undermining 
investor  confidence  and  indirectly  impacting  the  level  of  retail  investor  participation  in  EU  capital 
markets.  

If the identified informational deficiencies remain unaddressed, the framework will not provide a clear 
basis for the provision of less complex information to retail investors focusing on essential elements of 
the  investment  products,  nor  for  the  more  meaningful  presentation  of  disclosure  information, 
particularly through digital means. Many retail investors will continue to not read nor understand the 
information received, affecting their ability and willingness to invest. The growing risk that marketing 
communications, especially through online channels, play on cognitive biases of retail investors and 
unduly influence their decisions will remain unmitigated. 

In  the  absence  of  stronger  requirements  for  product  manufacturers  and  distributors  at  the  product 
oversight and governance (“POG”) stage, which focus on the cost-efficiency of investment products 
and their capacity to generate value for retail investors, the risk will persist that investment products 
are brought to market which carry an unjustifiably high level of costs or do not offer value to retail 
investors. As information asymmetry between the retail clients and intermediaries can never be fully 
eliminated, such products will continue to be purchased by retail investors, leading to lower returns and 
consumer detriment. Considering the problems on the market which have repeatedly been signalled by 
ESMA and EIOPA, an improvement of the existing situation is highly unlikely without a regulatory 
response. 

Conflicts of interest due to the payment of inducement, if not addressed, will also continue to negatively 
affect the quality of the advice and products offered to investors. The commission-based model and 
non-independent  advice will remain the predominant models in the EU with the continued risk that 
incentives at the level of intermediaries lead to the sale of investment products and services that are not 
suited to the needs of retail investors or are too costly or underperforming. This will continue to have 

20 

                they lack salient, comparable and easily understandable investment product information, while being inappropriately influenced by marketing communications  (Informational deficiencies) Investor confidence is undermined and retail investment participation in capital markets remains low EU capital market remains inefficient, underdeveloped and fragmented  Retail investors are not duly protected or treated fairly   Some retail investors do not achieve good outcomes on their investment   Driver 1 Information provided to investors is not always useful or relevant for their decision-making process Driver 2 Retail investors tend to be unduly influenced by enticing marketing communications through digital channels and misleading marketing practices  Driver 3 Some retail investment products incorporate unjustifiably high-levels of costs and/or do not offer value to retail investors  Driver 4 Conflicts of interest due to the payment of inducements negatively affect the quality of investment products offered and investment advice Retail investors do not purchase investment products that are in their best interest because: there are shortcomings in the manufacturing and distribution processes related to the payment of inducements and the extent to which cost-efficiency and value for the investor are reflected in the product design    
 
a distorting effect on the market, as retail investors are not necessarily offered or do not purchase the 
best or most suitable products for their situation.  

The identified problems are currently causing retail investors to take investment decisions where they 
opt  for  excessively  costly,  underperforming  or  excessively  risky  products,  with  severe  negative 
consequences  for  their  investment  return.  As  a  consequence,  investor  confidence  is  likely  to  be 
impacted  and  potential  retail  investors  may  be  reluctant  to  invest  in  EU  capital  markets.  The 
impediments to an efficient and dynamic EU retail investment market will also remain. 

3.  WHY SHOULD THE EU ACT? 

Legal basis 

Retail investor protection rules are spread across a range of legislative initiatives, as described under 
section  1.3.  The  legal  bases  governing  these  different  instruments  are  Articles  114,  Article  53,  and 
Article 62 of the Treaty on the Functioning of the European Union (TFEU).  

The  primary  policy  measures  under  consideration  concern  the  following  areas:  (i)  disclosures  and 
marketing communications, (ii) inducements, and (iii) value for money. Further flanking measures are 
assessed  in  the  areas  of:  (i)  financial  literacy,  (ii)  client  categorisation,  (iii)  suitability  and 
appropriateness  assessment,  (iv)  supervisory  enforcement,  and  (v)  professional  qualification  of 
advisors. As set out in section 4.2, these measures collectively target informational deficiencies which 
hinder investors’ ability to make well-informed decisions as well as shortcomings in the investment 
product manufacturing and distribution processes, across Member States. In order to ensure consistency 
and coherence of the envisaged measures, it would be appropriate to amend the existing framework 
(i.e. MiFID II, IDD, PRIIPs, UCITS and AIFMD).  

Article  114  TFEU  empowers  the  European  Parliament  and  the  Council  to  adopt  measures  for  the 
approximation of the provisions laid down by law, regulation or administrative action in Member States 
which  have  as  their  object  the  establishment  and  functioning  of  the  internal  market.  The  measures 
identified  above  and  throughout  this  impact  assessment  relate  to  improving  the  conditions  for  the 
establishment  and  functioning  of  the  internal  market.  These  include  the  establishment  of  uniform 
conditions for all relevant players in the retail investment market while ensuring a consistent degree of 
consumer  protection  across  the  EU.  These  harmonised  operating  conditions  include:  the  way  retail 
investors in the EU are informed about investment products, how the information is provided to them, 
and how manufacturing and distribution processes of investment products take place. While there is an 
increasing amount of cross-border trade in retail investment products, divergent national approaches 
will lead to different levels of investor protection, which represents an impediment to the further cross-
border development of the retail investment market. Such further development would also require easy 
comparisons between products across the EU. Divergent standards on investor disclosure make such 
comparisons very difficult and would therefore also create an obstacle to the further development of 
the internal market for retail investment products. Insofar as measures are intended to further enhance 
consumer protection across the EU, Article 169 TFEU would also be relevant. Article 169 TFEU allows 
the EU to adopt measures pursuant to Article 114 TFEU “in order to promote the interests of consumers 
and to ensure a high level of consumer protection […] as well as to promoting their right to [inter alia] 
information [and] education […]”. 

Article 53 TFEU  would also  be relevant  for the introduction of the measures set  out  in  this impact 
assessment. Article 53 TFEU empowers the European Parliament and the Council to issue Directives 
aimed at making it easier for persons to take up and pursue commercial activities across the EU. The 
objective  and  subject  matter  of  policy  options  considered  in  this  impact  assessment  relate  to 
harmonising  national  provisions  concerning  conduct  of  business  rules  for  manufacturers  and 
distributors of investment products. In particular, these are to harmonise safeguards against possible 
21 

 
 
conflicts of interest, rules on qualifications of advisors, rules intended to provide investors with greater 
visibility over all costs relative to an investment product, and the supervisory framework. Article 62 
TFEU, which extends the scope of activities identified in Article 53 to the provision of services, would 
also necessarily be relevant.  

Subsidiarity: Necessity of EU action 

EU action for completing the internal market has to be appraised in light of the subsidiarity principle 
set  out  in  Article  5(3)  of  the  Treaty  on  European  Union  (TEU).  According  to  the  principle  of 
subsidiarity, action at EU level should be taken only when the objectives of the proposed action cannot 
be achieved sufficiently by Member States alone and thus mandate action at EU level.  

The legal framework governing retail investor protection is extensive and largely harmonised at EU 
level. Notwithstanding this extensive body of legislation at EU level, the evidence gathering exercises 
have  identified  a  number  of  significant  shortcomings,  in  particular  with  respect  to  the  way  retail 
investment products are distributed and the way information is provided to retail investors. Action is 
required at EU level as the options considered in this impact assessment necessitate the modification 
of the existing legal framework, consisting of EU Directives and Regulations. Individual initiatives at 
Member State level are therefore not suitable, insofar as the proposed amendments will be made to EU 
Directives  and  Regulations  and  consequently  beyond  the  scope  of  the  legislative  competence  of 
Member States. 

Proportionality: Added value of EU action 

Ensuring  a  coherent  investor  protection  framework  that  empowers  consumers  to  take  financial 
decisions and benefit from the internal market can only be achieved at EU level, in close cooperation 
with Member States. 

As the current retail investor protection framework largely consists of different EU legal instruments, 
in order to address the problems identified in this impact assessment and to facilitate cross-border retail 
investor participation in the EU, this framework may only be amended at EU level to update investor 
protection  rules.  Acting  at  the  EU  level  and  harmonising  the  operational  requirements  of  service 
providers as well as the disclosure requirements imposed reduces the complexity and administrative 
burdens for stakeholders and promotes financial stability.  

4. 

OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4. 1 General objectives 

The general objectives of the initiative are to strengthen the protection framework for retail investors 
to  empower  them  when  taking  investment  decisions  and  to  ensure  their  fair  treatment  when  using 
investment services in order to achieve better investment performance. The retail investment strategy 
also  aims  to  improve  the  efficiency  and  integration  of  the  internal  market  across  all  retail  financial 
services.  

4.2 Specific objectives  

The retail investment strategy will contribute to the achievement of the general objectives by pursuing 
the following three specific objectives (SOs): 

1. 

SO1: Improve information provided to investors and their ability to take well-informed 
investment  decisions.  The  initiative  aims  to  improve  the  legal  framework  by  adapting 
disclosures to the digital environment, making disclosures more relevant for retail investors and 

22 

 
2. 

3. 

ensuring retail investors receive marketing communications, also through online channels, that 
are relevant and not misleading. 
SO2: Better align interests between intermediaries and investors. The improvements to the 
framework would ensure that the advice given to retail investors is not biased by monetary or 
non-monetary  incentives  provided  by  product  manufacturers  to  intermediaries,  is  of  good 
quality and adapted to their needs, preferences and objectives.  
SO3:  Ensure  that  retail  investors  are  offered  cost-effective  products.  A  strengthened 
approach  in  the  legislative  framework  based  around  the  value  offered  aims  to  help  retail 
investors  achieve  better  returns  and  easier  access  to  more  cost-efficient  retail  investment 
products.   

Links between general and specific objectives 

The following table illustrates the intervention logic that explains how the problems  and associated 
problem  drivers  lead  to  the  main  options  that  are  assessed.  In  addition,  this  impact  assessment 
addresses  a  number  of  flanking  measures  for  targeted  improvements  of  the  existing  retail  investor 
protection framework to help address identified shortcomings which are assessed in the accompanying 
annexes. 

23 

 
 
  
 
 
 
 
 
 
 
 
 
Intervention Logic 

5. 

DESCRIPTION OF THE POLICY OPTIONS 

How is the assessment of policy options structured? 

The  Retail  investment  strategy  takes  a  holistic  approach,  featuring  a  variety  of  measures  aimed  at 
addressing the identified problems. All measures included in the impact assessment (and the annexes) 
are  aimed  at  enhancing  the  retail  investor  protection  framework.  The  focus  of  the  main  part  of  the 
impact assessment report is on policy options in three principal areas, i.e. (i) disclosures and marketing 
communications, (ii) inducements and (iii) value for money.  This choice of presentation is intended to 
enhance the readability of the main text and to ensure focus on the most important policy choices that 
directly target the two key identified problems. The selection of key issues was decided on the basis of 
the magnitude of their expected impacts, the political sensitivity of the underlying measures, as well as 
the significance attached by stakeholders to the issues concerned. 

Specific elements relating to these policy options are further developed in a number of annexes attached 
to this impact assessment (e.g. Annex 4 contains more detailed assessment of the options for dealing 
with disclosures and marketing, while Annex 7 contains further assessment related to inducements). 

A number of measures are presented as “flanking measures” and their impact is assessed in specific 
annexes,  i.e.  (i)  financial  literacy  (Annex  5),  (ii)  client  categorization  (Annex  6),  (iii)  enhanced 
suitability  and  appropriateness  assessment  (Annex  8)  and  (v)  professional  qualification  of  advisors 
(Annex  10).  While  these  measures  will  also  contribute  to  addressing  the  identified  problems  and 
meeting  the  general  and  specific  objectives,  their  impact  is  expected  to  be  less  significant  than  the 
policy options presented in the main body.  

24 

 
 
 
 
  
Finally,  a  focus  on  supervisory  enforcement  alone  would  not  be  sufficient  to  address  the  problems 
identified in the three principal areas in this impact assessment. It is therefore appropriate to look at 
supervisory  enforcement in  view of its cross-cutting nature and assess  specific targeted supervisory 
enforcement measures aimed at improving the level of retail investor protection. These measures would 
(indirectly)  contribute  to  addressing  the  identified  problems  (e.g.  in  the  area  of  disclosures  and 
marketing communications), and have been assessed jointly in Annex 9 as flanking measures.  

The flanking measures in the annexes should be viewed as part of the overall package, conceived in 
conjunction with the main measures. Collectively, they contribute to addressing the identified problems 
and  meeting  the  general  and  specific  objectives.  Taken  in  isolation,  however,  they  would  not  be 
sufficient  to  fully  address  the  core  problems  identified  in  the  main  part  of  the  IA.  They  are 
complementary to the main policy options, creating synergies with a view to creating a strengthened 
overall investor protection framework or by complementing specific policy options (these are presented 
in section 7 in the preferred combination of options).  

5.1 Baseline 

Under  the  baseline  scenario,  no  amendments  will  be  made  to  the  legislative  framework  governing 
disclosures  and  marketing  communications  under  MiFID,  IDD  and  PRIIPs93,  to  rules  governing 
inducements and product oversight and governance rules under MiFID, IDD and UCITS.  

The principle characteristics of the baseline scenario are: 

Increasing digitalisation of financial services and development of new technologies has changed 
and continues to change the financial services landscape and the way products are distributed to clients. 
On the one hand, there is a sustained and continuous increase in the number of products being sold 
online, and new ways to access advice, such as robo-advice or other digital advice models. The market 
share of such distribution models is growing, while traditional distribution channels are changing  to 
adapt to more automated or semi-automated solutions.  On the other hand, digital innovation is also 
changing the way investors access product and investment information and the way they are exposed 
to  marketing  communications.  Mobile  apps  and  the  social  media  revolution  are  creating  new 
opportunities  for  firms  to  reach  existing  and  potential  new  retail  clients,  for  example,  through 
finfluencers.  This  however  increases  the  risks  that  clients  are  unduly  influenced  or  not  sufficiently 
informed  about  costs,  which  would  remain  unaddressed  in  the  absence  of  stronger  and  clearer 
regulatory  requirements,  as  well  as  stronger  powers  for  the  NCAs  to  supervise  and  intervene94. 
Meanwhile,  product  manufacturers  would  likely  not  sufficiently  exploit  possibilities  offered  by 
digitalisation to present information from key information documents in a more user-friendly way.   

Increasing interest in sustainability aspects. Increased citizen awareness about sustainability issues 
will  continue  to  drive  consumer  preferences  and  market  trends.  Without  policy  intervention,  some 
product manufacturers are likely to add sustainability information in key information documents, but 
there  is  no  indication  that  the  industry  could  clearly  agree  on  which  specific  indicators  should  be 
included. Inclusion of sustainability aspects would likely be uncoordinated, thus hindering comparison 
of the sustainability-related characteristics of retail investment products.  

Continued permissibility for firms to pay inducements to intermediaries under the current MiFID 
and  IDD  regimes  and  shortcomings  in  the  application  of  existing  rules  will  mean  that  the  risk  of 
conflicts of interest in the advice chain will remain, with the consequence that many retail investors 
risk being advised to purchase products that carry higher costs. 

93 The scope of PRIIPs has been recently expanded. As of as of January 2023, the PRIIPs KID is also used by UCITS funds, 
having replaced the UCITS KIID. Further amendments in secondary legislation also apply as of this date.  
94 Currently neither NCAs nor ESMA can intervene sufficiently quickly (i.e. within less than a day) in case of a practice 
harming retail investors. That risk increases as use of digital marketing/social media develops. 

25 

 
                                                           
Continued exposure to high-cost products that deliver little value for money. The current actions 
by ESMA and EIOPA to develop guidance on value for money and undue costs are useful tools for 
supervisory monitoring and enforcement; however, there are limits as to how effective guidance can 
be as a means of addressing what is considered to be a significant problem. In addition, as shown in the 
evaluation, currently the rules are applied only superficially, and the existing enforcement mechanisms 
are not sufficient to address the problem.  

Potential national gold plating: the current EU investor protection regime includes harmonised rules 
on  inducements  and  advice,  but  with  the  possibility  of  gold  plating,  whereby  Member  States  can 
introduce further restrictions on inducements at national level. This is an option that is already used in 
some Member States (See Annex 7.A and B). Even though there are no signs that other Member States 
would follow, a lack of consistency would give the possibility to firms for jurisdiction shopping and 
choosing to establish themselves in certain Member States and thus possibly distorting competition in 
the internal market.  

Under  the  above  scenario,  where  no  changes  are  made  to  the  existing  framework,  the  identified 
shortcomings  will  remain  unaddressed.  Relying  on  existing  enforcement  mechanisms  would  not  be 
sufficient to tackle the identified problems and would not provide sufficient flexibility for user-friendly 
display  of  product  information  to  help  address  informational  deficiencies,  ensure  that  the  offer  of 
products and services is aligned with the interests of retail investors and offers them value.  

5.2 Disclosures and marketing communications 

Option label  Option description 

Baseline 
(Option 1) 

Option 2 

Do nothing to change the legal framework – this is the baseline scenario 

Targeted  changes  to  disclosure  rules  to  improve  their  relevance  for  retail 
investors  

Option 3 

Targeted  changes  to  address  informational  deficiencies  relating  to  marketing 
communications  

The options that are assessed under disclosures and marketing are complementary and not mutually 
exclusive.  Alternative  options  addressing  the  relevant  problem  drivers  have  been  considered  but 
discarded at an early stage (see below). The two complementary options presented below are assessed 
against the baseline, with a more detailed assessment to be found in Annex 4. 

Policy  option  2:  Targeted  changes  to  disclosure  rules  to  improve  their  relevance  for  retail 
investors 

Policy intervention under option 2 would focus on targeted changes in EU legislation (PRIIPs, MiFID 
2 and IDD) to address problem driver 1.  

With regard to PRIIPs, this option would involve the following targeted amendments, including to the 
PRIIPs  Regulation,  to  address  key  areas  highlighted  by  the  Joint  ESA  advice  on  the  review  of  the 
PRIIPs Regulation and responding to a mix of regulatory gaps and implementation issues identified in 
the  evaluation:  (i)  improving  the  presentation  of  information,  notably  through  use  of  information 

26 

 
 
layering95 and a summary dashboard to make PRIIPs key information documents more engaging; (ii) 
adding  an  ESG  dashboard  with  basic  information  on  the  sustainability-related  characteristics  of  the 
product, based on information already collected and disclosed under SFDR requirements and consistent 
with  the  sustainable  finance  disclosure  framework;  (iii)  increasing  transparency  of  costs  of  Multi-
Option Products (MOPs)96 in PRIIPs key information documents; and (iv) clarification of the scope of 
PRIIPs with respect to certain types of corporate bonds. The latter two technical measures are described 
and assessed in Annex 4.  

With  respect  to  MiFID  II  and  IDD,  option  2  would  involve  targeted  amendments  focused  on 
improving  the  relevance  of  costs  and  performance  disclosures  for  retail  investors.  This  option 
would encompass an obligation for investment firms and insurance undertakings to provide their retail 
clients with information on costs97 presented in a standardised and easy-to-understand format, before 
the  execution  of  any  transaction.  This  option  would  also  reinforce  firms’  obligations  to  provide  an 
annual statement to clients, to ensure that each year all clients receive on a compounded basis a better 
view of the costs they have paid, together with,  where applicable, any dividends or interests received, 
the current market value of the products and the impact of the costs on the annual performance of the 
portfolio.  Since  insurance-based  investment  products  are  typically  long-term  investments  with  a 
retirement  or  other  long-term  objective,  the  annual  statement  for  such  products  would  also  contain 
additional elements, such as adjusted individual projections allowing investors to check whether they 
are on track to meet their objectives. Standardisation of the costs terminology and the costs statement 
format would facilitate the comprehension and comparability of those costs by an average retail client. 
Several additional technical changes to the rules are described and assessed in Annex 4. 

Where  the  rules  would  require  more  technical  specifications,  these  would  be  developed  through 
mandates to the relevant ESAs.  

Policy  option  3:  Targeted  changes  to  address  informational  deficiencies  relating  to  marketing 
communications 

Option 3 encompasses legislative changes in MiFID II and IDD relating to marketing communications, 
as recommended in the ESMA and EIOPA advice on retail investor protection. This would involve the 
introduction of a new obligation for investment firms and insurance intermediaries to include “vital” 
information  in  all  marketing  communications  relating  to  the  offer  of  financial  instruments  and 
investment services to retail clients. Vital information would encompass the essential characteristics of 
the  product  or  service  presented  in  the  marketing  communication.  For  financial  products,  it  would 
include at least the key product features and the main risks associated with them. The presentation of 
the  vital  information  in  the  marketing  communication  would  ensure  that  prominent  information  is 
accessible for an average retail client, regardless of the means of communication used. The Commission 
would be empowered to adopt a delegated act to define such vital information.   

In addition, the notion of “marketing communication” would be clarified in MiFID II and IDD with 
a  view  to  ensuring  that  all  online  marketing  communications  and  advertising,  made  directly  or 
indirectly by investment firms (including through third parties, such as influencers), regardless of the 
format or the use of any marketing techniques, are covered by the rules on marketing communications 
under MiFID II and IDD. Where the rules would require more technical specifications, these would be 

95 Layering is a  practice of  organizing information into related groupings and then presenting or making available only 
certain groupings at any one time. In the case of PRIIPs key information documents, this implies breaking down each section 
of a document into layers in order to allow for a simplified view (first layer) where only several pieces of information are 
shown, with a possibility to expand the view in order to see more details in any section of interest. 
96 Multi-Option Products (MOPs) are insurance-based investment products covered by the PRIIPs framework which consist 
of a wrapper (insurance contract) and an underlying investment where clients choose between multiple options. 
97 Costs should be understood as any costs, associated charges, fees, commissions and third-party payments (to be) paid 
directly or indirectly by the client and related to the financial instrument(s) and financial service(s) considered by the client. 
27 

 
                                                           
developed through mandates to the relevant ESAs. The supervisory role for NCAs to address aggressive 
marketing and impose risk warnings would also be strengthened (see Annex 9).  

Options discarded at an early stage:  

Improving the relevance of disclosure documents through a more comprehensive review of the 
PRIIPs  framework.  Some  stakeholders  suggested  to  go  beyond  the  targeted  changes  included  in 
Option 2 and to envisage a comprehensive review of the PRIIPs framework. However, a comprehensive 
review has been discarded as a policy option for the following reasons: the evaluation concludes that 
overall,  disclosure  rules,  including  those  under  PRIIPs,  have  been  effective  in  increasing  investor 
protection and providing retail clients with more complete, relevant and comparable information on 
investment products. Option 2 hence focuses on those specific issues that have been identified by the 
evaluation  as  needing  to  be  remedied.  Secondly,  the  timing  would  not  be  appropriate  for  a 
comprehensive  review,  as  feedback  received  in  the  public  consultation  points  to  a  high  degree  of 
regulatory  fatigue  in  the  sector;  more  ambitious  rules  changes  would  add  to  this.  The  content  and 
presentation of performance scenarios and costs in the PRIIPs key information documents have been 
recently amended through secondary legislation, applicable as of January 2023. PRIIPs has started to 
apply  to  UCITS  funds  as  of  the  same  date  and  it  will therefore  take  several  years  before  sufficient 
experience is accumulated to assess these changes. 

Several  alternative  options  have  also  been  considered  to  address  the  identified  informational 
deficiencies  relating  to  marketing  communications.  One  option  included  the  introduction  of  an 
obligation  for  investment  firms  to  transmit  to  their  relevant  competent  authorities  all  marketing 
communications  (including  those  made  though  digital  channels  and  those  produced  directly  and 
indirectly by firms)  related to  financial products  and the services they commercialize, prior to  their 
release to the public or to individual clients. Another option entailed the introduction of an obligation 
for pre-approval of all marketing communications (including through digital channels) by the relevant 
competent  authorities  (as  currently  applied  in  some  Member  States  in  relation  to  certain  marketing 
communications).  Both  options  are  likely  to  imply  significant  costs  for  the  industry,  which  could 
ultimately be passed onto retail investors and outweigh any potential benefits. They are also likely to 
involve costs and the need for additional resources for the competent authorities. These options were 
thus discarded for reasons of proportionality.  

5.2 Inducements 

Option label  Option description 

Baseline 
(Option 1) 

Option 2 

Do nothing to change the legal framework – this is the baseline scenario 

Maintain 
allowing 
improve/harmonize sector specific disclosures relating to inducements   

payment 

current 

system 

inducements, 

of 

but 

Option 3 

A ban on inducements  

Option  2:    Maintain  the  current  system  allowing  for  the  payment  of  inducements,  but 
improve/harmonize sector specific disclosures relating to inducements   

Under  this  option,  the  existing  legal  requirements  on  the  disclosures  of  inducements  would  be 
reinforced to make them more transparent, accessible and understandable for an average retail client. 
Distributors  would  be  required,  in  addition  to  existing  disclosure  requirements  on  inducements,  to 

28 

 
 
disclose  more  prominently  and  clearly  the  level  of  inducements  and  provide  a  clear  explanation  in 
layman’s terms what they mean for the client (concept, consequences and graphical illustration showing 
the accumulated effect of inducements over time). Distributors would also be required to disclose to 
consumers  the  possible  choice  of  alternative  distribution  channels  where  no  inducements  are  paid. 
Firms would be required to report the inducements paid and received to the NCAs, who on their side 
would  report  those  to  ESMA/EIOPA.  This  option  would,  as  regards  the  additional  disclosure 
requirements, also create a level playing field across sectors (IDD/MiFID).   

Option 3: A ban on inducements 

Under this option, the payment of inducements (i.e. any fees, commissions or any monetary or non-
monetary benefits paid or provided by any third party or a person acting on behalf of a third party in 
relation to the provision of the service to clients), would be prohibited in relation to all retail investment 
products  and  services  across  the  Union.  Investment  intermediaries,  irrespective  of  the  distribution 
channel or product (e.g. shares, bonds, funds, structured retail products, PRIIPs) would no longer be 
allowed  to  receive  or  pay  any  such  inducements98.  Instead,  they  would  need  to  charge  a  clearly 
disclosed fee to the retail client for their services99. This option would also provide safeguards against 
intragroup inducement-like payments (in the form of cross-subsidies to distributing entities from other 
group entities), so that vertically and non-vertically integrated providers could compete on equal terms 
(see chapter 6). To address conflicts of interest also at the manufacturing stage, product manufacturers 
of structured products, including IBIPs, will not be permitted to receive or pay commissions from or to 
other product manufacturers for the inclusion of a particular asset in packaged retail investment and 
insurance products (PRIIPs). This option would be accompanied by an appropriate transitional period, 
to allow distributors and manufacturers time to adjust their business models from a commission-based 
to a fee-based model, and a grandfathering clause to ensure that obligations under existing contracts 
with retail investor would not be affected. 

A variant of this option could be to introduce a partial ban restricting payment of inducements for non-
advised  services  (execution-only).  Non-advised  services  are  those  where  the  intermediary  does  not 
provide investment advice to the client. A partial ban could cover payments and non-monetary benefits 
from manufacturers to distributors (or vice-versa) in relation to (i) the reception and transmission of 
orders, or execution of orders to or on behalf of retail clients, under MiFID, and (ii) non-advised sales 
under IDD. A partial ban would address the consumer detriment that may occur due to the payment of 
inducements in the context of execution-only services provided to self-directed retail investors that do 
not seek advice.  

5.3 Value for Money 

Option label  Option description 

Baseline 
(Option 1) 

Option 2 

Do nothing to change the legal framework – this is the baseline scenario 

Strengthen product governance rules for manufacturers by requiring comparison 
of products to relevant ‘manufacturer benchmarks’ and justify any departures from 

98 The fee models in relation to investment services to professional clients is not within scope of this initiative.  
99 This option would also include a flanking measure in the form of safeguards against intragroup inducement-like payments 
(in  the  form  of  cross  subsidies  to  distributing  entities  from  other  group  entities)  so  that  vertically  and  non-vertically 
integrated providers can compete on equal terms. See infra under discussion on options for more background.  

29 

 
 
 
                                                           
the benchmarks to ensure stronger focus on costs in relation to expected benefits 
in the product design. 

Option 3 

In addition to strengthening product  governance rules for manufacturers (option 
2),  strengthen  the  rules  for  distributors  by  requiring  comparison  of  products  to 
relevant ‘distributor benchmarks’ and justify any departures from the benchmarks 
to limit fees in distribution. 

Option 2:  Strengthen product governance rules for manufacturers  

This  option  strengthens  product  governance  rules  under  MiFID,  IDD,  and  the  UCITS  and  AIFM 
Directives to ensure greater attention to costs in relation to expected benefits in the design of products. 
As  part  of  their  product  oversight  and  governance  measures,  manufacturers  of  investment  products 
would be required to properly identify and quantify the costs related to each product (both for existing 
and  new  products)  and  justify  that  it  offers  value  for  money  to  the  target  market,  including  when 
compared  to  other  products  on  the  market,  based  on  product  type-specific  cost  and  performance 
benchmarks (‘manufacturer benchmarks’). Products that manifestly underperform (in terms of costs 
and performance) compared to the relevant benchmarks would not be offered to distributors, or else 
manufacturers would have to justify their choice to still offer them. Product costs as well as objective 
reasons as to why some products should be retained (despite not being benchmark-compliant) would 
have  to  be  properly  documented  and  kept  for  supervisory  scrutiny,  upon  request.  Consequently, 
manufacturers would be encouraged to develop well-performing and cost-efficient products. 

ESMA and EIOPA would be mandated to develop in a technical advice the criteria and elements upon 
which a value for money assessment would have to be based, including the methodology by which 
comparisons  with  other  relevant  products  would  be  made  and  benchmarks  construed  in  the  level  2 
measures to be adopted by the Commission. The number of relevant benchmarks would be determined 
by  ESMA  and  EIOPA,  subject  to  their  detailed  further  assessment  and  sector  consultations.  The 
benchmarks  would  be  compiled  on  the  basis  of  cost  and  performance  data  and  would  need  to 
differentiate between investments that carry different risk levels. Benchmarks would also need to be 
sufficiently granular, but also have enough products within one group, so as to represent a meaningful 
basis  of  comparison  for  similar  product  types  and  categories.    In  order  to  facilitate  compilation  of 
relevant benchmarks, manufacturers would be required to report relevant cost and performance related 
data to supervisors. To avoid an unnecessary reporting burden on stakeholders, the ESAs would have 
to consider the already collected data under any other EU legislation. ESMA and EIOPA would further 
specify the precise data to be reported for the compilation of the benchmarks. Benchmarks would need 
to be published and periodically updated. 

Option 3: In addition to strengthening product governance rules for manufacturers (option 2), 
strengthen the rules for distributors 

Under this option, the requirements for manufacturers would be strengthened as described under option 
2. In addition, the product governance rules under MiFID and IDD for distributors would be enhanced. 
Distributors  of  investment  products  would  be  required  to  assess  how  the  products  they  distribute 
compare  to  relevant  benchmarks  (‘distributor  benchmarks’)  for  similar  products  in  the  market. 
Distributors should receive the relevant  explanations and data from the manufacturer (including the 
cost justification of its product, and explanation of how concretely its product brings value to the target 
market) and would be required to include the additional costs related to distribution that are not known 
by the manufacturer. The assessment could be done at a central level (e.g. compliance department at 
the distributor’s headquarters) rather than at the level of individual advisors.  

30 

 
 
Similar to option 2, under option 3 distributors would not be able to offer to the client products that 
would manifestly underperform compared to the relevant benchmark, which would include distribution 
fees, unless they have objective reasons for doing so. Distributors would be required to document the 
result  of  their  comparison  to  the  relevant  benchmarks,  as  well  as  the  objective  reasons  in  case  of 
departures from the benchmark. They should disclose this documentation to supervisors upon request. 
Consequently, distributors would provide an additional discipline on manufacturers to develop cost-
efficient and well-performing products. 

As in the case of option 2, under option 3 the ESAs would be mandated to develop in technical advice 
‘distributor benchmarks’ which would be distinct from ‘manufacturer benchmarks’, as they would also 
include distribution fees. To develop these benchmarks, the ESAs may need to collect additional data 
from  distributors.  ESMA  and  EIOPA  would  further  specify  the  precise  data  to  be  reported  for  the 
compilation of the benchmarks. 

It could be further envisaged, as a sub-option, to require distributors to explain the value proposition of 
the recommended product to the client and to disclose, as part of the suitability assessment, how the 
product  compares  to  the  ‘distributor  benchmark’.  This  could  help  establish  market  discipline  by 
ensuring  that  distributors  scrupulously  follow  the  assessment  process.  At  the  same  time,  the 
explanations given to the client would contribute to raising the awareness of clients and their financial 
literacy and enhance the quality of the advice to help ensure that only cost-efficient products are offered 
to clients. However, imposition of a such a requirement on distributors would entail significant and 
disproportionate  additional  costs,  given  the  large  number  of  distributors  that  would  need  to  receive 
training and given the additional time needed to explain the value for money assessment to clients. This 
sub-option is therefore not analysed further in this impact assessment. 

5.4 Flanking measures 

As set out in the introduction to section 5, a set of flanking measures that contribute to addressing the 
identified problems and meeting the general and specific objectives is analysed in the corresponding 
Annexes. These measures would not  be sufficient  to  fully address  the identified problems,  they are 
however an intrinsic part of the overall package and designed to work in conjunction with the main 
measures.  

The “flanking measures” are described in the following table.  

Flanking 
measure - Annex  

Which  objective 
is 
primarily 
met?  

Problem  

Preferred Option  

Financial literacy 
(Annex 5) 

Improve 

SO1: 
information 
provided 
investors 
their  ability 
take 
informed 
investment 
decisions. 

to 
and 
to 
well-

reduce 

the  EU 

Low  financial  literacy  levels 
in 
the 
effectiveness  of  disclosures 
and 
reliance  on 
advice, be it good or bad. 

increase 

Support  and  supplement 
the  work  of  EU  Member 
States  by  replicating  a 
provision 
in  Article  6 
MCD  into  the  relevant 
financial 
legislation  on 
distribution  of  investment 
products, 
on 
Member States to promote 
financial  education/digital 
literacy initiatives.  

calling 

31 

 
 
Client 
categorisation 
(Annex 6) 

and 

Enhanced 
suitability 
appropriateness 
assessment 
(Annex 8)  

General 
objective: 
improve 
efficiency 
and 
integration  of  the 
internal market. 

SO2:  Better  align 
interests  between 
intermediaries 
and investors. 

Current  rules  over-protect  a 
subcategory  of  experienced 
investors who may not easily 
access certain products. 

Adjustment  to  the  current 
MiFID  criteria  to  qualify 
as a professional client on 
request. 

Suitability 
and 
appropriateness  assessments 
are  not  sufficiently  fulfilling 
their  purpose  and  do  not 
prevent mis-selling. 

Standardize  and  enhance 
the 
and 
suitability 
appropriateness 
assessments, so that firms 
have  better  understanding 
and  can  better  take  into 
account  relevant  elements 
of the personal situation of 
their clients. 

Supervisory 
enforcement 
(Annex 9) 

General 
objective: 
improve 
efficiency 
and 
integration  of  the 
internal  market 
and strengthen the 
protection 
framework 
retail investors. 

for 

General enforcement:  

to 

-  Not  all  NCAs  have 
conduct 

powers 
mystery shopping.  
Increased  digitalisation 
leads  to  increase  in  the 
number of scams.   

- 

- 

lack 
to 

-  NCAs 
sufficient 
tackle 
powers 
aggressive 
online 
marketing  practices  and 
allow them to intervene in 
a timely manner. 
Insufficient risk warnings 
about  the  risky  nature  of 
some financial products. 
of 
protection  across  the  EU 
due  to  differences  in  the 
rules and procedures. 

-  Uneven 

level 

Supervisory 
enforcement 
(Annex 9) 

General 
objective: 
improve 
efficiency 
and 
integration  of  the 
internal  market 
and strengthen the 
protection 

Cross-Border  provision  of 
services: 

-  NCAs responsible for the 
supervision  of  the  firms 
authorised 
their 
jurisdiction  (home)  may 
face  difficulties  when 
supervising  their  cross-
border  activities,  which 

in 

32 

to 

aspects 

Strengthen 
of 
supervisory  enforcement 
related 
consumer 
protection, by:   
- 
Introducing 
an 
for 
obligation 
Member States to give 
powers  to  NCAs  to 
mystery 
perform 
shopping activities. 
-  Address  scams  in  the 
context of new digital 
channels. 

-  Empowering  NCAs, 
ESMA and EIOPA to 
take 
and 
timely 
actions 
effective 
against  misleading 
marketing practices. 
-  Empowering  ESMA, 
EIOPA  and  NCAs  to 
impose  on  firms  the 
systematic  use  of  risk 
warnings  for  specific 
financial instruments. 
specific 
Imposing 
to 
requirements 
facilitate  access 
to 
complaints  handling 
for consumers. 

- 

Improve 
home/host 
relationships  and  protect 
consumers in situations of 
cross-border  provision  of 
services, by: 
-  Enhancing 

and 
the 
accelerating 
process of cooperation 
of  home  and  host 
ensure 
to 
NCAs 

 
 
framework 
retail investors. 

for 

may  be  more  easily 
handled by host NCAs. 
-  Some  firms  have  chosen 
to obtain authorisation in 
a  Member  State  even 
though 
they  are  not 
planning to carry out any, 
or 
a 
least 
considerable part, of their 
activities in that Member 
State. 

not 

at 

Professional 
qualification 
advisors 

of 

SO2:  Better  align 
interests  between 
intermediaries 
and investors. 

(Annex 10) 

Existing rules on qualification 
requirements  for  investment 
advisors 
deemed 
are 
insufficient  and  can  lead  to 
receiving 
clients 
inappropriate 
and 
being victims of mis-selling. 

advice 

effective  supervision 
of 
cross-border 
service providers. 

- 

Improving  safeguards 
cross-border 
in 
of 
supervision 
services 
avoid 
jurisdiction shopping. 

to 

and 

Strengthening the existing 
standards 
further 
harmonising  some  of  the 
requirements  set  out  in 
MiFID II and IDD. 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW DO THEY COMPARE? 

In this section, each policy option considered (other than Option 1 – “Baseline”) is assessed against the 
specific objectives presented in Section 4. The baseline scenario (“Option 1” of each problem) is not 
assessed. The consequences of doing nothing are outlined in Section 2 of this impact assessment. 

6.1 Informational deficiencies 

Option 2: Targeted changes to disclosure rules to improve their relevance for retail investors 

Benefits  

1. 
Improved presentation of the PRIIPs key investment document (notably layering of information and 
summary dashboard) would make it easier for retail investors to understand key characteristics of the 
investment product they are considering (e.g. its costs or risk level). This would contribute to some 
degree  to  facilitating  the  choice  of  a  product  that  matches  their  needs.  The  introduction  of  an  ESG 
dashboard would ensure that retail clients can clearly identify basic information on the sustainability-
related  characteristics of the products  they  own  or consider buying.  That information  would enable 
better comparison of products on sustainability characteristics (due to standardisation) and give more 
prominence to sustainability information, in line with developing consumer preferences. 

In the area of MiFID and IDD, the annual costs and performance statement and the standardisation of 
costs statements to retail clients would lead to greater transparency. The annual statement on costs and 
performance would enable all retail investors to get a comprehensive and detailed view concerning all 
the  costs  and  performance  associated  with  their  investments  over  a  one-year  period.  This  annual 
statement  would  facilitate  a  better  monitoring  by  the  retail  clients  of  the  net  performance  of  their 
financial products.  

The creation of EU standardised cost statements, dedicated to retail clients and to be used by firms for 
the provision of cost disclosure before a transaction takes place or on annual basis, would facilitate the 
understanding of such statements by retail clients as well as the comparison of costs and charges of 
products. EU standardised cost statements would also facilitate the control over costs disclosures by 
supervisory authorities. They might also support a data basis on costs that could be useful for national 
competent authorities when controlling the value for money of financial products.  

33 

 
 
Enhanced transparency would reduce information and search costs for retail investors, allowing them 
to  make  investment  decisions  with  more  confidence.  Lower  information  costs  could  also  foster  the 
participation of households that had not invested in financial products because they did not know how 
to invest. The 2022 Eurobarometer survey identified that 14% of those respondents that said they had 
no financial investment justified their behaviour on the grounds they did not know how to invest or 
found it too complex. While a mere 12% of the respondents to the RIS survey criticised the information 
provided in investment documents as bad, only 28% gave a positive assessment. These numbers are 
likely to improve with the measures discussed here. 

It is however uncertain as to the extent to which more information would contribute to reducing the 
complexity of investment decisions, and there is an important interaction with the financial literacy of 
investors.  The  provision  of  information  would  have  a  greater  impact  if  the  information  processing 
capacity of potential investors were to be strengthened.  

There is  however no data available that  would allow to  quantify the effect  of lower information  or 
search costs or better access to information on investors’ trust or participation. Data on financial literacy 
is still patchy, with the results of surveys available in only a few Member States and which are hard to 
compare over time.  

The provision of more information is costly for financial firms, which entails passing on of costs from 
providers to retail clients and to firms that provide financial services, IT support or advisory services 
to financial firms. However, financial firms could benefit from the expansion of their customer base. 
More transparency may also lead to increased competition on the sell side, putting downward pressure 
on prices charged for MiFID and IDD products and services, thereby benefiting all investors. It could 
entice new competitors to enter the market.  

2.  Costs  

Companies that manufacture financial products in the scope of PRIIPs will bear the costs related to 
adapting their PRIIPs key information documents to the new rules100. These costs will be one-off in 
nature and are expected to be very limited as these companies already have the necessary procedures 
in place, and the changes are tailored so as not to require additional data. The changes are either related 
to presentation and format (e.g. dashboards, layering) or designed to make use of existing data (e.g. 
ESG dashboard)101. The use of layering and other online presentation alternatives will be voluntary, the 
costs  of  which  will  not  be  directly  attributable  to  the  proposed  legislative  changes102,  although 
companies may face market pressures to apply them as well. The information to be included in an ESG 
dashboard  would  be  limited  to  information  that  is  already  collected  and  disclosed  by  the  PRIIPs 
manufacturer,  implying  no  further  cost  implications103.  No  significant  impacts  are  expected  with 
respect to the ongoing costs of updating PRIIPs key information documents, as this option does not 
change the frequency of updating and as the additional ESG data would be already collected elsewhere. 
The targeted changes proposed only very slightly change the amount of information to be updated.    

100 Although these costs relate to the substantive requirements of the proposal which are necessary for the fulfilment of the 
objective of informing retail investors, they are categorised as administrative costs for “one in, one out” purposes. This 
consideration applies to all costs captured in this section.    
101 These costs have not been quantified in line with the principle of proportionality of analysis from the better regulation 
toolbox. Other evidence also points at costs of creating and updating PRIIPs KIDs as reasonable, especially considering the 
number of clients, size of assets under management or revenues of the companies that bear these costs, as confirmed in the 
Retail investment study (where costs for PRIIPs KIDs are a subset of costs of disclosure frameworks) and in the Study on 
the costs of compliance for the financial sector (CEPS and ICF, 2019). 
102  They  will  however  need  to  respect  certain  rules  and  limitations  which  will  be  described  in  secondary  legislation  or 
guidelines by ESMA. 
103 Other than the need to add the information to the layout and updating it, as discussed above more generally. It can be 
safely assumed that the underlying sustainability information does not change too frequently and can be tackled as part of 
regular updates of the KIDs. 

34 

 
                                                           
The introduction of the ex-post annual statement on costs and performance would deepen the existing 
disclosure obligations in terms of (i) content, by including the element of performance and payments 
received  (in  addition  to  costs)  to  all  clients  under  MiFID  and  IDD  and  personalized  projections  in 
relation to clients under IDD, and (ii) the circle of clients receiving such annual statement under MiFID, 
since the obligation to provide an ex-post annual information would apply in relation to all clients (and 
not only to those with whom the investment firm has an ongoing relationship or are under portfolio 
management)104. The introduction of the ex-post annual statement would imply a one-off cost for the 
industry,  consisting  of  costs  for  adjusting  the  existing  (IT)  systems,  so  that  the  new  information 
elements could also be provided and that the statements would be extended to all clients. For an investor 
base of between 49-58.5 million retail investors105, these one-off costs could be estimated to be in the 
range of EUR 19 – 67.5 million (see Annex 4 for details)106.  

Ongoing costs for investment firms and insurance undertakings are not expected to increase in relation 
to  clients  who  already  receive  annual  information,  since  after  the  adjustment  of  the  systems,  the 
information that is already available at the level of the firm (or easily retrievable from trading venues 
platforms/websites)  could  be  provided  to  clients  without  any  significant  additional  costs.  This  is 
particularly relevant for investment firms, who could incur an increase in ongoing costs in relation to 
clients who currently do not already receive such information (e.g. clients with whom the firm is not 
considered to have “an ongoing relationship”). For those clients, investment firms would incur new 
ongoing  costs  estimated  at  EUR  5  per  client/per  year.  Considering  the  divergent  interpretation  and 
practices of the investment firms and Member States on the qualification of “ongoing relationship” in 
the context of costs disclosure (see above), it is not possible to estimate the number of new clients under 
MiFID who at present do not receive annual information on costs.  

It is not expected that there would be any material increase of costs for NCAs, as such controls already 
exist and existing IT tools should be able to absorb a larger amount of data. No significant impact is 
expected on the resources of ESMA and EIOPA, as their involvement and roles under this option can 
be performed as part of their existing regulatory and supervisory work.  

Finally,  this  option  would  impose  no  new  direct  costs  on  retail  investors,  but  there  is  a  risk  that 
investment firms and insurance companies may pass their additional costs linked to the provision of 
enhanced annual statements onto their retail clients via an increase of their investment and ancillary 
services costs. 

The introduction of an EU template on costs disclosure, would imply a one-off cost for the industry to 
adjust existing (IT) systems to the new template. It may also require firms to adjust their costs strategy 
in light of this new format and the enhanced competition it might create. The exact impact will also 
depend on how the format is developed, which will be assessed in the context of the development of 
the relevant level 2 measure. No significant increase in ongoing costs is expected for investment firms 
and insurance distributors, as they are already under an obligation to disclose costs. These disclosures 
are aimed at achieving clear and unbiased information to clients, hence the associated costs relate to 
the substantive requirements of the proposal necessary for the fulfilment of the objective of informing 

104 Under the IDD, insurance undertakings are already under an obligation to provide information on costs to all clients. 
105 Based on the assumption that about 25-30% of the households hold capital market instruments, which given 195.4 million 
households in the EU, results in a total of 49-58.5 million households/clients. The number of estimated retail investors could 
vary, although probably not significantly, as some investors might have accounts with different intermediaries or as some 
retail investors might be categorized as professional investors in the future (see Annex 8). 
106 It should however be noted that it was not possible to estimate the number of new clients under MiFID who at present 
do  not  receive  annual  information  on  costs,  nor  was  it  possible  to  gather  data  on  the  number  of  clients  under  portfolio 
management who already receive information on costs and performance, to be able to deduct these costs from the estimated 
one-off costs.  

35 

 
 
 
 
   
 
                                                           
retail  investors.  Nevertheless,  they  are  categorised  as  administrative  costs  for  “one  in,  one  out” 
purposes.    

3. 

Overall assessment: Effectiveness, efficiency and coherence:  

With regard to effectiveness, the targeted measures on PRIIPs, MiFID and IDD would contribute to 
SO1 by making key features of investment products, including their sustainability profile, more visible 
and  easier  to  understand.  They  would  also  help  increase  transparency  on  costs  before  and  after  an 
investment  has  been  made  as  well  as  the  annual  performance  of  financial  products,  contributing 
indirectly  to  SO3.  In  this  regard,  Option  2  therefore  presents  an  improvement  over  the  baseline. 
Nevertheless,  if  applied  alone,  these  measures  would  be  unlikely  to  substantially  improve  retail 
investors’  ability  to  take  well-informed  investment  decisions  as  it  would  not  address  marketing 
communications.  

From an efficiency perspective, the outlined costs seem reasonable and proportionate to the expected 
results for retail investors. As discussed above, costs related to targeted measures on PRIIPs would be 
very limited and mainly one-off in nature. Updating the PRIIPs key information documents to comply 
with the new rules would not require collection of further data by PRIIPs manufacturers. Some further 
one-off  costs  may  arise  due  to  use  of  layering,  depending  on  the  voluntary  choice  of  the  PRIIPs 
manufacturer.  Ongoing  costs  would  not  be  significantly  impacted.  The  situation  is  expected  to  be 
essentially the same for the requirement to use EU templates for cost disclosures and an annual cost 
and performance statement under  IDD  and MiFID. MiFID firms  and insurance undertakings would 
essentially have to upgrade existing disclosure documents, causing limited one-off costs. If the number 
of  retail  clients  becoming  the  recipients  of  annual  ex  post  statement  on  costs  and  performance  is 
expected to increase, it is also expected that such delivery would be made via digital tools, limiting thus 
the costs for the firms.  

Better  visibility  of  the  most  important  information  in  PRIIPs  key  information  documents  would 
contribute to the coherence of the overall retail investment strategy, by helping to counter information 
overload and make disclosures more useful for investors107. Allowing greater flexibility for layering of 
information and digital presentation would also be coherent with the approach taken for the PEPP KID. 
The proposed changes in PRIIPs are coherent and complementary with inclusion in ESAP. While ESAP 
will improve access to and digital use of information in PRIIPs key information documents (enabling 
digital use such as extracting the data on costs or performance and comparing them across a range of 
products),  targeted  changes  proposed  here  would  make  this  information  more  user-friendly  for 
readers108.  The  addition  of  an  ESG  dashboard  would  be  consistent  with  the  aim  of  the  Sustainable 
Finance Strategy to  empower retail  investors to  access  sustainable finance opportunities by making 
relevant information more accessible and visible in the KID and it would be developed using data points 
from existing sustainable finance disclosure frameworks, to promote maximum coherence. Similarly, 
setting up EU templates for costs disclosure and the introduction of the annual costs and performance 
statement under IDD and MiFID will further strengthen the coherence of the framework. The use of 
EU templates for disclosure on costs should favour more comparability on costs and increase market 
efficiencies.  The  annual  statement  would  also  be  consistent  with  the  Pension  Benefit  Statement 
provided  for  pension  products  under  the  IORP  II  Directive  and  the  PEPP  Regulation  which  pursue 
similar goals. 

4. 

Affected groups of stakeholders  

Industry: Manufacturers of financial products under PRIIPs would benefit from more flexible rules to 
present required information in a more attractive way. They would also be able to adapt PRIIPs key 

107 These actions are notably good complements with increasing financial literacy, which could also lead to greater use of 
PRIIPs KIDs. 
108 Easier digital use is unlikely to significantly affect the need to read the KID by retail investors and financial advisors, 
notably  when  assessing  characteristics  of  a  specific  investment  products.  As  the  KID  presents  key  information  about  a 
product in one place and in 3 pages, it is expected to remain a crucial document.  

36 

 
 
                                                           
information documents to more modern digital formats and devices. This could present a more effective 
way to deliver this information, particularly to younger retail investors and those with sustainability 
preferences, thereby helping to  attract  them to  these products.  While this option would not  directly 
impact marketing communications, more user-friendly PRIIPs key information documents might to a 
certain  degree  compete  with  them  and  slightly  limit  the  possibilities  for  presenting  misleading 
information109. The update of PRIIPs key information documents to reflect the changes would imply 
limited one-time costs for the manufacturers of PRIIPs, as detailed above.  

From  the  perspective  of  investment  firms  or  insurance  undertakings,  the  cost  and  performance 
disclosures  would  constitute  increased  costs.  As  the  new  requirements  on  cost  and  performance 
disclosure  build  on  already  existing  requirements,  it  is  assumed  that  existing  processes  and  ICT 
solutions would help to limit these costs. 

Consumers: the proposed measures would make PRIIPs key information documents more engaging to 
read  and  would  assist  retail  investors  in  finding  important  information  about  investment  products, 
including  on  sustainability-related  aspects.  PRIIPs  key  information  documents  would  also  become 
more accessible to users looking for investment opportunities through smartphones or tablets. This is 
expected to benefit retail investors considering these products, especially younger investors, who tend 
to be more active users of smartphones. Indirectly, this could lead more retail investors towards more 
diversified and less costly products that suit their needs. The proposed measures under IDD and MiFID 
II would increase transparency on costs and performance and comparability for the benefit of retail 
clients.  This  would  help  retail  clients  take  well-informed  investment  decisions.  Transparency  could 
also have a downward effect on costs charged for MiFID II and IDD products and services. 

Supervisory authorities: The targeted changes to PRIIPs key information documents would have only 
a negligible impact on supervisors who would have to adapt their supervision to the new formats. The 
measures under MiFID II and IDD would help NCAs in their control processes. In particular, it would 
allow them to check on a bigger scale and based on EU standards the ex-ante costs communicated to 
retail clients and the costs effectively charged (as disclosed in the annual report). It would also allow 
them to get a better view on the effective value for money of financial instruments marketed to retail 
clients. 

Stakeholder views: This policy option, in particular regarding the changes proposed to the PRIIPs key 
investment  document, has broad support across different  stakeholder  groups. Stakeholders from  the 
financial sector have notably called for providing greater flexibility for layering and digital features. At 
the same time, some PRIIPs manufacturers have complained about regulatory fatigue110 as there has 
recently been a revision of the PRIIPs RTS, which entails significant changes to the content of the KID 
and  entered  into  application  on  the  1  January  2023.  Supervisors  are  also  overall  supportive  of  the 
initiative. Representatives of consumer associations and non-profit organisation support measures on 
digitalisation and sustainability, and greater transparency on costs.  

As regards the introduction of the annual  statement in  relation  to  IBIPs,  consumer associations and 
insurance  intermediaries  have  expressed  support111.  There  may  be  limited  support  from  insurance 
undertakings and investment firms who may argue that this increases the provision of information to 
retail investors.   

109 In this case mainly due to expected greater use of PRIIPs KIDs and their easier digital use, which could make it easier 
to detect information that would be incompatible with those included in the KID.   
110 These concerns have been reflected by narrowing down the option of targeted changes to PRIIPs to four elements which 
are generally considered as not burdensome (stakeholders have not indicated any concerns in this direction) and are largely 
non-controversial.  
111 See responses EIOPA’s advice on retail investor protection, page 14. 

37 

 
                                                           
Option  3:  Targeted  changes  to  address  informational  deficiencies  relating  to  marketing 
communications 

Benefits 

1. 
The  measures  under  option  3  would  ensure  better  protection  of  retail  clients  by  ensuring:  i)  more 
transparency on the nature of the marketing communication made, directly or indirectly, by investment 
firms, also in relation to online marketing (e.g. through social media); ii) the benefit of reinforced firm’s 
procedures and policies on marketing communication and on management’s responsibility, facilitating 
legal actions in case of misleading marketing communication112 and iii) the inclusion of key elements 
related to the financial products and investment services, in all marketing communications.  

Addressing  the  risk  of  unbalanced  presentation  of  information  in  marketing  communications  on 
financial products and financial services would improve the quality and transparency of information 
provided  to  retail  clients  via  marketing  communications,  thus  ensuring  that  such  communications 
would be a reliable source of information for retail clients. The obligation for investment firms and 
insurance  distributors  to  include  vital  information  in  a  visible  way  in  all  their  marketing 
communications would make it easier for investors to identify key characteristics of financial products 
or services at ‘a glance’ and would in particular ensure a balanced presentation of positive and negative 
elements of products or services. For retail investors, the understanding and comparability of products 
would be improved, which could to a certain extent mitigate the risk of purchasing products which are 
not appropriate for them.  

By  increasing  the  quality  of  information  that  distributors  provide  to  investors,  the  measures  under 
option  3  aim  to  enhance  trust  between  providers  and  retail  investors.  Rather  than  providing  more 
information as in option 2, this option would reduce the likelihood that customers’ cognitive biases are 
exploited. While it is commonly accepted that cognitive biases matter in investment decisions, no data 
is available to quantify the impact. The more limited scope under option 3 would imply more limited 
impacts than under option 2. 

Costs 

2. 
This  option  is  not  expected  to  generate  significant  ongoing  costs,  as  MiFID  II  and  IDD113  already 
require that all information, including marketing communication, addressed by investment firms and 
insurance  distributors  to  their  clients/customers  shall  be  fair,  clear  and  not  misleading.  However, 
despite this existing obligation, the relevant key information can be diluted across various or lengthy 
marketing (and contractual documents)114 or presented in an unbalanced way. Requiring investment 
firms  and  insurance  distributors  to  include  vital  information,  in  a  visible  way,  in  their  marketing 
communication would imply some incremental costs either to adjust existing marketing communication 
templates or to create new templates. These costs arise due to the measures aimed at the objective of 
achieving clear and unbiased information to clients, hence they relate to the substantive requirements 
of  the  proposal.  Nevertheless,  they  are  categorised  as  administrative  costs  for  “one  in,  one  out” 
purposes.  

Overall assessment: Effectiveness, efficiency and coherence: 

3. 
This  targeted  measure  would  contribute  to  the  SO1  by  ensuring  that  marketing  communications 
contain, in a balanced and visible way for the targeted group, the key information which could help 
retail investors in their decision-making process. It would be an effective measure as it would ensure 

112 With a clear legal definition of marketing communication, mandatory vital information and more duties and obligations 
for firms' management regarding marketing communication, retail clients would have a legal base should they seek to claim 
compensation.    
113 See article 24.4 of MiFID II; article 17(2) of IDD. 
114 ESMA advice on retail investor protection, page 21. 

38 

 
 
                                                           
consistency of the overall information provided to retail investors. It would be important that the vital 
information remains limited in its scope and properly calibrated115. Nevertheless, if applied alone, these 
measures  would  be  unlikely  to  substantially  improve  retail  investors’  ability  to  take  well-informed 
investment decisions as it would not address disclosure documents. 

In terms of efficiency, the costs for an enhanced obligation for the firms would not be significant (as 
discussed above) and could possibly be passed onto retail investors. That impact would, however, be 
justified in light of a reduction in the risks of investing in inappropriate investment products.  

In terms of coherence, the obligation to include vital information in marketing communications would 
apply to all marketing communications used by distributors selling investment products and IBIPs in 
the EU. It would ensure harmonisation across the Union, strengthening the internal market and ensuring 
the same level of protection to all retail clients.  As the level of digital marketing communication is 
increasing both domestically and across borders, coherence in the level of regulatory requirements is 
becoming even more important to ensure a level playing field in the domain of investor protection. This 
option would likely facilitate comparison between investment products and services and have a positive 
effect on competition between investments firms in the EU and cross-border investment transactions. 

Affected groups of stakeholders 

4. 
Industry:  The  requirement  to  have  vital  information  in  all  marketing  communications  and  the 
clarification as to the concept of marketing communication, enhanced with reinforced organisational 
and  responsibility  rules,  would  require  additional  oversight  by  investment  firms  and  insurance 
distributors, leading to higher costs. However, higher costs could to a certain extent be mitigated as the 
measures  would  also  be  expected  to  provide  further  clarity  on  the  regime  and  reduce  grey  areas, 
providing additional certainty to ensure proper compliance with the existing rules. This could lead to 
cost  reductions  for  compliance  and  legal  advice,  especially  for  smaller  firms,  due  to  the  additional 
clarity provided by the definition.  

Retail investors: The measure would help ensure that digital marketing of financial products is clearly 
identified  as  such,  and  compliant  with  applicable  provisions  on  investor  protection,  also  as  regards 
influencers and other alternative means of advertisement. This measure would also help address the 
risk  of  misleading  or  otherwise  illegal  digital  marketing  on  active  or  potential  retail  investors  and 
facilitate legal actions of retail clients as well as increase their protection. The measure does not entail 
costs for consumers. 

Supervisors:  The  requirement  for  firms  to  have  vital  information,  presented  in  all  marketing 
communication  would  facilitate  the  control  of  those  communications  by  the  competent  authorities, 
without  triggering  any  material  additional  costs.  Clarification  as  to  the  concept  of  marketing 
communications  would  allow  for  easier  intervention  and  enforcement  by  NCAs.  In  particular,  this 
measure would provide a basis upon which the enforcement in relation to novel marketing techniques 
such as influencer campaigns could be streamlined. No significant impact is expected on the resources 
of ESMA and EIOPA, as their involvement and roles under this option can be performed as part of 
their existing regulatory and supervisory work.  

Summary of the preferred option 

The table below summarises the assessment of effectiveness, efficiency and coherence discussed under 
each option. Option 2 and Option 3 are complementary and both present an improvement compared to 
the  baseline  at  a  reasonable  cost.  Hence  both  Option  2  and  Option  3  are  both  part  of  the  preferred 
option. 

115 ESMA advice on retail investor protection, page 14. 

39 

 
                                                           
Effectiveness 

(SO1) 

(SO2) 

(SO3) 

Efficiency  Coherence 

0 

+ 

0 

+/- 

0 

+ 

0 

+ 

0 

++ 

+ 

+/- 

+/- 

+ 

++ 

Option 1 - Do nothing 

Option  2  -  Targeted  changes 
to disclosure rules to improve 
their 
retail 
investors 

relevance 

for 

Option  3  -  Targeted  changes 
informational 
to 
address 
to 
relating 
deficiencies 
marketing communications 

6.2 Inducements 

Option 2:  Maintain current system allowing payment of inducements, but improve/harmonize 
sector specific disclosures relating to inducements 

Benefits  

1. 
The  aim  of  increasing  transparency  would  be  to  help  retail  investors  to  better  understand  how 
inducements  work,  increase  comparability  between  products  and  incentivise  them  to  assess 
alternatives. Conversely, this could incentivise distributors to offer products that are better suited to 
their retail clients’ needs and investment objectives. While this may improve market transparency about 
inducements and foster competition between market players, evidence from behavioural testing carried 
out  in  the  Retail  investment  study,  suggests,  however,  that  many  consumers  do  not  understand  the 
concept/impact  of  inducements  so  that  disclosures  on  inducements  do  not  directly  influence  their 
resulting choices (see below).  

This option would also ensure better understanding by the NCAs and ESMA of the inducements paid116. 
As the additional disclosure requirements would be streamlined across MiFID and IDD, this would 
help  create  a  level  playing  field  across  sectors  (IDD/MiFID)  and  also  have  a  positive  effect  on  the 
coherence of the framework.  

Costs  

2. 
Requiring greater transparency would generate further one-off administrative costs, which are expected 
to  be  limited.  The  additional  transparency  requirements  would  not  significantly  increase  ongoing 
administrative costs which market parties already incur in relation to existing disclosure requirements 
on inducements.   

Overall assessment: Effectiveness, efficiency and coherence:  

3. 
Option 2 could raise awareness about conflicts of interest by increasing information to retail investors 
about the existence and consequences of inducements. However, this measure would not be effective 
in eliminating the root cause of conflicted advice resulting from the payment of inducements. In terms 
of efficiency, increased awareness might result in retail investors taking better informed decisions based 

116  The  ESMA  annual  statistical  report  on  costs  and  performance  shows  that,  due  to  lack  of  legal  requirements,  the 
aggregated inducements are not comprehensively reported to ESMA by the NCAs.  

40 

 
 
 
  
  
                                                           
on a clearer understanding of inducements paid and their impact, and as such contribute to the SO1, 
“Improve  information  provided  to  investors  and  their  ability  to  take  well-informed  investment 
decisions”. This would require that retail investors receive the information, understand it and act upon 
it, while evidence from the Retail investment study suggests that many consumers may not understand 
the  concept/impact  of  inducements.117  In  terms  of  coherence,  this  measure  would  ensure  coherence 
between the existing legal framework (MiFID and IDD), but not between European and national rules, 
where divergent approaches to inducements would continue. 

Affected groups of stakeholders 

4. 
Option 2 would increase burdens for all providers and distributors (administrative costs), as well as for 
the NCAs/ESAs who would have to collect, quality check and analyse data, as well as supervise that 
the information is properly and coherently disclosed to retail clients. While this option would only have 
minimal  effects  to  address  the  identified  issues,  it  could  possibly  slightly  increase  costs  for  retail 
investors as compared to the status quo.  

Stakeholder  views:  Two  main  diverging  stakeholder  positions  can  be  identified.  On  the  one  hand, 
consumer  organisations  consider  enhanced  transparency  of  inducements  to  be  insufficient  to  fully 
address the conflict of interest. In their view, retail clients are at an information disadvantage and will 
often  not  be  able  to  understand  the  effects  of  inducements  and  act  upon  it  to  take  informed,  good 
investment  decisions.  On  the  other  hand,  as  evidenced  by  the  public  consultation,  the  majority  of 
financial  service  providers  generally  consider  the  current  disclosure  framework  together  with  the 
existing rules curtailing the practice of inducements to be satisfactory118.  

Option 3: A ban on inducements   

Benefits  

1. 
Option 3 would eliminate the main source of conflict of interest in retail distribution and thus increase 
the value and quality of distribution services (in particular advice, but also non-advised services) and 
of the products offered and sold to retail investors. As an expected outcome, the ban would eliminate 
product bias (i.e. incentives by distributors to distribute products that yield the highest commissions) 
and positively contribute to the distribution of products that better target the retail investor needs and 
objectives119. As shown by the experiences in the Netherlands and in third countries like the UK, the 
offer and purchase of simpler cost-efficient investment products would likely significantly increase and 
the  costs  of  investment  would  likely  be  significantly  reduced120.  In  the  Netherlands,  the  number  of 
households investing in low-cost index funds more than doubled from 8% to 20% between 2016 and 
2021121. Moreover, in the Netherlands, management fees for mutual funds fell on average by 40% after 
the introduction of the ban on inducements122. This would contribute to improved investment outcomes 

117 Retail investment study, page 248. In its survey only 36% of respondents responded correctly to what they are and only 
26% paid attention to this feature in their investment decision.  
118 Replies to the public consultation, Q8.5 (How should inducements be regulated?). Out of a total of 151 replies, 91 replies 
came from trade or business associations, four replies came from consumer organisations and the remaining replies from 
citizens, NGOs, public authorities, trade unions or other. 
119 The analysis on these impacts also applies mutatis mutandis to the product manufacturers when they compose structured 
products and select underlying asset, i.e. the benefits of Option 3 will be that product manufacturers will be incentivised to 
select products (underlying assets) on the basis of their merits and not on the basis the level of commissions received from 
other product manufacturers.     
120See infra, Section IV below with further description of impacts on retail investors and industry together with evidence 
(also describing UK experience). See also Annexes A & B on the Netherlands and UK examples. 
121 Ibid.  
122 Ibid.  

41 

 
 
 
                                                           
for retail investors. As higher costs of investment products reduce net return of investments123, a ban 
will contribute to improving net investment performance and help channel retail investments into cost-
effective products that better meet retail investors’ investment needs and objectives (SO2 and SO3). 

The  ban  is  expected  to  improve  market  efficiency  on  the  supply  side  by  allowing  providers  and 
distributors  to  compete  on  the  basis  of  the  merits  of  their  investment  product  offering  rather  than 
commissions.  It  would  also  foster  innovation  and  likely  enhance  the  development  of  digital  and 
automated,  cost-efficient  distribution  tools  better  targeted  to  customer  needs124.  A  unified  and 
simplified framework across sectors (MiFID and IDD) would also ensure a level playing field across 
and  within  the  investment  and  insurance-based  investment  segments,  as  well  as  within  the  Union. 
Eliminating  conflicts  of  interest  would  also  enhance  trust  in  financial  markets  and  thus  provide 
additional incentives for consumers not previously active in financial markets to invest125.  

The expected benefits for consumers of an EU level ban can be examined by looking at the total value 
of  inducements  charged  to  investors  on  an  annual  basis.  However,  the  calculation  of  the  value  of 
inducements is not the only component of benefits for retail investors, since the removal of conflicts of 
interest and product bias as explained above is also an important benefit. An accurate estimation of the 
total amount of inducements paid is difficult to establish, due to strong data limitations regarding the 
share of inducements in total product costs and the exact number of products in the market that carry 
inducements. Based on a series of assumptions126, an illustration can be provided for certain segments 
of the market (i.e. actively managed UCITS funds which are directly held by retail investors). The total 
annual costs of inducements at an EU level for these funds represented an estimated EUR 5.13 billion 
(in 2019), EUR 5.25 billion (in 2020) and EUR 6.1 billion (in 2021). If dynamic effects of the ban were 
considered (e.g. investors switching to lower costs products), the benefits of the ban on inducements 
would be even higher. For example, assuming that 5% of investments in the EU would shift to low-
cost investment products (such as ETFs), this could generate further aggregated cost savings of EUR 
0.5 billion (2019), EUR 0.6 billion (2020) and EUR 0.8 billion (2021)127. The above estimates of the 
value  of  inducements  are  limited  to  only  one  market  segment  and  should  therefore  be  seen  as  a 
significant underestimation.  

As a consequence of a ban on inducements, retail investors would have to pay separately for investment 
services, including financial advice, as these costs would no longer be incorporated  into the overall 
fees.  The  costs  of  such  payments  could  not  be  quantified,  but  it  is  expected  that  they  would  be 
significantly lower than the cost of inducements currently being paid.  

Finally, the partial ban variant of Option 3 would benefit those retail investors that wish to invest via 
execution-only services:  those retail investors would avoid any charges arising from inducements; the 
partial  ban  would  remove  incentives  to  give  more  prominence  to  certain  products  in  the  product 
offering; and retail investors could be more confident that products purchased without advice would 
not include additional charges linked to the payment of inducements, thereby giving them access to 
products carrying lower costs. 

Inducements  amount to  sizeable costs paid  by  retail  investors in  the EU, in  the  order of billions  of 
Euros. If these cost savings were passed on to households, they could contribute to wealth creation for 
retail investors and be further re-invested into the economy. Academic research from the University of 
Regensburg (2023)128, compares the effect of commission bans on household wealth in a panel data 

123 See Morningstar studies 2019 and 2021 and ESMAs annual reports on cost and performance regarding NL and UK. 
124 See Annex 7.A and 7.B on the Netherlands and UK examples. 
125 These benefits are further explained below under impacts on stakeholders.  
126 See Annex 7.C2 
127 Based on total annual costs of ETF UCITS provided by ESMA: 0.7% in 2019 (2021 costs and performance report), 
0.5% in 2020 (2022 costs and performance report) and 0.43% in 2021 (2023 costs and performance report). 
128 Sebastian-Noth-Grafe_Commission-Ban.pdf (uni-regensburg.de) 

42 

 
                                                           
analysis  and shows that countries with a (partial) ban on commissions experience higher household 
wealth growth.   

Costs  

2. 
Providers and distributors would incur one-off adjustment costs to transform their existing commission-
based business models into fee-based models. As product manufacturers would no longer transfer back 
fees to distributors, the latter would have to adjust their charging models. Such adjustments would also 
include  new  contractual  frameworks  and  adjustment  of  billing  systems.  These  changes  and  their 
justification would need to be implemented and communicated by firms to clients. There would also 
be one-off adjustment costs for product  manufacturers for the transitioning of  asset holdings which 
incorporate inducements into inducement-free asset holdings (e.g.in the case of investment funds the 
migration  into  inducement-free  share  classes).  After  the  initial  set-up,  we  expect  similar  or  lower 
ongoing compliance and supervision costs compared to the baseline scenario. This is because some of 
the costs would be offset129 by the elimination of administrative costs for the application of the quality 
enhancement  (MiFID)/non-detrimental  effects  (IDD)  criteria  under  the  baseline  scenario.  No 
significant impact is expected on the resources of ESMA and EIOPA. 

It  has not  been possible  to  gather EU wide statistical  evidence to  quantify  the one-off  and possible 
ongoing costs for the industry. However, the previous reform experiences in the Netherlands and the 
UK can provide some illustration.  

The Netherlands have carried a high-level estimation of the costs in 2012 and 2014 which pointed to 
total one-off adjustment costs in the range of EUR 3.72 million to 16.9 million130 for intermediaries 
and EUR 130,000 to EUR 4.3 million for product manufacturers. No ongoing costs were envisaged, 
except for insurance providers which totalled EUR 3.4 million.  

In the UK more detailed cost estimates were presented for the incremental compliance costs possibly 
faced by the industry (not only for the ban on inducements but for a broader set of measures). Those 
costs were also subject to an ex-post evaluation. The revised estimates pointed to one-off (aggregated) 
adjustment costs for intermediaries segments ranging between EUR 2.9 million and EUR 37.9 million, 
depending on the segment  (asset managers distributions arms at the lower end against banks  at  the 
higher  end),  whereas  aggregated  ongoing  adjustment  costs  ranged  between  EUR  5  million  for 
conglomerates and EUR 32.7 million for financial advisors that are directly authorised. With respect to 
providers, aggregated one-off adjustment costs ranged between EUR 164.6 million (asset managers) 
and EUR  408.9 million  (insurers),  while aggregated ongoing  adjustment costs could  reach between 
EUR 5.1 million (conglomerates) to EUR 38.2 million. The total compliance costs across all segments 
were estimated at EUR 819.4 million (ongoing) and EUR 181.9 million (one-off); Annex 7.C provides 
more details on the estimates and assumptions131.  

As mentioned above, the ban on inducements was introduced as part of a broader set of measures and 
prior to the introduction of MiFID II and IDD. These cost indications also relate to other measures 
introduced at the same time (e.g. a wide set of disclosure obligations which are already implemented 
across  the  EU)  and  could  therefore  not  be  attributed  solely  to  the  ban.  This  might  also  explain  a 
significant  portion  of  the  ongoing  costs,  which  does  not  appear  to  be  directly  linked  to  the  ban  on 
inducements. It should furthermore be noted that the cost estimates included assumptions relating to 
ICT  costs  that  were  reasonable  in  2010,  but  which  require  adjustment  in  light  of  technological 
advancements and the emergence of third-party providers servicing the industry. The ex-post review 

129 Data on those costs is not available.  
130 All figures presented in this paragraph are for illustration purposes aligned to latest consumer prices and presented in 
EUR.  
131 Ibid footnote 120 

43 

 
                                                           
of the set of measures published in 2014, pointed also to over-estimations and under-estimations  in 
selected areas (see annex 7.C)132. In the UK, these costs were also presented against the backdrop of 
expected benefits, by the use of specific examples illustrating potential consumer detriment and were 
in the range of EUR 314 million annually. 

With  a  view  to  quantifying  the  compliance  costs  in  connection  with  the  inducement  ban,  the  cost 
estimates performed in the Netherlands and UK were extrapolated to the EU-26 (cf. Annex 7.C). These 
extrapolations are subject to a number of assumptions and caveats, which are presented in Annex 7.C. 
The results show orders of magnitude which range between EUR 58 million to EUR 69 million in terms 
of relevant compliance costs on the basis of the Dutch estimation (covering only investment firms and 
asset managers), whereas potential costs based on the UK’s estimates are substantially higher, ranging 
between EUR 14bn and EUR 15bn, as that analysis also covered the sale of insurance-based investment 
products.  Both cost estimates refer to one-off costs, although these could be spread over any potential 
transitional period to avoid cliff effects and achieve gradual compliance.  

The  costs  of  the  introduction  of  a  partial  ban  would  be  expected  to  be  lower  than  compared  to  the 
introduction of a full ban, as a partial ban would not impact all investment products and services. A 
partial ban may imply one-off costs for product manufacturers and distributors, including in relation to 
the  creation  of  separate  asset  classes  without  inducements,  the  change  of  billing  systems  and 
communication  to  clients.  The  amount  of  these  costs  would  depend  on  the  degree  to  which  firms 
currently manufacture and offer products with inducements through execution-only channels and the 
choices they would make for their business model and product offering after the introduction of a partial 
ban. These costs are in any case expected to be lower than compared to a full ban on inducements. As 
an illustration, and extrapolating on the basis of the UK figures, the one-off costs of EU stockbrokers’ 
firms133 - potentially the segment most affected by a partial ban (which targets pure brokerage services) 
- would be estimated to  be in the vicinity of EUR 48 million134. This amount can be considered  an 
underestimation,  as  it  does  not  take  into  account  the  one-off  costs  that  could  be  incurred  by  other 
investment firms and insurance intermediaries.  

These above estimates should not be seen as actual estimates of the possible cost impacts in the EU as 
a  whole.  Given  the  wide  ranges,  the  series  of  assumptions  and  caveats  and  significant  differences 
between them, they do not permit a reliable extrapolation to the EU. They can however illustrate an 
order of magnitude as to the possible adjustment costs incurred as a result of an inducement ban.  

Overall assessment: Effectiveness, efficiency and coherence:  

3. 
Option 3 would be effective in achieving the prescribed objectives by removing the major source of 
conflicts of interest of intermediaries. As advisors are no longer rewarded to “push” products that pay 
the highest commissions but, due to their cost structure, are often not aligned with the objectives of the 
client (product-bias), intermediaries would be able to focus on the clients’ needs and objectives in the 
product  selection135.  This  would  contribute  to  the  availability  of  bias-free  distribution  services, 
including advice, resulting in an improved “product-client match” of products. A ban would also likely 
improve market efficiency by allowing providers to compete on the basis of the merits of the product 
offering136 (as opposed to competition based on the amount of inducements that distributors receive). 
Adjustment to business models would be necessary and certain existing market structure trends might 
further be enhanced.  

132 These over and under estimates from the ex-post evaluation have been included for illustration purposes in the amounts 
presented in this paragraph.  
133 Stockbrokers are defined as MiFID firms, with a license for the receipt and transmission of clients’ orders or the 
execution of orders, but who do not offer investment advice to clients and that are not banks. 
134 See Annex 7.C (i.e. EUR 89,600 x 427 firms x 1.25 (scale factor)) 
135 The same thing applies to product manufacturers, when selecting underlying assets for structured products.   
136 See Annexes 7A and 7B on the Netherlands and UK examples. 

44 

 
                                                           
The  clear-cut  nature  of  a  ban  would  be  efficient  compared  to  the  baseline,  according  to  which 
inducements  are  allowed  when  they  enhance  the  quality  of  the  service  (under  MiFID)  or  are  non-
detrimental  to  the  quality  of  service  (under  IDD).  As  identified  in  the  evaluation,  the  current 
requirements are not sufficiently efficient to deter against the negative consequences and are also costly 
to  supervise  and  subject  to  diverging  interpretation  and  application  across  the  Union.  Despite  the 
expected one-off adjustment costs, the measure is expected to be efficient considering the expected 
benefits. 

A  ban  of  inducements  across  the  different  sectors  would  increase  coherence  by  harmonising  the 
requirements  across  the  Union  and  strengthen  the  internal  market  by  granting  the  same  level  of 
protection to all retail investors, irrespective of Member State, type of product or distribution model. 
Particularly  in  light  of  increasing  digital  distribution,  and  the  corresponding  boost  to  cross-border 
passported services, this coherence would ensure a level playing field in the Union.  

As in the case of a full ban on inducements, a partial ban relating to execution-only services would be 
effective, coherent and efficient in addressing the identified problems in this market segment. Such a 
measure would not however address the identified problems in the advice segment.  

Affected groups of stakeholders: 

4. 
Industry: 
Option 3 would affect all financial institutions in the value chain that provides investment services to 
retail investors. The shift to a ban on inducements would mean that  distributors would no longer be 
able to receive commissions from product manufacturers and as a consequence would have to move to 
a  fee-based  model.  Accelerated  by  increasing  digitalisation,  the  ban  on  inducements  would  imply 
changes to market structures and business/ distribution models, which may affect the cost and revenue 
base both for individual financial institutions and the industry in general. Besides changes in the cost 
structure, a ban on inducements may imply a loss of revenues, but may also create new opportunities 
for financial institutions. The exact impact would depend on existing business models, the choices that 
financial  institutions  would  make  in  the  transition  to  a  new  fee  model  and  the  duration  of  any 
transitional period.  

The existing market structures vary across Member States and product segments. Both vertically and 
non-vertically  integrated  value  chains  co-exist  (in  the  former,  the  supply  chain  is  within  the  same 
corporate control).  Another prominent feature is ‘closed architecture’ models (i.e. where distributors 
favour investment products from manufacturers belonging to the same group or from favoured third 
parties)137.  Irrespective  of  the  corporate  structure  and  business  model,  investment  products  are 
predominantly distributed on the basis of commissions.  

An  inducement  ban  is  expected  to  reduce  the  market-wide  interconnectedness  and  break  close  ties 
between  investment  product  manufacturers  and  distributors  that  exist  as  a  result  of  commission 
payments.  By  removing  the  financial  incentives  created  by  the  payment  of  inducements,  financial 
intermediaries  and  financial  providers  would  be  able  to  compete  more  easily  on  the  merits  of  their 
investment product offering (as opposed to competing on the level of commissions) and to use an open 
architecture model (including through availability of independent advice).  

In  its  technical  advice,  ESMA  pointed  to  a  risk  that  vertical  integration  between  banks  and  asset 
managers might result from a ban on inducements, in particular in markets with bank-centric models, 
possibly resulting in the offer by such groups of only in-house products to end-clients. This risk has not 
however materialised in the Netherlands, where on the contrary, following the ban there was a shift 
towards open architecture models. The three largest credit institutions divested their asset management 
businesses and opened their distribution channels to third party asset managers, leading to an increased 

137 An overview of market structure, market participants and products is provided in Annex 7.D. 

45 

 
                                                           
offer of third party and more cost-efficient products. Those asset managers that had been divested from 
credit institutions built up their own direct distribution to retail clients, thus competing with the credit 
institutions138.  The  availability  of  independent  advice  in  the  Netherlands  is  as  high  as  50%  of  the 
market139.   

In  order  to  enhance  the  effectiveness  of  the  ban,  Option  3  provides  safeguards  against  intragroup 
inducement-like  payments  (in  the  form  of  cross-subsidies  to  distributing  entities  from  other  group 
entities), whereby vertically integrated distributors would be prevented from providing advice below 
cost  and,  consequently,  their  ability  to  favour  inferior  in-house  or  preferred  third  party  investment 
products would be impacted140. The preferred options on value for money will also serve as a flanking 
measure in  this  regard,  helping  to  ensure cost efficiency of investment  products,  also when offered 
through vertically integrated models. 

Independently of the distribution structure or models chosen (vertically integrated or open architecture), 
the  ban  on  inducements  would  incentivise  increased  competition  on  the  merits  between  investment 
products. This is because Option 3 applies to all distributors who would need to adapt the attractiveness 
of their investment product offerings to compete with that of other distributors141.  

Option 3 would also likely result in a change of the relative portion of the different types of investment 
service provided to retail investors. The main channels through which products reach retail clients are 
advice, portfolio management, or non-advised services (for certain IBIPs)/execution-only (for financial 
instruments). Overall, the provision of advised sales would be expected to decrease in favour of the 
provision  of  portfolio  management  services  and  non-advised/execution  sales  respectively,  at  least 
initially. In the Netherlands, for example, the split between clients using advice, portfolio management 
or execution-only in 2021 was 5% for advice (down from 21% in 2013) while (automated) portfolio 
management  services  increased  to  33%  (up  from  20%  in  2013).  Execution-only  services,  including 
those with additional guidance142 remained stable (62% versus around 60% in the preceding years)143. 
In the UK there was an increase of self-directed activities. Under Option 3 there may be lower demand 
for advice and some financial institutions may decide to scale down their advisory  activities and/or 
focus on other services. Within the advice category, a shift towards independent advice is expected144. 
It would also be easier for independent advisors to compete with non-independent advisors145, as they 

138 See Annex 7.A.  
139 See Annex 7.A. Compared to well below 1% in Italy and Germany, see supra.   
140  ESMA  Technical  advice  2020,  at  page  13.  In  the  Netherlands  where,  as  a  part  of  the  ban  on  inducements,  groups 
operating in-house distribution must recover cost of distribution at the level of the distribution entities, thus barring the 
possibility to allocate costs elsewhere. There are standard requirements on cost allocation and apportionment and third-
party  auditing.  A  similar  requirement  was  introduced  in  the  UK  where  “the  allocation  of  costs  and  profit  between  the 
adviser’s charge and product cost should be such that any cross-subsidisation is insignificant in ‘the long term’.      
141 The exact impact in terms of mix between vertical and non-vertical integration as well as open versus closed architecture 
remains uncertain and is likely to vary among Member States.    
142 Approximately 10% of the Dutch execution-only clients invest via so-called guided execution only services. These are 
execution-only  services,  where  a  pre-determined,  cost  efficient  and  well-diversified  range  of  products  in  offered  to  the 
clients. The estimated percentage of clients investing through guided execution-only services in the Netherlands was 10% 
in 2021.   
143 See experience from the Netherlands at Annex 7.A. See also infra as regards the UK, and at Annex 7.B. 
144 See Experience with the ban on inducement ban in the Netherlands at Annex 7.A.  
145 As is the case currently for independent advisors (see under problem definition the resulting insignificant uptake of 
independent advice). For example, in Italy, only 428 out of 52,328 advisers are independent (0.8%), see report Relazione 
Annuale 2021 by Organismo di vigilanza e tenuta dell’albo unico dei Consulenti Finanziari, page 68. In Germany BaFin’s 
registers shows 17 “fee-based” advisors (Honorarberater). 

46 

 
                                                           
would no longer need to explain why they charge a fee for their services directly to the retail when most 
market participants do not146.  

As regards insurance intermediaries, a ban would be confined to the sale of IBIPs and would not apply 
in the case of other insurance products.  It is likely that a portion of insurance intermediaries would 
specialise in IBIPs, terminate their intermediation activities or shift to non-life products, not covered 
by the ban on inducements147.  

The above developments will be facilitated as well as accelerated by technological developments and 
the ongoing trend of digitalisation of financial services. While the extent of physical sales versus digital 
sales  of  investment  services  varies  significantly  across  the  EU,  distribution  channels  and  consumer 
habits are shifting generally strongly towards digital sales148. As Option 3 would render costs and the 
value of products and services more visible (both to investors and distributors), it is expected that this 
option would further incentivize firms to enhance operational and other efficiencies, notably through 
digital solutions, especially for products directed towards low-income/low net-worth clients149. Robo-
advice or other digital advice models currently represent only a very small share of total retail business, 
but this is increasing150. Traditional distribution channels already innovate and will likely have greater 
incentive to do so and use more automated or semi-automated solutions in their advice and other service 
offerings in order to target client needs, reduce costs and improve operational efficiency151. Given the 
technological advances and changing consumer habits, large scale market restructuring and changes of 
business models is likely to be easier today than compared to a decade ago when the ban was introduced 
in the Netherlands and third countries like the UK. 

The impacts of a partial ban on inducements relating to execution-only services would be considerably 
more limited than for a full ban on inducements, since it would only target the part of the industry that 
manufactures and distributes products to retail investors through execution-only channels. The impact 
of a partial ban on inducements relating to non-advised sales would be even more limited for IBIPs, as 
advised sales are the predominant distribution channel in most Member States. This is partially due to 
regulatory requirements, since a significant number of Member States either do not allow execution-
only sales or require compulsory advice for the sale of IBIPs; if those Member States maintain such 

146 See further in Annex 7.A. The issue is not whether a fee will be charged, but the level of fees and the scope/value of the 
services, something facilitated by the fact that the advice is impartial. Where distributors provide added value advice to their 
clients,  they  will  be  able  to  retain  them.    If  not,  it  is  likely  that  retail  clients  will  over  time  shift  towards  non-advised 
sales/execution only sales. This is what happened in the UK, see Annex 7.B. 
147See Experience in the Netherlands at Annex 7.A. Note however that with respect to a potential shift to non-life products, 
the Dutch ban on inducements was broader and not  confined to IBIPs products only. Any such expected shift cannot be 
directly compared to the Dutch ban. Self-employed advisors, making up 85% of the Dutch market, indicated that more than 
50% of their total turnover came from non-life insurance consultancy and intermediation. 
148 In the EU, on average, the number of bank branch office has decreased from 220,000 in 2010 to about 140,000 in 2022. 
See ECB, Banking structural indicators, as at 19.11.2022. See Market structure overview at Annex 7.C. Also a 2021 by 
Oliver Wyman shows that, in line with this trend, the percentage of clients holding online brokerage accounts in Germany 
increased from 34% to 37% in 2021. Furthermore, in Germany for example there is an increasing trend towards online 
banking across all age segments, but due to the Covid lockdown this jumped from 50% in 2019 to 64% in 2020. (Deutsche 
Bankenverband/ Kantar 2020). 
149 Increasing digitalisation is also contributing to the ongoing consolidation of distribution systems in Member States. It 
cannot be excluded that shifting to a fee-based distribution model could further accentuate this trend. This is driven by the 
need to reach higher scale economies (bigger volumes of (low cost) advice to clients) or scope economies (larger mix of 
products) than what is currently the case.           
150 Study on distribution systems of retail investment products page 130; Report ESA Joint Committee Report on the results 
of the monitoring exercise on automation in financial advice EIOPA, 2018, where they note a slight increase since the 2015 
report.  
151 This is the case in the Netherlands, see Annex 7.A; and third countries examined, e.g. UK See FCA 2020 Report, Impact 
of the RDR and FMR, page 21, and Europe Economics at page 51, See Annex 7.B.   

47 

 
                                                           
requirements, a partial ban would have no impact on non-advised services relating to IBIPs in those 
markets. 

Retail investors: 
A ban on inducements would eliminate conflicts of interest and increase the value and quality of advice 
and other distribution services offered to retail investors. A ban could also be expected to result in the 
sale of lower cost and less complex products to retail investors (see section on benefits).  

A  ban  on  inducements  would  lead  to  more  transparent  pricing  for  retail  investors,  who  would  be 
charged directly for investment services (including advice). Under the commission-based model, the 
price  of  advice  is  embedded  in  the  product  and  its  cost  is  not  visible  to  the  client.  The  advice  is 
nonetheless not “for free”, but the client pays indirectly for this service (which they may not realize). 
A fee-based model would provide retail investors with a salient reference point to consider the value 
of the services/products provided to them (i.e. the price). As under the commission-based model, no 
explicit service fees are charged to retail investors at the point of sale, however retail investors have a 
tendency to underestimate the cost of advice, which also severely undermines their ability to assess its 
actual value. Transparent fees would allow them to better consider the value of advice and make an 
active  decision  as  to  whether  or  not  they  wish  to  solicit  it152  or  instead  engage  in  self-directed 
investments153. While a number of investors would be willing to pay for bias-free advice, other retail 
investors may change to self-directed investing or decide to opt for portfolio management. Therefore, 
it cannot be excluded, at least initially, that advised sales of investment products would decrease in 
some markets154. 

Some stakeholders (from the industry, but not the consumer side) have expressed concerns in the public 
consultation about a risk of the emergence of an advice gap as a consequence of the inducements ban. 
According to these stakeholders, some consumers might not be willing or able to pay for advice and 
thus  not  invest at  all. Consumers investing only small  amounts of money  might  not  be able to  find 
distributors willing to advise them. In addition, there could also be consumers who independently of 
their investment needs and ability would remain ‘unengaged’ and who could use a “nudge” in order to 
invest. According to this argument, intermediaries would cease to serve those (potential) retail investor 
segments, because they would be unable to recover their costs155. On the other hand, other stakeholders, 
in particular consumer organisations, argue that non-independent advice is currently mis-qualified as 
“advice”,  whereas  in  practice  it  could  better  be  described  as  a  sale  of  a  financial  product.  These 
stakeholders  consider  that  given  the  dominance  of  the  commission-based  model  across  the  Union, 
“there is already an advice gap”, which would be removed by a ban on inducements156. 

The experience in the Netherlands shows that the levels of retail investment remained stable and even 
slightly increased since the introduction of a ban on inducements from 20% in 2013 to 23% in 2021157.  
That suggests that any reduction in advice services would not result in an investment gap, but rather in 

152 And whether they want independent or non-independent advice. 
153 See experience from the Netherlands at Annex 7.A.  
154 As evidenced by the experiences in the Netherlands and the UK. in the UK there was an increase of self-directed activities 
whereas in the Netherlands there was a shift to portfolio management services whereas self-directed investments remained 
stable, but where guided execution-only services emerged as an offering.  
155  See  for  example  ‘Commission-based  remuneration  vs.  Fee-based  remuneration:  is  there  a  better  model  for  retail 
investors?’ (2021) KPMG, page 64; and ‘The future of advice: A comparison of fee-based and commission-based advice 
from the perspective of retail clients’ (2021) KPMG, page 20. 
156Better  Finance  Research  Paper  on  Detrimental  Effects  of  "Inducements":  Evidence  &  Arguments  for  Banning 
Inducements in Retail Investment Services' (2022) and Better Finance, ‘Additional evidence on the detrimental impact of 
sales commissions ("inducements")’ (2022). 
157 See experience from the Netherlands at Annex 7.A. See Retail investment study pages 247 and 277. In the UK, as noted 
(infra), while there was a slight decline of total retail investments volumes in 2012, they have gone up again constantly to 
above those levels by 2020 (2.9 million units sold compared to 2,3 million units). See Annex 7.B.  

48 

 
                                                           
retail investors accessing investment services via other channels (see above)158. It can also be expected 
that (as experienced in the Netherlands) different types of portfolio management services and various 
types  of  execution-only  services  could  emerge159.  Investment  advice,  portfolio  management  and 
execution  only,  in  the  form  of  guided  execution-only  concepts,  have  been  broadly  available  in  the 
Netherlands since the introduction of the ban160, with fees as low as 0.8% -1% and without minimum 
investment amounts161, meaning that a person investing 10,000 EUR is charged no more than 100 EUR 
for the service and products acquired162.  

Unwillingness  to  seek/pay for advice may be due to  reasons  other than  affordability163, e.g. lack of 
understanding of the value that advice can provide, lack of engagement and limited interest in investing 
altogether (“not for me”) or also lack of trust in the advice. It can also be the result of retail investors 
preferring to do their own research and take their own investment decisions164. Introducing a ban would 
therefore incentivize investment advisors to better communicate with and demonstrate to their clients 
the value of the advice.  

It is clear that consumers can benefit from support and assistance in their investment journey, including 
through un-biased advice, which is currently not sufficiently available or not available at all in many 
Member States. Option 3 would address this problem. Furthermore, evidence from the Netherlands (as 
discussed above) does not suggest that a ban on inducements would lead to an investment gap or an 
advice gap165.  

158 See infra. 
159 See supra as well as Annex 7.A. 
160 Desktop research, websites from various NL providers, see table at Annex 7.A. 
161 As regards the UK, there is  inconclusive evidence on the  issue of  minimum investable  amounts  for advice  services. 
Survey research points to suggested minimum amounts between £20,000 up to £100,000. However, crucially, the study did 
not compare the situation to availability of advice prior to the ban in 2012. Also, the number of clients that were “asked to 
leave” remained insignificant and the number of clients of the firms surveyed increased over the period. Europe Economics 
2014 report (p. 50 et al.). In addition, crucially, eight years after the reform, the FCA 2020 report observed that only 40% 
of  firms  declared  having  formal  minimum  thresholds  for  pensions/investments,  but  there  was  no  indication  that  firms 
without a formal minimum investment size targeted or served less affluent customers. (FCA 2020, page 39).  See, Annex 
7.B. Also, see infra on the availability of low cost robo-advice.    
162 And where amounts of advice costs and management fees are clearly separated and disclosed (which, as noted above, 
decreased by 40% on average in the Netherlands). See experience from the Netherlands at Annex 7.A. 
163 There is mixed evidence available as to the portion of retail investors that might be unwilling to pay for advice when 
they know the price of it in the form of a fee (Retail investment study, page 282 et al). In its consumer survey, 42% of 
respondents stated that they either strongly or slightly agreed that they would pay for financial advice if it was affordable. 
The people who have savings and are considering investing are in particular the most likely to say they would pay for advice 
if it was affordable (54%). 
164 See UK experience with ban at Annex 7.B. In the Netherlands there is an increase of investment product comparison 
websites, which shows that there is demand among retail investors for services that assist them to engage in self-directed 
investments. It could be the case that such services will increase in importance across the EU following a ban, although this 
aspect has not been assessed. See experience from the Netherlands at Annex 7.A. 
165 The FCA, when reviewing the impact of its inducement ban, noted that there was already falling demand for investment 
advice between 2008 – 2012 prior to the ban, but later noted that the number of adults that received advice actually increased 
again  from 6% in 2017 to 8% in 2020. At the same  time, by examining a time  series  between 2012 when the  ban  was 
introduced and 2020 there was a large increase of non-advised sales volumes. Non-advised sales became the lion’s share of 
sales of investment products (products examined included bonds, decumulation products, individual savings accounts (ISA), 
occupational pensions, personal pensions, scarps, trusts and open-ended investment company (OEICs)). The reason for this 
was identified as being that consumers “who would previously have paid for full regulated advice are increasingly turning 
to alternatives such as investing on a non-advised basis, e.g. via platforms”. This is because consumers have become more 
confident at directing their own financial affairs. [In fact] 74 per cent thought that it is better to research financial products 
before  considering  financial advice, and  44  per  cent  thought  that  it  is actually better  to  make  the  investment  decisions 
without obtaining professional advice.” Europe Economics 2014 paper page 42. Also, “most respondents said that they 
hadn’t sought out advice because it was not needed, or that they felt they could make these decisions themselves (66%) and 

49 

 
                                                           
Increased operational efficiencies made possible through technological developments and digitalisation 
are also expected to contribute to improving access to investment services, especially for the category 
of potentially ’unserved’ retail investors (with small investments amounts) but also for retail investors 
more  generally.  This  goes  hand  in  hand  with  improving  access  to  advice  also  for  small  investment 
amounts  through  for  example  semi  or  fully  automated  solutions166.  A  recent  AFM  survey  in  the 
Netherlands has shown that the proportion of retail clients that use or consider engaging with robo-
advisors/semi-automated portfolio management has risen from 25% in 2016 to 53% in 2018. Of those, 
9% already used semi-automated portfolio management in 2018, compared to just 1% in 2016. Those 
services typically provide access to low-cost index funds167. 

At the same time, other flanking measures are expected to facilitate access to cost efficient investment 
services and increase retail investor engagement. These flanking measures would help guide investors 
and  reduce  barriers  to  affordable  advice.  In  particular,  the  following  measures  are  envisaged:  (i) 
improvements to the suitability and appropriateness assessments (Annex 8), as well as adjustments of 
the legal framework for investment services aimed at fostering the availability for retail clients of cost-
efficient investment support, (ii) by facilitating access and exchange to client and other relevant data, 
the Commission’s initiative for an open finance framework168 should allow for operational efficiencies 
and data sharing which should facilitate automated or semi-automated models and stimulate the uptake 
of affordable advice, in both hybrid and digital forms, and (iii) efforts to raise financial literacy levels 
should also contribute to stimulate retail investor engagement and increase their willingness and ability 
to invest (see Annex 5). These measures would benefit all retail investors, including the less wealthy 
or less engaged retail client segments.  

Finally, the partial ban variant of Option 3 relating only to execution-only services would offer benefits 
to retail investors:  those retail investors would no longer incur inducement charges for self-directed 
sales;  the  partial  ban  would  remove  incentives  to  give  more  prominence  to  certain  products  in  the 
product offering; and retail investors could be more confident that products purchased without advice 
would not include additional charges linked to the payment of inducements, thereby giving them access 
to  products  carrying  lower  costs.  But  while  a  partial  ban  would  address  the  consumer  detriment 
resulting from the payment of inducements in the  execution-only segment, it would not address the 
consumer detriment relating to advised services.  

Stakeholder views: similar to Option 2, stakeholders’ views diverge, although two main positions can 
be identified.  Consumer organisations are favourable to a ban, pointing out that this measure would be 
the most effective way to address the inherent conflict of interest in the current system. Introducing a 
ban would not create, but rather eliminate an advice gap that already exists, and thus decrease the cost 

22% had simply not thought about it.” FCA Report, Evaluation of the impact of the Retail Distribution Review and the 
Financial Advice Market Review (2020), page 35. See Annex 7.B. 
166 Study on distribution systems of retail investment products, page 130 et al. 
167 See experience in the Netherlands at Annex 7.A. While in the UK, between 2017 and 2020 the consumer engagement 
with automated advice services remained low and stable, at 1.3% and 1.4% of UK adults, the amount invested on such 
platforms has increased eight-fold between 2016 and 2019. FCA, Evaluation of the impact of the Retail Distribution Review 
and the Financial Advice Market Review, page 40, See Annex 7.B.     
168  In  2020,  the  Commission  identified  promotion  of  data-driven  finance  as  one  of  the  priorities  in  its  Digital  Finance 
Strategy and stated its intention to put forward a legislative proposal on an open finance framework. Open finance refers to 
the access to and processing of customer data upon customer request across a wide range of financial services. As such, it 
constitutes the next EU policy step on access to customer data in the financial sector after the data sharing provisions on 
payment accounts introduced by the revised Payment Services Directive (PSD2). The main objective of open finance is to 
give  more  effective  control  to  customers  of  financial  service  providers  –  whether  consumers  or  firms  –  over  how  their 
financial data are accessed and used in order to stimulate innovation, promote market transparency and enhance access to 
finance. Open finance aims at unlocking this data  to increase consumer choice, reduce costs and stimulate competition. 
Wider data reuse should give consumers and small and medium enterprises (SMEs) access to a wider range of services and 
products. More broadly, should contribute to better information for customers, as third-party providers accessing the data 
have the potential to generate additional insights. 

50 

 
 
                                                           
of  investment,  enhance  quality  of  services  and  improve  investment  outcomes  and  more  generally 
restore investor confidence in financial markets. Other solutions would risk increasing the complexity 
of  the  legal  requirements  without  effectively  addressing  the  core  conflict  of  interest  problem.  The 
majority of financial service providers on the other hand, as indicated in the public consultation, would 
oppose a ban, referring primarily to the risk of an advice gap due to retail investors’ unwillingness to 
pay for advice and the increased risk of bad investment outcomes should they engage in self-directed 
investments. They would prefer to address problems relating to the payment of inducements through 
increased transparency.  

Summary - Choice of the preferred option 

Option  3, the introduction of a Union-wide ban  on inducements, is  judged to  be the most effective 
measure  to  reach  the  overall  objectives  of  the  retail  investment  strategy  and  in  particular  Specific 
Objectives  2  and  3.  It  would  remove  or  significantly  reduce  conflicts  of  interest  in  the  investment 
decision process uniformly across the Union, to the benefit of all retail investors. A ban would reduce 
an important source of consumer detriment. The expected long-term benefits for retail investors are in 
particular access to better performing, less costly and more relevant investment products.   

The level of knowledge and extent of participation of retail investors in capital markets varies greatly 
across the Union, but a common feature in all Member States is that retail investors are at an information 
disadvantage compared to providers, in particular with respect to the value of the service and products 
provided  to  them.  As  a  result  of  the  conflicts  of  interest  inherent  in  commission-based  models, 
independently of the level of development of the retail markets and level of knowledge of investors at 
Member State level, inducements have had a detrimental effect on the quality of service provided to 
retail investors and ultimately on their investment outcomes. 

While Member States already have the option to introduce an inducement ban or other intermediary 
solutions  at  national  level,  a  common  Union-wide  ban,  together  with  enhanced  common  investor 
protection standards, would ensure a level playing field between Member States and across distribution 
channels, thus improving the efficiency of the internal market, in line with General Objective 3. That 
would  benefit  all  retail  investors  across  the  EU. The  trend  towards  increasing  digitalization  will 
continue and further underlines the need to strengthen investor protection rules throughout the Union 
for all service providers. 

A transitional period to introduce a ban on inducements would be necessary to ensure that distributors 
and manufacturers have time to adjust their business models from a commission-based to a fee-based 
model. Examples of the steps that need to be taken are adjustments to the current  fee schedule and 
billing systems, informing clients of the new structures, creating new share classes without inducements 
in the case of investment funds and upgrading IT systems where necessary.  

Option 2, enhanced transparency, will increase the information available to investors to make informed 
decisions but is expected to be less impactful on retail investors’ ability to assess the implications of 
the value of the services and products provided to them and, therefore, would be unlikely to act as a 
deterrent or mitigating factor to effectively address the consequences of conflicts of interest.   

The variant to Option 3 (partial ban on inducements for execution-only services), would address the 
consumer  detriment  resulting  from  the  payment  of  inducements  in  the  execution-only  segment,  but 
would not address the consumer detriment relating to advised services. However, a partial ban could 
be a first step that left open the possibility of further expansion to a full ban and could be a means of 
ensuring a smooth and gradual transition into a new system that avoided shocks from sudden major 
changes both in terms of impacts and adjustment costs for the industry. The situation relating to the 
payment  of  inducements  and  the  types  of  products  purchased  by  retail  investors  could  be  closely 

51 

 
monitored and, should the implemented measures be considered insufficient, a comprehensive ban that 
included advised services might then be considered. 

Effectiveness 

(SO1) 

(SO2) 

(SO3) 

Efficiency  Coherence 

Option 1 - Do nothing  0 

Option  2  –  Additional 
disclosures 

++ 

0 

+ 

Option  3  –  A  ban  on 
inducements 

++ 

+++ 

0 

+ 

+ 

0 

+ 

0 

+ 

++ 

++ 

6.3 Value for Money  

Option 2:  strengthened governance rules at the product manufacturing level 

Benefits 

1. 
Strengthening the rules on product governance would require manufacturers to pay greater attention to 
costs to ensure that their products offer value for money. Increased controls and pressure to always 
maintain  the  cost-effectiveness  of  products  would  enhance  discipline  among  manufacturers.  The 
mechanism introduced by this option would significantly enhance the enforcement of Value for Money, 
by shifting the burden of proof from NCAs to manufacturers; manufacturers would need to demonstrate 
that the costs of their products do not deviate excessively from the appropriate benchmarks, or else to 
justify any such deviations. That would help eliminate from the market those products that are likely 
to  present  investors  with  poor  value  for  money,  as  well  as  contributing  to  ensuring  retail  investors 
benefit  from  more  cost-effective  products  (SO3),  including  wider  availability  of  lower  cost  and 
potentially less complex (hence easier to understand) products that would better match their needs. It 
would also help ensure that the cost of each product is better aligned to its quality, i.e. the relationship 
between return expectations and the level of risk, taking into consideration other product features that 
would reasonably be expected to bring value for investors.  

In its 2021 Supervisory Statement, EIOPA clarified that, as part of the assessment of value for money 
risks in their products, “manufacturers should be able to present a structured pricing process in their 
POG reporting to competent authorities”169. ESMA also considers the control of the cost/fee structure 
of  the  fund  at  the  authorisation  stage  as  a  positive  development170,  and  has  encouraged  competent 
authorities to perform a timely assessment of funds’ cost and fee structures in order to address investor 
protection risks.  

169 See  EIOPA Supervisory Statement on “Assessment of value for money of unit-linked insurance products under product 
oversight and governance”, page 5. The assessment should include evidence on the quantification and breakdown of costs 
and charges, that adequate and sufficient testing has taken place on whether the product offers value for money taking into 
account  the  target  market  specificities,  and  that  elements  such  as  performance,  costs  and  charges  are  adequately  and 
periodically reviewed.  
170 Page 22, ESMA’s Final Report on the 2021 CSA on costs and fees.  

52 

 
 
 
 
 
                                                           
Furthermore, the establishment of benchmarks would stimulate competition among manufacturers and 
help increase the overall cost efficiency of retail investment products. Benchmarks would also facilitate 
the task of supervisory authorities and ensure more effective supervision. 

The benefits for retail investors would depend on the effectiveness of the new measures. Scenarios are 
presented under option 3 (below) illustrating the impact on the net returns that households could expect 
to earn on investment funds and insurance-based investment products, using existing microeconomic 
benchmarks and macroeconomic variables. Since option 2 is limited to manufacturing benchmarks, this 
analysis requires additional assumptions, which are explained below. The higher returns that investors 
could earn would amount to slightly below EUR 15 billion per annum in a scenario where yields in 
Member States with below average returns have converged half ways to the EU average.171  

Costs 

2. 
Since  well-run  product  manufacturers  should  already  have  in  place  functioning  cost  accounting 
systems,  the  costs  of  producing  comparisons  against  benchmarks  should  not  generate  high 
administrative  costs.  Article  9  of  the  MiFID  delegated  directive172  already  contains  a  number  of 
obligations on manufacturers in respect of determining the target market and ensuring product quality, 
including the need to undertake a scenario analysis to assess  the risks of poor outcomes for clients. 
Article 22(4) of the UCITS level 2 Directive requires management companies to prevent undue costs 
being charged to the UCITS and its unitholders and for each Member State to draw up rules of conduct 
for management companies. Similar requirements are also present in Article 17(2) of the AIFMD level 
2 Regulation, as well as in Articles 4 to 8 of the IDD delegated regulation on product oversight and 
governance173. EIOPA also issued on 30 November 2021 a Supervisory Statement174 explaining that 
Article  25  of  the  IDD  and  the  delegated  regulation  on  product  oversight  and  governance  require 
manufacturers  of  IBIPs  to  assess  whether  their  products  offer  value  for  money  in  line  with  needs, 
objectives and characteristics of their target market. 

The value for money (“VfM”) assessment would therefore represent a refinement of existing rules but 
including specified criteria and reference to benchmarks. The main adjustment costs resulting from this 
process would concern adjustment of processes to incorporate VfM aspects, involving one-off changes 
to IT systems. As calculations can be automated, this option would also not be expected to generate 
significant additional ongoing adjustment costs. The adjustment cost of the assessment against VfM 
benchmarks would be limited as most of the data and IT infrastructure are already in place in order to 
comply with existing disclosure requirements e.g. under the PRIIPs framework and existing product 
governance rules.  

However, reporting to supervisors will entail additional administrative costs. The magnitude of these 
administrative costs will depend to a significant extent on how VfM is ultimately implemented, and the 
degree of granularity required. It will also depend in part on possible synergies with the supervisory 

171 For details, see Annex 3. Given the narrower scope in option 2, the benefits would be a proportion of the broader 
benchmark. Assumptions are based on the proportion of manufacturers’ revenues relative to distributors’. These numbers, 
however, must be considered in light of the validity of the assumptions and are strongly driven by observations in two 
Member States. 
172 Commission delegated directive (EU) 2017/593 of 7 April 2016 supplementing Directive 2014/65/EU of the European 
Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product 
governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-
monetary benefits Directive  
173 Commission Delegated Regulation (EU) 2017/2358 of 21 September 2017 supplementing Directive (EU) 2016/97 of 
the European Parliament and of the Council with regard to product oversight and governance requirements for insurance 
undertakings and insurance distributors, OJ L 341, 20.12.2017, page 1. 
174 EIOPA Supervisory Statement on “Assessment of value for money of unit-linked insurance products under product 
oversight and governance”  

53 

 
                                                           
reporting  introduced  by  the  AIFMD  review175.  Estimates  (but  which  do  not  take  account  of  such 
synergies) point to possible one-off costs for supervisory reporting about  €60 million (range €13 to 
€252) million and ongoing annual costs of €2.3-22.6 million. The reason for this wide range is due to 
the uncertainty  related to the underlying assumptions.176   ESMA and  EIOPA would be expected to 
refine these cost figures as part of their mandate to develop VfM benchmarks.  

ESMA and EIOPA would be allowed sufficient time to develop the relevant benchmarks as part of 
their existing regulatory roles. Any additional burdens should also be seen against the background of 
cost savings that ESMA and EIOPA will achieve (e.g. as a result of more targeted supervision, the 
availability  of  more  granular  data  for  their  cost  and  performance  reports,  more  tools  to  identify 
problems in specific sectors and in relation to specific products, etc.). It can be expected that additional 
costs for NCAs to receive the relevant information from product manufacturers and pass it on to the 
ESAs would likely be very limited. Some NCAs may need to intensify supervisory efforts to police the 
more rigorous rules, and staff would need to acquire new skills via training. 

Overall Assessment: Effectiveness, efficiency, and coherence 

3. 
Option 2 (limited to the product manufacturing level) would be an effective means to improve the cost 
effectiveness of retail investment products. It would be achieved via relatively limited amendments to 
existing  product  governance  rules  which  would  not  entail  substantial  additional  costs  for  product 
manufacturers. The elaboration of benchmarks to facilitate comparison with market standards would 
facilitate their tasks but would require additional resources for ESMA and EIOPA.   

It  would  be  efficient,  as  the  benchmarks  developed  and  provided  by  the  ESAs  would  give 
manufacturers an objective standard against which to measure their products in the product approval 
process and facilitate their task.   

A common approach developed at EU level would contribute to the further integration of EU capital 
markets and thereby increase coherence. 

Affected groups of stakeholders 

4. 
Retail investors 

Retail  investors  would  benefit  from  a  higher  level  of  protection,  in  particular  as  a  consequence  of 
improvements at the product design stage that could eliminate poor value investment products from the 
market, ensure better alignment of costs of products to a measure of their quality (i.e. relation between 
return expectations and level of risk), as well as increased market efficiency due to the introduction of 
benchmarks that enabled easier comparisons against market standards.  

Industry 

Manufacturers would benefit from greater clarity as to what is expected under product governance rules 
(in the form of criteria and benchmarks) detailing how to assess whether their products are designed 
appropriately so as to meet the target market's needs and the supervisory expectations of their national 
authorities.  They  would  need  to  adjust  their  processes  and  would  no  longer  be  able  to  put  into  the 
market products that offered poor value for money. That would prevent them from incorporating high 
fees  into  products  if  they  could  not  be  justified.  Distributors  would  be  limited  to  selling  only  cost-
effective  products,  thereby  enhancing  the  attractiveness  of  product  offerings  in  the  market.  Some 
transitional costs would be borne by the industry, but these would be expected to be marginal. Firms 

175 Proposal for a directive of the European Parliament and of the Council amending Directives 2011/61/EU and 
2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary 
and custody services and loan origination by alternative investment funds, COM/2021/721 final  
176 See Annex 14. 

54 

 
                                                           
that were profiting from excessive fees would see revenue streams reduced. This could lead to some 
consolidation in the asset management industry. Currently, there are many manufacturers of investment 
products with a low average fund size, in which implies further potential to achieve economies of scale 
and a more efficient provision of financial products. A reduction in investment opportunities for retail 
investors appears a very unlikely consequence of increased competitive pressure on the manufacturers 
of  investment  products.  Clearer  standards  would  make  the  task  of  supervision  more  effective  and 
straightforward. 

Supervisors 

NCAs will benefit from greater clarity as to how the supervision of costs should be applied. The new 
VfM provisions will equip NCAs with a tool, based on access to sufficiently broad-ranging data on 
costs of products, which will enable them to make evidence-based assessments. The burden of proof 
will be transferred from NCAs onto manufacturers who will need to justify deviations in their costs 
from  relevant  benchmarks.  Supervisors  will  collect  data  on  costs  from  manufacturers  to  pass  on, 
possibly in aggregated form, to ESMA or EIOPA. 

Stakeholder views: consumer organisations have broadly welcomed the idea of a strengthened VfM 
approach  and  set  out  clear  ideas  on  how  that  might  be  framed  in  the  legislation.  This  included 
developing  market  benchmarks  against  which  the  VfM  prospect  of  proposed  products  might  be 
compared  (as  opposed  to  comparing  only  to  the  distributor’s  portfolio).  All  consulted  consumer 
organisations recommended that VfM should be extended to all product categories, with all products 
falling in scope. Doubts were nonetheless expressed by some consumer organisations that the impact 
of any measure would be dependent on the extent of enforcement. Industry representatives had more 
mixed reactions and were generally more sceptical about how a VfM approach might be framed and 
how it might be able to capture a notion of value across a broad range of very different products.  

Option 3 – strengthened product governance rules for manufacturers and distributors  

Benefits 

1. 
Option 3, in addition to the benefits as described under Option 2, would also oblige distributors to focus 
more clearly on identifying the most cost-effective products for their clients. It would ensure that the 
distribution costs177 borne by the retail client would also be taken into account in the VfM assessment, 
together with the product costs. Distribution costs are important for the VfM assessment, as they are 
among the main cost drivers for retail products. For example, EIOPA found that distribution fees were 
among the main cost drivers for the most expensive retail insurance products (unit-linked and hybrid 
products)178. 

Distributors  would  be  helped  to  assess  VfM  by  the  availability  of  benchmarks  and  criteria  for  the 
assessment, as well as being able to base their assessments on information provided to them by product 
manufacturers.  The  available  benchmarks,  which  would  include  distribution  costs,  and  the  need  to 
document how products approved for distribution performed against these benchmarks, would ensure 
an additional level of accountability on the part of distributors.  

It  is  expected  that  this  option,  involving  the  application  of  VfM  assessments  by  both  product 
manufacturers and distributors, would reduce the risk of poor investment outcomes for retail investors.   

The introduction of benchmarks would limit the pricing power of providers and force inferior providers 
to adjust, either by offering higher returns or exiting the market. This would lift average returns that 

177 i.e. the costs related to the service provided by the distributor. 
178 EIOPA’s Costs and Past Performance Report – 2022, page 4. 

55 

 
                                                           
 
retail investors can earn and reduce their likelihood of encountering frustrating investment experiences. 
The exit of inefficient providers is unlikely to cause a reduction in the supply of products and remaining 
competitors  should  be  able  to  absorb  additional  demand,  as  production  costs  of  financial  products 
increase only marginally with the number of products offered and since cross-border providers might 
be keen to expand business to other Member States.  

Convergence  scenarios  can  indicate  the  likely  magnitude  of  the  welfare  gains  stemming  from  the 
introduction of Value for Money benchmarks. At the onset, it should be noted that the numbers are 
strongly dependent on the assumptions made. For the below scenario, it was assumed that the net return 
of investments in investment funds and insurance unit linked products converges to the EU average in 
all  those  Member  States  in  which  the  return  has  been  below  this  average.  The  assumption  is  that 
increased competition resulting from benchmarks would close a certain proportion of the difference 
between the yield observed in these Member States and the EU average. Since there is no precedent to 
determine the proportion, scenarios were calculated with assumptions ranging from 10% to 50%. A 
less conservative approach would be to assume that returns converge to best practices, i.e. highest in 
the EU. 

ESMA’s and EIOPA’s cost and performance reports provide comparable information on the current 
return of these products. Both ESMA and EIOPA however caution on data gaps and methodological 
differences that should condition our assumptions. Since ESMA’s and EIOPA’s reports do not indicate 
the  extent  to  which  retail  investors  actually  purchase  these  products,  a  second  complimentary  data 
source was used, namely information on households’ investment income from investment funds and 
insurance policies from the sectoral non-financial accounts. Using the latest observations for the returns 
and combining these assumed increases in returns to the EU average with the value of investment funds 
and life insurance products held by households in the EU Member States, allows us to design scenarios 
that quantify the welfare gains in monetary terms under different assumptions. The scenarios suggest 
that benefits could  reach EUR 2.8-13.8 billion for investment funds, and between EUR 1.7 and 8.4 
billion for insurance products per annum, once convergence is accomplished. 

Given the more limited scope of option 2 compared to option 3, monetary benefits under option 2 would 
be a share of those under option 3 and would depend on the extent to which revenues from the sales of 
the investment products go to either the manufacturer of the product or the distributor. A survey of 
distribution costs in the funds sector undertaken by ESMA in 2020 documented sizeable heterogeneity 
in this share, varying from at least 50% and up to 80%179. EIOPA’s report points to a much lower share 
of distribution costs for insurance investment products, but the lack of transparency around distribution 
costs and in particular payments of inducements, make estimates extremely difficult. The majority of 
observations for unit-linked products ranged from 10 to 30%.180 Assuming that the revenue sharing is 
proportional to the cost shares, a benchmarking of manufacturing could reach a maximum share of 50% 
of the benefits of option 3 for investment funds and about 90% of the benefits for insurance products. 
This would amount to monetary benefits of between EUR 1.4 and 6.9 billion for fund products and 1.5 
to 7.6 billion for insurance products. 

Costs 

2. 
In addition to the costs for manufacturers, as outlined under option 2, there would also be costs for 
distributors. Article 10 of the MiFID delegated regulation already contains a number of obligations on 
distributors to ensure that the products and services that they recommend are compatible with the needs, 
characteristics  and  objectives  of  an  identified  target  market.    Article  25  IDD  and  the  Delegated 
Regulation  on  product  oversight  and  governance  provides  similar  requirements  for  insurance 
distributors, who must establish and regularly review product distribution arrangements to ensure that 

179 ESMA cost and performance report 2021. 
180 EIOPA cost and past performances 2022, Figure 25. 

56 

 
                                                           
the objectives, interests and characteristics of customers are duly taken into account. They must also 
feed information back to the manufacturer in case of problems. The VfM assessment would represent 
an  additional  element  to  the  assessment  that  distributors  already  need  to  undertake.  Beyond  the 
adjustment costs, additional ongoing administrative costs would not be expected to be significant, as 
this  process  could  take place  at  a  central  level  (e.g.  the  compliance  department),  and  as  costs  must 
already be disclosed to retail clients and are hence known by distributors. Distributors would benefit 
from  the  availability  of  information  on  product  costs  that  they  would  receive  from  product 
manufacturers, and from the possibility to base their assessments on objective available benchmarks. 
Some  additional  administrative  costs  would,  however,  result  from  the  additional  reporting  on  their 
distribution  costs  (as  outlined  in  option  2).  The  cost  relating  to  additional  reporting  should  not  be 
significant, as relevant cost data should already be known and available to distributors in accordance 
with existing MiFID and IDD rules, where such data must be disclosed to retail investors.  

Some NCAs may need to intensify supervisory efforts to police the more rigorous rules, and staff would 
need to acquire new skills via staff training. This option would not significantly increase the work for 
supervisors by comparison to option 2. It would allow supervisory action to focus more on distributors. 

For  the  ESAs,  additional  resources  may  be  required  in  particular  to  develop  the  methodology  and 
monitor the market. 

Overall Assessment: effectiveness, efficiency and coherence 

3. 
Option 3 would be a more effective means to improve cost effectiveness of investment products because 
it addresses both the product manufacturing and distribution stages. In so doing, it would ensure that 
investment products offer value for money by design, as well as providing a full overview of the cost 
effectiveness  of  investment  products  sold  to  clients,  combining  the  product  costs  with  the  costs  of 
distribution.   

Both options 2 and 3 would be equally efficient, in particular due to the objective standard provided in 
the form of benchmarks compiled by the ESAs, against which a value for money assessment can be 
made.  The  development  of  such  benchmarks  should  be  done  in  line  with  the  principle  of 
proportionality, to avoid disproportionate adjustment and administrative costs on smaller distributors. 

Similar  to  option  2,  a  common  approach  developed  at  EU  level  would  contribute  to  the  further 
integration of capital markets. Given that the VfM rules would be introduced for retail products across 
the different sectors, both options would be coherent. 

Affected groups of stakeholders 

4. 
Retail investors 

Retail investors would benefit from a higher level of protection, in particular as distributors would be 
obliged to factor in the VfM prospect of the distributed products (in clearer terms than under current 
rules). As a consequence, retail investors should no longer purchase products that offer poor value for 
money, and the obligation to compare products against benchmarks should improve market efficiency.  

Industry 

The implications for product manufacturers would be the same as described under option 2. Distributors 
would be limited to selling only cost-effective products, thereby enhancing the attractiveness of product 
offerings  in  the  market.  They  would  be  required  to  undertake  a  VfM  assessment  in  addition  to  the 
existing obligations under product  governance rules. Some transitional costs would be borne by the 
industry, but these would be expected to be marginal. Firms that were profiting from excessive fees 
would see revenue streams reduced. Both manufacturers and distributors of investment products could 
be  subject  to  more  intense  competitive  pressure.  This  is  likely  to  intensify  the  consolidation  and 
57 

 
adjustment pressure on distributors of financial products, complementing the competitive pressure from 
the growth of digital distribution channels. Given low entry barriers and technical progress, it seems 
very unlikely that the intensification of consolidation pressure could lead to a reduction in the supply 
of investment products to retail investors. Clearer standards would make the task of supervision, and 
also compliance, more effective and straightforward. 

Supervisors 

NCAs will benefit from greater clarity as to how the supervision of costs should be applied. The new 
VfM provisions will equip NCAs with a tool, based on access to sufficiently broad-ranging data on 
costs of products, which will enable them to make evidence-based assessments. The burden of proof 
will be transferred from NCAs onto manufacturers who will need to justify deviations in their costs 
from relevant benchmarks Supervisors will collect data on costs from manufacturers and distributors 
to pass on, possibly in aggregated form, to ESMA or EIOPA.  

Stakeholder  views:  Consumer  organisations  stressed  the  importance  of  ensuring  that  intermediaries 
should  be  obliged  to  compare  products  with  equivalent  products  offered  in  the  market.  They  were 
favourable to the use of benchmarks, noting that a market-wide benchmark would ensure clarity with 
respect to product comparisons should be made. This would enhance the efficiency of the market. Most 
consulted industry organisations expressed scepticism with respect to the introduction of VfM duties 
for distributors, as they lacked the necessary data. They were in particular opposed to an assessment of 
VfM and disclosure to the client at the advice stage (i.e. the discarded sub-option 2), on account of the 
potential  for  more  information  to  confuse  clients  and  as  the  VfM  test  would  be  unsuited  for  direct 
communication to clients.  

Summary - Choice of the preferred option 

Option 2, strengthened product governance rules applied to only product manufacturers, would be an 
effective measure to tackle the problem of excessive cost and poor value for retail investors. While it 
would focus on the way products are designed at the outset and require manufacturers to make costs 
transparent  and  consider  how  each  cost  element  can  be  considered  justified  and  proportionate  and 
provide  value  to  the  intended  target  market,  this  option  would  not  address  the  way  products  were 
actually distributed to retail investors.  

Option 3, which would include the improvements to the product approval process set out in option 2, 
and  additionally  require  distributors,  as  part  of  their  product  governance  duties,  to  make  a  similar 
assessment that included additional distribution costs, would help ensure that products are offered only 
to an appropriate client  base. This would ensure that costs of distribution that are not known to  the 
product  manufacturer  would  also  be  included.  As  in  the  case  of  Option  2,  the  value  for  money 
assessments would require the development of clear criteria and benchmarks against which the notion 
of “value” can be measured and compared to market standards. The compilation of benchmarks would 
rely on access to data relating to various  cost components that are included in investment products, 
which may necessitate additional data reporting from firms to supervisors, wherever possible on the 
basis  of  data  that  is  already  known  by  firms  (e.g.  due  to  existing  disclosure  obligations).  The 
development of these benchmarks should avoid imposing disproportionate costs on smaller distributors.  

The more comprehensive approach – which is more effective than Option 2 – that includes the costs of 
distribution, set out in option 3, is the preferred option. 

Effectiveness 

(SO1) 

(SO2) 

(SO3) 

Efficiency  Coherence 

58 

 
 
 
Option 1 - Do nothing  0 

Option  2  –  VfM  for 
manufacturers 

Option  3  –  VfM  for 
manufacturers 
and 
distributors 

0 

0 

0 

+ 

0 

+ 

0 

++ 

++ 

++ 

++ 

0 

++ 

++ 

7. 

PREFERRED COMBINATION OF OPTIONS 

The  selection  of  certain  options  has  been  made  with  the  aim  of  maximising  the  effectiveness  in 
addressing the specific objective related to a problem, while limiting the costs and potential negative 
side-effects on other specific objectives.  

The preferred combination of options is as follows: 

Problem driver 

Preferred Option  

to 
Information  provided 
investors 
is  not  always 
useful  or  relevant  for  their 
decision-making process 

Targeted  changes  to  disclosure 
rules  to  improve  their  relevance 
for retail investors (Option 2) 

influenced 

Retail  investors  tend  to  be 
by 
unduly 
marketing 
enticing 
through 
communications 
and  
digital 
marketing 
misleading 
practices  

channels 

deficiencies 

Targeted  changes 
to  address 
in 
information 
marketing  communications  and 
lack of clarity as to the concept of 
marketing 
communication 
(Option 3) 

Which  specific  objective 
met?  

is 

Improve 

SO1: 
information 
provided  to  investors  and  their 
take  well-informed 
to 
ability 
investment decisions 

Improve 

SO1: 
information 
provided  to  investors  and  their 
ability 
take  well-informed 
to 
investment decisions 

the 

payment 

Conflicts  of  interest  caused 
of 
by 
negatively 
inducements 
affect 
of 
the 
investment products offered 
and investment advice  

quality 

A ban on inducements (Option 3)  SO2:  Better  align 

intermediaries 

interests 
and 

between 
investors. 

retail 

investment 
Some 
products 
incorporate 
unjustifiably  high  levels  of 
costs  and/or  do  not  offer 
value to retail investors 

rules 

product 
Strengthening 
governance 
for 
manufacturers  and  distributors 
with  focus  on  costs,  also  by 
requiring comparison of products 
to 
relevant  benchmarks  and 
justification  of  any  departures 
from the benchmarks (Option 3). 

SO3: Ensure that retail investors 
are 
cost-effective 
products. 

offered 

The  combination  of  preferred  options  was  designed  to  address  the  two  key  identified  problems 
(informational deficiencies and shortcomings in the manufacturing and distribution processes). Retail 

59 

 
 
 
 
investors  should  benefit  from  improved  disclosures,  in  the  form  of  more  targeted  and  engaging 
information  aimed  at  facilitating  decision-making,  while  being  better  protected  against  increasing 
exposure to misleading marketing. At the same time, they should be faced with a choice of products 
that offer them better value for money and advised in ways that help them achieve better investment 
outcomes due to the removal of conflicts of interest in the advice process.  

During the preparation of this initiative, various alternative combinations of options were considered. 
In particular, they assessed whether a package of measures that did not include an inducement ban, but 
rather increased transparency around the payment of inducements might be effective. Such an approach 
would have also included a stronger emphasis on disclosures (e.g. cost disclosures) as well as a stronger 
suitability test (e.g. including an obligation on distributors of retail investment products to draw up a 
personal investment plan with an asset allocation strategy), in addition to a Value for Money option 
with stricter obligations for distributors. They concluded, however, that as long as conflicts of interest 
remained  in  place  due  to  the  continued  payment  of  inducements,  such  a  package  of  measures  was 
unlikely to be as effective in helping retail investors achieve optimal outcomes from their investments. 
Therefore it was decided that the preferred option should feature a full inducement ban to eliminate 
conflicts  of  interest,  which  was  assessed  to  be  the  most  effective  way  to  address  a  fundamental 
shortcoming.   

The “flanking measures” (see section 5.4 and corresponding annexes) help to address the identified 
problems. They are an intrinsic part of the overall package under the preferred option. The measures 
are valuable as stand-alone measures but also amplify the effect of the main measures via synergies, 
for example:  

 

Increasing  the  level  of  financial  literacy  empowers  investors  to  deal  with  investment 
information,  assess  the  value  their  investment  brings  to  them  and  take  sound  investment 
decisions.  By  promoting  efforts  to  enhance  financial  literacy,  the  proposed  disclosure 
measures could also become more effective. The financial literacy measures also complement 
the proposed measures  on digital  marketing because more literate investors will be better at 
identifying bogus or poor-quality investment offers. 

  The possibility for investors with appropriate knowledge, experience and ability to bear losses, 
to  request  the  status  of  ‘professional  investor’  as  proposed  in  the  measures  on  investor 
categorisation will allow these investors to obtain more suitable and cost-efficient investment 
portfolios that match their profile. In addition, they would receive more targeted information, 
which fits in the aim of making disclosures more relevant for retail investors. 

  The measures on enhanced suitability and appropriateness assessments should improve the 
quality of advice given to retail investors, or when no advice is requested, the appropriateness 
assessment should provide a minimum protection. The enhanced appropriateness assessment 
would include stronger warnings to help clients avoid investments in highly complex and often 
costly products that are not compatible with their financial capacity and ability to bear losses. 
These measures would improve the advice given to investors, complementing the measures to 
tackle the conflicts of interest stemming from inducements. In addition, they contribute to an 
investment environment in which retail investors receive value for money. Measures aimed at 
raising the standards of professional qualifications across the EU should further support the 
efforts to improve the quality of investment advice and increase trust.  

  The various measures aimed at enhancing supervisory enforcement should result in a better 
general  retail  investment  environment  and  strengthen  and  complement  different  specific 
measures across the preferred option package. For example, following the proposed measures 
NCAs would be in a better position to more rapidly address aggressive marketing practices and 
impose risk warnings. In addition, strengthening rules to facilitate complaints handling in cross-
border situations, for instance, should have a positive effect on the level of trust in the retail 
investment market. 

60 

 
 
Economic impacts and impacts on SMEs 

The package of measures assessed in this impact assessment would enhance retail investor protection 
by addressing two types of market failure that determine the relationship between retail investors and 
providers  of  financial  services:  asymmetric  information  and  misaligned  incentives  (conflicts  of 
interests).  Enhancing  disclosures  and  oversight  on  marketing  communications  would  reduce  the 
information costs for retail investors that accrue in the selection of financial distributors and products. 
Value for Money benchmarks would have a comparable effect on investors’ search and information 
costs, as they would provide them with information on the value of investment products.  Investors’ 
capacity to benefit from better disclosure and benchmarks would be improved by flanking measures 
that  increase  their  financial  literacy  and  access  to  high-quality  advice,  consistent  with  findings  in 
economic literature that the better informed and educated the retail investors are, the better they are 
able to  make use of advice and benefit in terms of improved investment performance181. 

The  relationship  between  disclosure  and  retail  investors’  financial  literacy  is  self-reinforcing.  An 
improvement  in  financial  literacy  enables  investors  to  make  better  use  of  the  information  at  their 
disposal to avoid financial products that do not correspond to their needs. Without useful information, 
however, better financial education may on the contrary actually reduce the confidence of investors to 
make good choices, with the likely outcome of even higher search and information costs. Moreover, 
since financial literacy goes hand-in-hand with some investors becoming overconfident182, efforts to 
increase financial education without at the same time introducing measures to improve the information 
set available to investors may even lead to an increase in cases of mis-selling. The obligation to subject 
retail investors to a suitability assessment or appropriateness test addresses detrimental effects from 
investors  becoming  over-confident,  implying  that  they  would  take  on  more  importance  the  better 
informed and more literate retail investors become. 

Measures to reduce information asymmetry would not be sufficient to address the issue of conflicting 
interests. Academics have suggested that under specific theoretical conditions, more information could 
even make the investor worse off183. Measures that address conflicts of interest reduce the importance 
of trust and hence the need for both investors and distributors to develop longer-term relationships. For 
example,  a  ban  on  inducements  paid  by  manufacturers  to  distributors  could  reduce  reluctance  of 
investors to interact with other distributors or to take advice from them. Value for Money benchmarks 
improve investors’ access to more cost efficient products. Standards on the qualification of financial 
advisors would allow investors to change their advisor more frequently. Likewise, trust in supervisory 
enforcement  would  provide  reassurance  to  investors  that  they  receive  a  certain  level  of  advice  and 
guidance independent from which specific supplier they approach. 

Overall,  better  investor  protection  would  translate  into  fewer  incidents  of  mis-selling  and  lead  to  a 
better selection of investment products. It would also enhance transparency around costs and the ESG 
profile  of  investment  products  and  improve  investors’  ability  to  understand  and  select  between 
investment  products  and  ultimately  could  improve  the  level  of  trust  of  retail  investors.  Multiple 
measures included in the preferred options would improve market efficiency and innovation and jointly 
contribute to a shift towards cheaper and higher quality investment products. 

181 See Bucher-Koenen, T. and J. Koenen, ‚Do Seemingly Smarter consumers get better Advice’, Max-Planck Institute for 
Social Law and Social Policy, MEA Discussion Paper No 01-2015, Belofatto, A. et al., Subjective financial literacy and 
retail investors’ behaviour, Journal of Banking and Finance, Vol. 92 (2018), pp. 168-171, Prasad, S. et al. Influence of 
financial literacy on retail investors’ decisions in relation to return, risk and market analysis,  International Journal of 
Finance and Economics, Vol. 26 (8), 2020. 
182 Overconfidence seems to depress the benefits of financial investment, see Gaudecker, H.-M., ‘How Does Household 
Portfolio Diversification Vary with Financial Literacy and Financial Advice?, Journal of Finance, Vol 70, April 2015, pp. 
489-507. 
183 This would be the case if the investors learn that they have no alternative to the offer. 

61 

 
                                                           
Higher trust levels might also entice population groups that had not yet invested to consider reallocating 
their financial wealth from both traditional savings instruments or possibly more speculative and risky 
instruments  towards  well-regulated  retail  investment  products.  As  a  consequence,  both  new  and 
existing investors would stand to benefit from higher long-term returns on their financial assets, better 
protection against inflation and better diversification of their wealth. This also would help consumers 
accumulate capital for their retirement and other life objectives.   

The combination of adjustment costs, reduced pricing power and overall more competitive pressure are 
likely to lead to a decline in financial firms’ profit margins. The combined effect of the policy measures 
would be a redistribution of rents from financial corporations to the household sector and, for those 
cases where financial firms need to upgrade IT and skills of staff to comply with new requirements, the 
transformation of their profits into higher revenues for suppliers of IT and professional training. The 
comparison of the estimates of benefits and costs, however, suggest that the net welfare increase will 
be positive. 

Table: Benefits and costs for policy measures where it was possible to estimate numbers, in 
EUR184 

Disclosure 
Inducement ban 
Value for Money 
Suitability/appropriateness 
tests 

Benefits p.a. 
N/A 
5-6 billion 
4.4 to 22 billion185 
N/A 

One off cost 
19-67.5 million 
14 - 15 billion 
13-252 million 
12.5-48.5 million  7.1 to 19.1 million 

Ongoing costs 
250 million 
Not significant 
2.3-22.6 million 

The above numbers assume that the investor base remains constant. Firms would benefit from improved 
consumer protection if more symmetric distribution of information and better alignment of incentives 
succeeds  in  fostering  investor  participation.  The  available  data  suggests  that  about  a  quarter  of  EU 
households hold investment products, while three quarters do not. When asked in the Eurobarometer 
survey, why they did not invest, about half responded that they had not the financial means to do so. 
The  remaining  respondents,  that  would  extrapolate  to  around  70  million  households,  quoted  other 
obstacles,  to  which  the  policy  measures  analysed  in  this  impact  assessment  would  contribute  to 
overcoming.  Measures  to  improve  information  disclosure  and  financial  literacy  could  foster 
participation of households that had not invested because they considered investment as too complex. 
Aligning  incentives  through  the  inducement  ban,  improving  the  quality  of  advice  and  stronger 
supervisory  enforcement  could  contribute  to  unblocking  reluctance  of  some  households  that  are 
concerned about risks. Availability of more cost-efficient products resulting from the new Value for 
Money approach could convince some of those households that refrained from investment because of 
too  low returns. Although the results from  the Eurobarometer allow an estimation  of how large the 
untapped  retail  investor  base  might  be,  the  impact  of  the  measures  on  higher  investor  participation 
cannot be quantified with any confidence, since there are no good coefficients available from academic 
research to do so. 

184 The estimates are based on numerous assumptions, which are detailed in the Annexes. The wide ranges are due to the 
lack of data at sufficient granularity and the uncertainty surrounding several critical parameters, which were necessary to 
undertake the estimates. 
185 The range depends on assumptions about the effectiveness of convergence pressure, see Annex 14. Since convergence 
pressure depends also on the effectiveness of the other policy measures, the benefits estimated for Value for Money 
encompass those from the other measures and should not be added to those. This estimate includes investment funds and 
insurance-based investment products. 

62 

 
 
 
                                                           
Table: Reasons for non-investment and policy measures that could impact on them 

Reasons  given  why  households 
do not invest, EB* 

of 
Share 
responses  in 
%, EB* 

Households 
concerned 
million** 

in 

Policy measures that could impact 
on these reasons 

I do not have sufficient money to 
invest 

I do not know how to invest or find 
it too complex 

I  am  not  confident  that  I  will 
receive  sufficient  returns  on  my 
investment 

47.1 

14.0 

68.0 

20.2 

15.0 

21.7 

I am concerned about the risks 

20.9 

30.2 

I do not trust investment advice 

12.3 

17.8 

N/A 

Information  disclosure, 
literacy 

financial 

Value for Money, ban on inducement, 
investor categorisation 

Information  disclosure,  suitability 
test, 
assessment/appropriateness 
supervisory enforcement 

communication, 

Marketing 
suitability 
assessment/appropriateness 
supervisory 
qualification of advisors 

test, 
enforcement, 

Notes: * EB := Eurobarometer No 509, 2022; multiple replies were possible. ** 26% of the respondents to the 
Eurobarometer survey indicated they were holding investment products. The basis for these questions were those 
that replied they did not hold an investment product. These shares were multiplied with 145 million households 
in the EU that did not hold investment products (out of 195 million total households in the EU).  

Any resulting increase in retail investor participation would also have implications for the size of the 
EU  capital  market  investor  base:  the  resulting  scale  effects  would  contribute  to  making  EU  capital 
markets  more  efficient  and  attractive.  Over  time,  corporations  might  benefit  from  more  access  to 
funding,  reduced bank dependency and new restructuring opportunities allowing them to adapt  and 
grow.  

The  problems  this  impact  assessment  aims  to  address  occur  throughout  the  market.  The  proposed 
measures,  such  as  the  ban  on  inducement,  therefore  apply  to  all  relevant  active  intermediaries, 
independent of their size. The measures are expected to contribute to a more equitable and competitive 
market  in  which  those  intermediaries,  whether  large  or  small,  that  offer  (provide)  good  value-for-
money products (services) can thrive.  

The transition from a commission-based to a fee-based model will lead to temporary costs for large 
firms  and  SMEs  but  might  also  accelerate  the  development  of  alternative  (digital)  sale  channels  or 
services and encourage innovation.  The regulatory changes might support the ongoing trend towards 
increased  consolidation,  depending  on  industry  dynamics186.Regarding  the  partial  ban,  the  same 
considerations would likely apply to those financial service providers which are SMEs.  

Adjustment costs and other compliance costs are unavoidable, for instance to implement the Value-for-
Money framework but are considered to be reasonable in view of the benefits they will bring to all 
stakeholders187. Fulfilment of any additional reporting requirements188 should, to the extent feasible, 

186 Evidence from the Netherlands shows that since the introduction of the ban on inducements, the decline in the number 
of self-employed financial advisors has ranged between 2% and 4.4% per year. However, that is in line with the observed 
trend towards increased consolidation in the sector since the global financial crisis. 
187 E.g. investors will be able to reach better investment decision and access to more cost-effective products and unbiased 
advice. Intermediaries can compete in a more competitive and equitable business environment. Increased clarity of rules 
reduces compliance costs for intermediaries and supervisory costs. 
188 See mandate to the ESAs to define detailed measures at level 2, subject to further assessment by the ESAs. The ESAs 
should consider specifically the impact on and ways to alleviate the burden on small firms. 

63 

 
                                                           
be  based  on  already  reported  or  existing  data  and  collected  in  the  most  efficient  way  in  order  to 
minimize administrative burden for large and small entities, which will be explicitly requested in the 
Level 2 empowerments of the ESAs.  

The overall benefits and costs of this initiative are summarised in Annex 3.   

External impacts 

This initiative would not have any significant external impacts. Financial advisors and other entities 
from third countries may only be affected if they do business in the EU and in the same way as their 
EU-domiciled competitors.  

Impact on environmental and social factors, fundamental rights and on Sustainable Development 
Goals (SDGs) 

This initiative can be expected to have a slightly positive impact on environmental and social factors, 
notably though the inclusion of an ESG dashboard in PRIIPs key information documents. This would 
contribute to greater visibility of environmental and social characteristics of investment products for 
retail  investors  and  could  lead  indirectly  to  greater  use  of  such  information  when  comparing  and 
selecting products. This measure would hence contribute positively to multiple SDGs and notably to 
SDG no. 13.  

The overall initiative would indirectly contribute to SDG no. 8 – decent work and economic growth – 
as it would shift incentives to favour the interests of retail investors and over time contribute to their 
greater participation in capital markets. Further detail on the impact on SDGs is included in Annex 3. 
No potential negative impacts on fundamental rights have been identified.  

Digital by default  

This  initiative  can  be  expected  to  have  slightly  positive  impacts  on  the  promotion  of  digitalisation, 
notably  due  to  the  adaptation  of  PRIIPs  key  information  documents  to  the  digital  age  by  enabling 
greater use of layering and adapting PRIIPs key information documents to be compatible with digital 
formats and use on smartphones. Furthermore, the ban on inducements could contribute to a digital 
shift in investment product distribution, such as greater use of robo-advice or direct digital marketing.   

Application of the ‘one in, one out’ approach and REFIT (simplification and improved efficiency) 

With regard to cost savings and simplification, the main objective of the strategy is to enhance retail 
investor protection; any assessment of its potential for simplification and burden reduction should not 
compromise this objective. Moreover, the Evaluation (Annex 11) has concluded that overall, the retail 
investment protection framework does not generate high costs (especially administrative costs) for the 
financial industry. Hence the potential for simplification is limited, even as the team has assessed it and 
identified the following measures189 expected to reduce administrative costs (“OUTs” under “one in, 
one out”):  

1. 

Savings  on  existing  requirements  on  inducements190  due  to  the  ban  on  inducements:  A  ban  on 
inducements is considered a more straight-forward solution to the issue of misaligned incentives 
and  would  replace  existing  administrative  obligations.  This  benefit  cannot  be  feasibly 
quantified191.  

189 The latter two are flanking measures assessed in Annex 6 and Annex 8 due to the expected lower impact. 
190 Notably disclosures and quality enhancement / no detriment test. 
191 Any estimations  made by  stakeholders  would be unreliable as the evidence gathered points to a potentially  sizeable 
degree of non-compliance with the existing requirements.  

64 

 
                                                           
2. 

Investor  categorisation:  regulatory  alleviations  for  investors  with  appropriate  knowledge, 
experience, and ability to bear losses. This implies a reduction in information overload for these 
investors and that product manufacturers and distributors would be able to save resources dedicated 
to  assessing  clients’ needs and objectives and providing information to  them. However,  as this 
benefit is expected to affect only a small number of retail investors and to be rather small, it has 
not been quantified in line with the principle of proportionality of analysis. 

Additional administrative costs (“INs” under “one in, one out” offsetting) would arise from supervisory 
reporting  against  the  Value  for  Money  benchmarks  and  changes  to  the  disclosure  rules.  The  new 
obligations  under  Value  for  Money  would  imply  one-off  costs  estimated  approximately  at  €13-252 
million and ongoing costs estimated approximately at €2.3-22.6 million per year (both figures present 
an  EU-wide  total).  Important  practical  specifications  will  be  decided  at  a  later  stage,  as  part  of  a 
mandate to the ESAs, so these estimates are subject to considerable uncertainty. Further assessment of 
these  costs  would  be  made  at  Level  2  by  the  ESAs,  with  the  intention  of  obtaining  more  precise 
estimates.  Only  some  of  the  administrative  costs192  related  to  the  changes  to  disclosure  rules  and 
marketing  communications  could  be  quantified:  these  amount  to  €19-67.5  million  in  one-off  costs. 
None of the other measures are expected to lead to significant administrative cost implications. Other 
costs resulting from this initiative are discussed in Annex 3. Since not all “INs” and “OUTs” could be 
quantified, it is not possible to establish which element would be larger. 

8. 

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

The Commission will monitor how the implementation of the proposals on disclosure and marketing 
communications,  inducements,  and  value  for  money  achieve  the  objectives  set  out  in  this  impact 
assessment.  An  evaluation  of  these  initiatives  will  be  carried  out  five  years  after  its  entry  into 
application. Any externally commissioned study conducted in preparation of the evaluation may also 
assess structural changes in the retail investment and distribution market, including in relation to advice 
and its availability and the proportion of advised to non-advised services, and their relation with the 
above  measures.  Relevant  developments  related  to  the  implementation  of  the  flanking  measures 
described in annex will be also considered193. 

Objectives 

Indicator/  subject  of 
evaluation 

Source of information 

Data 
collected? 

already 

Actor(s) 
responsible 
data collection 

for 

Improve 
information 
to 
provided 
investors  and  their 
ability to take well-
informed 
investment 
decisions 

Based  on  mandate  to 
ESMA and EIOPA  

No 

ESMA and EIPOA 

ESMA  and  EIOPA 
will  be  tasked  with 
the 
monitoring 
effectiveness 
of 
digital disclosures. 

Change in number of 
complaints  regarding 
quality/lack 
of 
information 

ESMA 
monitoring  
EIOPA 
monitoring 

market 

Yes(2) 

ESMA and EIOPA 

market 

192 Although these costs relate to the substantive requirements of the proposal which are necessary for the fulfilment of the 
objective of informing retail investors, they are categorised as administrative costs for “one in, one out” purposes.    
193 Flanking measures are considered to have a less significant and direct impact on achieving the objectives set out in this 
Impact assessment. Monitoring will thus be more general to remain proportionate, especially in cases where data sources 
are  not  readily  available.  Developments  on  financial  literacy  can  be  monitored  via  the  existing  ESAs  repositories  on 
financial education initiatives. Relevant supervisory enforcement developments could be considered through peer reviews. 
65 

 
 
 
                                                           
Evaluation  of  role  of 
disclosure 
take 
to 
well-informed 
investment decisions 

of 
risk 
regarding 

Number 
warnings 
(aggressive) 
marketing 

Evaluation 
of 
investor’s  ability  to 
essential 
discern 
product 
information 
from  new  marketing 
disclosure format 

Emerging  marketing-
related 
trends  and 
risks 

External  study  or  study 
by ESMA and EIOPA 

No 

Commission 
ESMA/EIOPA 

or 

ESMA an EIOPA based 
on info from NCAs 

No 

ESMA and EIOPA 

External  study  or  study 
by ESMA and EIOPA 

No 

Commission 
ESMA/EIOPA 

or 

Based  on  mandate  to 
ESMA and EIOPA(3) 

No 

ESMA and EIOPA 

Better align 
interests between 
intermediaries and 
investors 

Distribution  of  retail 
investment  products 
per investment type 

ESMA and EIOPA cost 
and performance annual 
reports 

Yes 

ESMA and EIPOA 

in 

Change 
total 
number of complaints 
regarding  investment 
portfolio 
advice, 
management 
and 
execution of orders 

Change in number of 
complaints  according 
to firm type 

ESMA 
database 
EIOPA 
monitoring 

ESMA 
database 
EIOPA 
monitoring 

complaints 

Yes(2) 

ESMA and EIOPA 

market 

complaints 

Yes(2) 

ESMA and EIOPA 

market 

Ensure  that  retail 
are 
investors 
offered 
cost-
effective products 

Distribution  of  costs 
and  performance  per 
investment type 

ESMA and EIOPA cost 
and performance annual 
reports 

CMU indicators 

Yes 

ESMA and EIPOA 

in  cost  of 

Change 
value-for-money 
related benchmarks 

Change in number of 
complaints  regarding 
fees and charges 

ESMA and EIOPA 

No 

ESMA and EIOPA 

ESMA 
database 
EIOPA 
monitoring 

complaints 

Yes(2) 

ESMA and EIOPA 

market 

1. 
2. 

For published 2014-16 data, see  ESMA report on Trends, Risk and Vulnerabilities, 2017, No. 1 
ESMA and EIOPA will be tasked to develop guidelines and ensure regular monitoring of how marketing practices 
are changing, including any new emerging risks. 

66 

 
 
 
 
 
 
 
 
67 

 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

Lead DG, Decide Planning/CWP references  

Directorate-General for Financial Stability, Financial Services and Capital Markets Union.  

[PLAN/2021/12340]  

Organisation and timing 

The initiative is included in the Commission Work Programme 2023. Furthermore, the initiative 
covers topics from action points 7 and 8 from the Capital Markets Union action plan194.  

Consultations Inter-service Steering Group (ISSG)  

The first ISSG meeting took place on 27 January 2022 with the attendance of the representatives 
from  the  following  Directorates-General  (DGs)  of  the  European  Commission:  Justice  and 
Consumers;  Competition;  Employment,  Social  Affairs  and  Inclusion;  Taxation  and  Customs 
Union; Trade; Internal Market, Industry, Entrepreneurship and SMEs; Regional and Urban Policy; 
Migration  and  Home  Affairs;  Communication  Networks,  Content  and  Technology;  Structural 
Reform  Support;  Environment;  Research  and  Innovation;  Legal  Service;  Secretariat  General; 
Financial  Stability,  Financial  Services  and  Capital  Markets  Union.  There  were  two  more  ISSG 
meetings that took place on 29 September 2022 and 5 December 2022. 

DG  FISMA  has  considered  the  comments  made  by  DGs  in  the  final  version  of  the  impact 
assessment. In particular, DG FISMA has provided more clarity about the seriousness of some of 
the problems, as well as the links between the flanking measures and the main areas addressed in 
the impact assessment. FISMA has also strengthened the coherence of this impact assessment with 
the evaluation. The analysis of impacts and the preferred option takes account of the views and 
input of different DGs. 

Consultation of the RSB 

The  Impact  Assessment  report  was  examined  by  the  Regulatory  Scrutiny  Board  (RSB)  on  18 
January 2023. The Board gave a positive opinion with reservations on 20 January 2023 following 
which the Commission made changes in order to address the Board’s requests for improvements 
in the final version of the Impact Assessment.  

The  main  areas  in  which  this  Impact  Assessment  was  reinforced  following  the  Board's 
recommendations on the impact assessment are summarised as follows: 

The Board’s  request  to  reinforce the presentation of the scope and scale  of the problem  and its 
effects on the retail financial services ecosystem was addressed by strengthening the text, notably 
by inserting additional data and better explanation of the underlying economic context. Consumer 
detriment  has  been  more  clearly  explained  and  the  description  of  issues  has  been  improved, 
highlighting the need to take urgent action. The presentation of the key policy choices and flanking 
measures  have  been  improved  by  elaborating  and  clarifying  further  on  certain  elements  of  the 
policy options  

194 Communication from the Commission on a Capital Markets Union for people and businesses-new  
action plan, COM(2020)590 final, 24 September 2020. 

68 

 
 
 
 
 
 
 
   
 
                                                           
In addition, the quantitative analysis impact has been improved and the revised text now includes 
additional estimates of the impact of the inducement ban and value for money, explaining where 
necessary  the  limitations  around  quantifying  disclosure  measures.  The  discussion  of  qualitative 
economic effects has been deepened and enlarged, including a clearer explanation of the connection 
to relevant economic concepts and interlinkages with the flanking measures. An SME test has been 
added as additional annex. 

The  overall  presentation  of  the  costs  and  benefits  of  the  preferred  option  package  has  been 
improved. With respect to the flanking measures, the text now includes an additional table setting 
out the flanking measures that are assessed in annex, the problem that they seek to address and the 
objective  they  seek  to  achieve.  The  text  also  includes  an  explanation  as  to  how  the  flanking 
measures interact with preferred options and produce synergy effects. A paragraph has been added 
outlining  an  alternative  combination  of  options  that  was  considered,  which  did  not  include  an 
inducement ban, as well as an explanation as to why this was not taken up. 

Consultation with the Member States  

The Commission held separate meetings with the Government Expert Group on Retail Financial 
Services (GEGRFS) on 3 December 2020, 7 December 2021 and 2 March 2023.  

The views expressed by several Member States at the first meeting included the need for the Retail 
Investment Strategy to be coordinated with other workstreams, in particular on sustainable finance, 
the need for comparability and simplification of information as well as greater cost-efficiency for 
retail  investors.  Investor  protection,  also  in  relation  to  inducements,  and  the  importance  of 
disclosures were also stressed.  

At the second meeting, following a presentation of the preliminary results of the public consultation 
on  the  retail  investment  strategy,  Member  States  expressed  their  support  for  work  on  financial 
literacy, for further efforts to streamline and improve disclosure requirements as well as the need 
to update the existing framework to accommodate digitalisation challenges. Some Member States 
also noted their support for a ban on inducements, while other expressed concerns that access to 
advice should remain available. Member States also  highlighted the need to  address  aggressive 
marketing techniques, and the need to facilitate access to suitable and simple investment products. 

During the third GEGRFS meeting, the Retail investment Strategy was discussed, with a specific 
focus  on  inducements.  In  the  beginning,  representatives  from  both  the  consumer  and  financial 
sector were invited and provided opposing views on the issue of inducements, including a potential 
ban  on  inducements.  In  addition,  the  Dutch  AFM  presented  its  experience  with  the  ban  on 
inducements underlining that the results were positive and the ban achieved its goal of eliminating 
conflicts of interest. The Commission services gave an overview of the Retail investment Strategy. 
During the following discussion, a large majority of Member States expressed concerns about a 
potential impact of a ban on retail investment distribution systems. 

Evidence, sources and quality  

In line with the general principles in the Better Regulation guidelines on the need for evidence-
based impact assessments, this impact assessment is based on the following data and information 
sources: 

1. 

European Commission, Directorate-General for Financial Stability, Financial Services and 
Capital  Markets  Union,  Uličná,  D.,  Vincze,  M.,  Mosoreanu,  M.,  et  al., Disclosure, 

69 

 
 
 
  
 
 
 
 
final 

report, 

Union: 

Office, 

Publications 

inducements, and suitability rules for retail investors study: final report, Publications Office 
the  European  Union,  2022,   https://data.europa.eu/doi/10.2874/647061  (Retail 
of 
investment study) 
European Commission, Directorate-General for Financial Stability, Financial Services and 
Capital  Markets  Union,  Distribution  systems  of  retail  investment  products  across  the 
2018, 
European 
https://data.europa.eu/doi/10.2874/037900  (Study  on  distribution  systems  of  retail 
investment products) 
A new Vision for Europe’s capital markets Final Report of the High Level Forum on the 
Capital Markets Union, June 2020  
Final  Report  on  the  European  Commission  mandate  on  certain  aspects  relating  to  retail 
investor protection, 29 April 2022, ESMA (ESMA advice on retail investor protection)  
Final Report  on technical  advice to the European Commission  regarding  certain  aspects 
relating  to  retail  investor  protection,  29  April  2022,  EIOPA  (EIOPA  advice  on  retail 
investor protection) 
Call for Advice on PRIIPs: ESA advice on the review of the PRIIPs Regulation, 29 April 
2022, Joint Committee of the European Supervisory Authorities (Advice of the ESA joint 
committee on PRIIPs) 
Joint European Supervisory Authority response to the European Commission’s February 
2021 Call for Advice on digital finance and related issues, 31 January 2022 
IOSCO,  ‘Report  on  retail  distribution  and  digitalisation’  Final  report,  The  Board  of  the 
International  Organization  of  Securities  Commissions,  October  2022  (IOSCO  report  on 
retail distribution and digitalisation) 
Publicly available studies, reports, position papers and other relevant documents drawn up 
by private and public stakeholders. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

70 

 
 
 
 
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) 

With a view of developing an EU strategy for retail investors, the Commission launched a number 
of consultations with the objective of gathering stakeholders’ views on how the existing framework 
for retail investments can be improved. The Commission also collected feedback in the course of 
dedicated  workshops  and  interviews  with  stakeholders,  including  industry  representatives  and 
consumer  organisations.  To  obtain  additional  evidence,  moreover,  the  ESAs  were  requested  to 
provide the Commission with their technical advice on the retail investment framework and the 
PRIIPs  Regulation.  This  Annex  provides  an  overview  of  the  feedback  received  to  support  this 
impact assessment.  

1.  Public stakeholder consultation: A Retail Investment Strategy For Europe 

A public consultation on ‘A Retail Investment Strategy For Europe’ was launched by DG FISMA 
on 11 May 2021 to gather views from a broad group of stakeholders on various aspects pertaining 
to retail investments, namely: pre-contractual disclosures (including PRIIPs), quality of advice in 
light  of  current  inducement  practices,  the  suitability  and  appropriateness  assessments,  financial 
literacy,  complexity  of  products,  the  impact  of  increased  digitalisation  of  financial  services, 
investor categorisation, redress, the ESAs’ product intervention powers and sustainable investing. 
The consultation ran until 3 August 2021, and all contributions were submitted online.  

Overview of respondents 

A total of 186 respondents participated in the public consultation. The types of organisations most 
widely  represented  were  business  associations  (59)  and  company/business  organisations  (51), 
together representing 59% of all respondents. Respondents also included 4 consumer organizations 
(2%), 9 NGOs (5%), 17 public authorities (9%), 4 trade unions (2%), 35 citizens (33 from the EU 
and 2 from outside the EU, in total 19%) and 8 classified as ‘others’ (4%).  

The largest group of respondents selected investment management as the sector of belonging (37%, 
58 respondents), followed by banking (35%, 54 respondents), a third group which indicated “other” 
(32%, 49 respondents) and insurance (14%, 26 respondents). Among industry stakeholders only, 
the most represented sectors were investment management (43 or 39%) and banking (also 43 or 
39%), followed by insurance (18 or 16%), market infrastructure (12 or 11%) and a group which 
only indicated “other” (21 or 20%)195.  

The majority of respondents came from the EU (91%, 170 respondents), from 22 Member States. 
The  highest  number  of  respondents  came  from  Germany  (21%,  39  respondents),  followed  by 
France  (14.5%,  27  respondents)  and  Belgium  (12.9%,  24  respondents).  There  were  also  16 
responses (9%) from five countries outside the EU (Australia, Norway, Switzerland, UK and the 
United States). 

Respondents’ feedback to the general questions196 

195 Industry stakeholders could select more than one sector of belonging, hence this sectoral breakdown contains 
overlaps between respondents (e.g. an industry stakeholder may belong to both the banking and insurance sectors 
at the same time).   
196 In this and following paragraphs, percentages of respondents are calculated by dividing the number of 
responding stakeholders expressing a specific view (e.g. agree/disagree) over the total number of respondents to a 
given question. Blank answers were not taken into account.  

71 

 
 
 
                                                           
A majority of respondents (86 out of 150, or 57%, including company/business representatives of 
the banking, insurance and investment management industries, as well as a 9 public authorities) 
were of the view that the current framework sufficiently empowered and protected retail investors. 
53 or 35% were largely of the opposing view, mainly consumer organisations and NGOs, as well 
as 4 national authorities and some company/business representatives of investment management, 
banking and market infrastructure. Similarly, when asked whether existing limitations stemming 
from  retail  investor  protection  rules  were  justified,  a  majority  (89  out  of  149,  or  60%,  mainly 
company/business  representatives  of  banking,  insurance,  investment  management  and  market 
infrastructure), were of the view that limitations were unjustified, whereas 45 or 30%, (including 
consumer organisations, NGOs, some banking and insurance representatives as well as most public 
authorities) defended the limitations.  

A  substantial  majority  of  respondents  (95  out  of  154,  or  62%,  mainly  company/business 
representatives of all participating sectors as well as 7 public authorities) were aware of investment 
products  that  retail  investors  were  prevented  from  buying  due  to  constraints  imposed  by  EU 
regulation, with a number of respondents (predominantly business and company representatives) 
highlighting  areas  where  they  considered  that  the  regulatory  framework  (or  indeed  lack  of 
regulation)  unnecessarily  prevented  retail  investor  participation.  Respondents  also  expressed 
concerns about perception of risk and lack of understanding as some of the most important factors 
that might discourage or prevent retail investment. A majority of respondents (78 out of 142, or 
55%),  including  9  public  authorities  and  company/business  representatives  of  investment 
management, banking and insurance, agreed that investment products were sufficiently available 
to retail investors, although that sentiment was less strongly felt among 29 or 37% of respondents, 
namely consumer organisations, NGOs, and citizens. Business and company respondents from all 
sectors  represented  in  the  consultation  also  strongly  supported  the  view  that  products  were 
competitively priced and offered alongside a sufficient range of competitive products, in contrast 
to the views of consumer organisations, citizens, NGOs and 4 public authorities, who disagreed.  

Almost half of respondents (66 out of 138, or 48%)197 agreed that products were adapted to modern 
digital channels whereas a lower share of respondents (48 out of 137, or 35%)198 agreed that retail 
investment products are sufficiently adapted to ESG criteria. The most supported area where the 
vast  majority  of  respondents  (104  out  of  134,  or  78%),  namely  consumer  organisations, 
company/business representatives from all the sectors participating in the consultation and most 
(i.e.  9)  public  authorities,  saw  scope  for  improvement  was  financial  literacy.  Consumer 
organisations  also  expressed  a  preference  for  improvements  to  disclosure  requirements  and 
inducements as well as quality of advice and complexity of products, whereas public authorities 
gave the highest priority to inducements and quality of advice, disclosure requirements as well as 
financial literacy.  

Financial literacy 

There was overwhelming consensus that increased financial literacy would be beneficial to retail 
investors. A majority of respondents affirmed the positive impact of financial literacy, noting that 
financial literacy helped improve investors’ understanding of financial products, helped investors 
create realistic expectations, and helped them to align investments with their objectives (137 out of 
144 or 95%, 139 out of 143 or 97%, and 138 out of 144 or 96% respectively). Stakeholders’ views 

197 Among which company/business representatives of banking, insurance and investment management as well as 5 
public authorities. 
198 Including representatives from investment management, banking, insurance and market infrastructure and 3 
public authorities. 

72 

 
                                                           
were  also  sought  as  to  which  further  measures  aimed  at  increasing  financial  literacy  might  be 
pursued  at  EU  level.  Respondents  offered  various  suggestions  and  comments,  including  on 
cooperation  and  funding,  the  coordinating  role  of  the  Commission,  the  importance  of  financial 
literacy at school, as well as the effectiveness of financial education and the need for other measures 
in addition to financial literacy to protect retail investors. 

Digital innovation 

A strong majority of respondents (80%) was positive towards an open finance approach, noting 
several benefits, while however acknowledging the risks. Machine-readability of key documents 
was  identified  as  an  essential  new  tool  that  might  be  enabled  through  innovation,  as  was  the 
development of a digital identity, the latter of which would be very beneficial for consumers and 
reduce duplicative compliance costs. Artificial intelligence and analytical tools would help service 
providers create better, customised products. Half of respondents (68 out of 137, 50%) considered 
that diverging rules on marketing and advertising of investment products constituted an obstacle 
for  retail  investments  when  accessing  products  in  other  EU  markets,  while  a  smaller  group  of 
respondents (33, 24%) disagreed and 36 respondents (26%) expressed no opinion. All stakeholder 
groups were generally in agreement, with the exception of public authorities whose opinions were 
split evenly. Views were split as to whether there might be a need for stricter enforcement of rules 
on online advertising to protect against possible mis-selling of retail investment products, with a 
slightly larger group of respondents (61 out of 142, 43%), composed of most business organisations 
and associations, suggesting that the current enforcement regime was adequate, as opposed to those 
(59, 42%), which included most consumer organisations and public authorities, who saw the need 
for stricter enforcement.  

A majority of respondents (83 out of 144, 58%), which included a majority from all stakeholder 
groups, expressed support for further coordination and harmonisation of national rules on online 
advertising and marketing of investment products, whereas 41 respondents (28%) disagreed, and 
20 respondents (14%) expressed no opinion. A strong majority (105 out of 137, 77%) agreed that 
social media platforms played an (either somewhat  or very) important  role in  influencing retail 
investor behaviour, whereas an even larger majority (111 out of 136, 82%) considered that social 
media platforms may be used as a vehicle by some users to help disseminate investment related 
information, and this may pose (either somewhat or very) significant risks for retail investment. 
Consumer  organisations  and  public  authorities  were  almost  unanimous  in  this  view,  while  a 
majority of business associations and organisations agreed. In this regard, 50% (amounting to 69 
out of 138 respondents) highlighted the need to introduce rules at EU level, whereas 39 respondents 
(28%) disagreed, and 31 respondents (22%) voiced no opinion. Consumer organisations, NGOs 
and public authorities were overwhelmingly in favour of this introduction, with a smaller majority 
of business organisations and associations agreeing. Most respondents (82 out of 141, 58%), mainly 
from public authorities, business organisations and associations, indicated that adequate protection 
for online purchases existed, commenting that where problems did occur, they were an enforcement 
issue. Others (39, 28%), including all consumer organisations, noted that some digital-specific risks 
existed and should be addressed via EU rules. Finally, views were split as to how important it was 
that lower risk and non-complex products appeared first on listings when products were offered 
online,  with  39%  (52  respondents  out  of  132),  mainly  business  organisations  and  associations, 
indicating it was rather not important or not important at all and 30% (40 respondents), including 
a majority of public authorities, indicating that it was somewhat or very important. One consumer 
organisation also suggested that risky and complex products should not be included in the rankings 
at all. 

73 

 
Disclosure requirements 

Industry representatives generally agreed that pre-contractual disclosure documentation for retail 
investments enabled adequate understanding of the key product features in cases where no KID 
was provided (52 out of 131, or 40%, mainly representatives of banking, investment management 
and insurance). On the other hand, 35 respondents (or 27%) including 5 NGOs and all consumer 
organisations considered these inadequate and public authorities saw room  for improvement. A 
group of respondents was of the view that the information provided to retail investors in the PRIIPs 
KID was sufficiently understandable (33 out of 128, or 26%) and reliable (37 out of 124, 30%), to 
help  them  take  investment  decisions,  including  half  of  consumer  organisations,  business 
representatives from all sectors participating in the consultation and a minority of public authorities 
and  NGOs.  This  was  opposed  to  those  who  indicated  that  the  information  was  not  sufficiently 
understandable (42, 33%) or reliable (33, 27%), including consumer organisations, less than half 
of public authorities as well as representatives of all the sectors participating in the consultation. 
Moreover,  respondents  were  generally  of  the  view  that  information  about  the  type,  objectives, 
functioning, risk-profile, and the summary risk indicator of the product was understandable and 
reliable, while the information about product performance was less so. In addition, the majority (77 
out of 134, or 57%) of respondents199 agreed that pre-contractual disclosure should enable as far as 
possible  a  clear  comparison  between  different  investment  products  (e.g.  insurance  versus 
investment funds), unlike the 37 (28%) who disagreed200.  

Almost half of respondents (55 out of 126, 44%), including consumer organisations and NGOs as 
well  as  5  public  authorities  and  company/business  representatives  of  banking,  investment 
management and insurance, considered that the amount of information provided in the PRIIPs KID 
was  adequate,  however  views  on  information  about  product  performance  were  split201.  On  the 
PRIIPs KID, a group of 33 out of 119, or 28% of respondents202 considered that information on 
sustainability-aspects of the product was insufficient. A similar share of respondents, 31 or 26%203, 
considered that it was adequate, while only 11 or 9% thought it was excessive. The remaining 37% 
did not express an opinion. In general, respondents expressed support for the current maximum 
length  of  the  PRIIPs  KID  or  a  similar  pre-contractual  disclosure  document,  although  some 
consumer organisations and public authorities expressed a preference for  shorter KIDs,  and the 
investment management industry expressed a preference for more flexibility. There seemed to be 
general agreement that the PRIIPs KID was overloaded with information.  
On  the  Insurance  Information  Document,  31  respondents  out  of  91,  or  34%,  including  one 
consumer  association,  6  public  authorities,  most  NGOs  and  representatives  of  the  banking, 
insurance and investment management sectors, said that the amount of information provided was 

199 Including all consumer organisations and most NGOs, representatives of the banking, insurance and investment 
management sectors, 9 national authorities as well citizens.  
200 Mainly investment management representatives, as well as some banking and insurance representatives, 1 
public authority and a minority of NGOs. 
201 Opinions included ‘insufficient’ (29 out of 123, or 24%, including all consumer organisations, citizens, 2 public 
authorities and representatives of mainly investment management as well as banking and insurance), ‘adequate’ 
(38, 31%, mainly NGOs, a few public authorities and representatives of banking, investment management and 
insurance), and ‘excessive’ (33, 27%, including representatives of investment management, banking and insurance, 
as well as 5 public authorities and a consumer organisation). 
202 All consumer organisations and NGOs, 5 public authorities and a few representatives of banking, insurance and 
investment management.  
203 Including banking, investment management and insurance representatives as well as citizens and a few NGOs.  

74 

 
 
                                                           
adequate. Only 5 (5%) stated that it was insufficient, while 9 (10%) deemed it excessive, in both 
cases mainly business representatives of the insurance sector. The remaining 51% did not provide 
an answer.   

Regarding the way product cost information is calculated and presented in the EU disclosure rules 
(e.g. PRIIPs, MiFID, IDD, PEPP, etc.), a vast majority (80 out of 128, or 63%,204) saw overlaps, 
inconsistencies, redundancies, or gaps. Only a minority (11 or 9%) stated that they were not aware 
of  such  characteristics  in  EU  disclosure  rules.  With  respect  to  how  performance  information  is 
presented, similarly, a majority of 71 out of 122, or 58%205, stated that they were aware of overlaps, 
inconsistencies, redundancies, or gaps. Only a minority (13 or 11%) answered that they were not. 
Moreover,  respondents  expressed  different  views  on  how  disclosure  requirements  for  more 
complex  products  and  those  for  simpler  products  should  differ,  including  inter  alia  that  more 
information on complex products would not necessarily facilitate understanding, that the definition 
of  “complex”  products  was  not  always  appropriate,  that  it  would  be  important  to  ensure  that 
consumers saw less risky and complex products first, or that such products should not be offered 
without  advice  (some  respondents  suggested  adding  one  extra  page  to  the  KID  for  complex 
products. Many respondents, particularly from the industry, considered that there was no need for 
additional information).  

A vast majority of respondents (108 out of 133, 83%206) were in favour of the use of electronic 
format by default, with (free) paper versions available upon request. A similarly strong majority 
(110 out of 134, 82%207) noted the importance of information documents translated into the official 
language of the place of distribution. When disclosing information through digital means, a large 
group of respondents found that it was important that key information was displayed in ways which 
highlighted  the  prominence,  was  appropriately  labelled,  and  that  relevant  hyperlinks  used  to 
provide access to supplementary information. Clear rules to prescribe presentation formats and the 
adaptation of formats for different kinds of devices were also recommended. 

The PRIIPs regulation 

Slightly more than a third of respondents who answered (49 out of 129, or 38%) agreed that the 
PRIIPs  KID  improved  the  level  of  understanding  that  retail  investors  have  of  retail  investment 
products, as opposed to slightly fewer who disagreed (43, 33%), while the remaining respondents 
(38, 29%) voiced no opinion. While the views of consumer organisations were split, representatives 
of  investment  advisors,  insurance,  and  other  sectors  such  as  banks  generally  answered 
affirmatively.  Half  of  the  public  authorities  who  answered  (7  out  of  14)  found  that  the  PRIIPs 
Regulation had not met this objective, pointing to the PRIIPs KID’s complexity, its tendency to be 
overloaded with information, and the fact that cost and performance indicators may in some cases 
be misleading.  

Views were split (49 out of 128, or 38%, disagreed whereas 46, or 36%, agreed and 33, or 26% 
voiced no opinion) on whether the PRIIPs Regulation improved the ability of retail investors to 
compare  different  retail  investment  products,  both  within  and  among  different  product  types. 

204 Mainly investment management, banking and insurance representatives, as well as 9 public authorities, one 
consumer organisation and most NGOs.  
205 Representatives from all sectors participating to the consultation, 2 consumer organisations, NGOs and 9 public 
authorities.  
206 Including most consumer associations and NGOs, most public authorities (12 out of 17) and representatives of all 
the sectors participating to the consultation.  
207 Namely all consumer organisations, almost all public authorities (14 out of 17) and a vast majority of industry 
stakeholders comprising all sectors represented in the consultation.  

75 

 
                                                           
Among those who agreed were 1 consumer organisation, 5 public authorities and representatives 
mainly from the banking sector, as well as the insurance and the investment management ones. 
Those who disagreed included 2 consumer organisations, 6 public authorities, as well as NGOs and 
company/business  representatives  of  mainly  investment  management,  in  addition  to  some  from 
banking  and  insurance.  A  fourth  of  respondents  (34  out  of  127,  27%),  mainly  from  business 
associations and companies (overwhelming from the banking and insurance sectors) and a minority 
of public authorities (2), indicated that the PRIIPs Regulation had reduced the frequency of mis-
selling of retail investment products and the number of complaints, while a smaller group (22, 17%) 
counting 4 public authorities and NGOs disagreed. The remaining 60% expressed no preference. 
Moreover, 39 respondents out of 128 (30%)208 agreed that the PRIIPs Regulation had enabled retail 
investors to correctly identify and choose the investment products that are suitable for them, based 
on  their  MiFID  and  IDD  defined  individual  sustainability  preferences,  financial  situation, 
investment  objectives  and  needs,  and  risk  tolerance.  However,  50  respondents,  or  39%, 
disagreed209. Finally, 39, or 30%, voiced no opinion. Almost half of respondents (77 out of 128, or 
47%)210 considered that retail investors were easily able to find and access  PRIIPs KIDs, while 
another group (26, or 20%)211 were of the opposing view and another 26 respondents (20%) had 
no opinion. No views were expressed on the rules on access to the PEPP KID.  

A majority of respondents (67 out of 119, 56%) preferred requiring that the PRIIPs KIDs and PEPP 
KIDs be made available in a dedicated section on manufacturer and distributor websites212. This 
was  followed by  requiring that the KIDs be uploaded onto  a searchable  EU-wide database (47, 
39%,213), whereas a larger portion of respondents (60 or 50%,214) disagreed. The uploading onto 
national databases was supported by 40, or 34%215.  

A significant majority of respondents (86 out of 123, or 70%, made up of 1 consumer organisation, 
9 public authorities, NGOs, and company/business representatives of all the sectors participating 
to the consultation) saw merits in simplifying the current PRIIPs KIDs. A group of respondents (49 
out of 117, 36%, i.e. 9 public authorities, NGOs and company/business representatives of banking, 
insurance and investment management) noted the existence of inconsistencies or discrepancies in 
the actual implementation of the PRIIPs Regulation. Only 16 or 14% disagreed. A small number 
(18 out  of 111, 14%, among which investment  management  companies, insurance and banking 
associations,  as  well  as  2  public  authorities)  noted  inconsistencies  in  the  supervision  of  PRIIPs 
KIDs.  Limited  answers  were  provided,  with  strong  variability  between  them,  on  the  costs  of 
manufacturing and updating a PRIIPs KID, a PEPP KID and an IPID. A larger group of respondents 

208 Predominantly banking and insurance representatives and a minority of public authorities (2).  
209 Including all consumer organisations, NGOs, 7 public authorities and representatives of mainly investment 
management, and some from banking and insurance.  
210 In particular business associations and companies from the investment management, insurance and banking 
sectors, as well as 6 public authorities. 
211 Mainly citizens, consumer associations, and NGOs. 
212 This included all consumer organisations, NGOs, 8 public authorities and representatives from investment 
management, banking and insurance. The minority who disagreed (37, or 31%) comprised representatives of mainly 
banking and insurance, as well as investment management, and 2 public authorities. 
213 All consumer organisations, NGOs, 4 public authorities and representatives of investment management, banking 
and insurance. 
214 6 public authorities and a sizeable number of representatives of banking, insurance and investment 
management. 
215 Consumer organisations, NGOs, 4 public authorities and representatives of investment management, banking 
and insurance. 

76 

 
                                                           
(44  out  of  107,  41%216)  answered  that  distributors  and/or  manufacturers  of  Multiple  Option 
Products should not be required to provide retail investors with a single tailor-made KID reflecting 
the preferred underlying portfolio of each investor, as opposed to those who agreed to this (21, 
19%,217),  while  41  (38%)  held  no  opinion.  A  majority  of  consumer  associations  and  public 
authorities which responded expressed their support for a single tailor-made KID.  

On  the  question  whether  pension  products  should  be  included  under  the  scope  of  the  PRIIPs 
Regulation, a majority of respondents, mainly from business associations and companies from the 
banking, insurance, and investment management sectors, were generally of the opinion that pension 
products  should  remain  outside  the  scope,  whereas  a  minority,  mainly  NGOs,  consumer 
organisations, and citizens, expressed their support. Half of respondents (70 out of 118, 59%), in 
particular  on  the  industry  side,  were  generally  opposed  to  allowing  access  to  past  versions  of 
PRIIPs  KIDs,  pointing  to  the  risk  of  displaying  outdated  KID  versions  and  subsequent 
misinterpretation. A smaller group of respondents (20, 17%) were in favour and 28 respondents 
(24%) voiced no opinion. A strong majority (90 out of 122, or 74%) finally indicated that the review 
and updating of the PRIIPs KID should not occur more regularly than what was the case at the time 
of consultation.  

Suitability and appropriateness assessment 

The results of the consultation on the suitability and appropriateness assessments show a significant 
contrast in the perception of the effectiveness of those tools between the respondents from industry 
and those from consumer organisations.  

The  overall  majority  of  respondents  (81  out  of  126,  64%),  mainly  from  business  organisations 
(73%),  public  authorities  (54%)  and  business  associations  (90%)  considered  that  the  suitability 
assessment  served  retail  investor  needs  and  was  effective  in  ensuring  that  they  are  not  offered 
unsuitable  products.  Public  authorities  were  equally  divided  about  the  usefulness  of  the 
appropriateness test to serve retail investor needs. Consumer organisations and NGOs, on the other 
hand, overwhelmingly disagreed on the efficiency of those tools. Nearly 100% of this group and 
52%  (65)  of  all  respondents  identified  problems  with  the  suitability  assessment  and  made 
suggestions for improvement regarding inter alia the interplay between the product  governance 
rules  and  suitability  or  appropriateness  testing,  focussing  on  the  overall  understanding  of 
investments or portfolio composition, making the rules less burdensome and more useful for the 
investor and clarifying the interaction between knowledge and experience criteria.  

Most stakeholders, constituting majorities from business organisations, business associations, and 
public  authorities,  found  that  the  rules  on  suitability  assessments  (64  out  of  121,  53%)  and 
appropriateness tests (74 out of 122, 61%) were sufficiently adapted to the increasing use of online 
platforms or brokers when providing advice. However, consumer organisations and NGOs largely 
disagreed or expressed no opinion.  

A strong majority (91 out of 123, 74%) of stakeholders from the business groups, considered that 
providing a warning about the fact that a product was inappropriate was sufficient protection for 
retail  investors,  however  some  respondents  of  that  group  expressed  concerns,  inter  alia  that 
warnings  might  not  be  enough  for  complex  instruments.  On  the  same  topic,  nearly  all  of  the 
consumer associations considered that providing a warning was not sufficient in terms of investor 
protection. The majority of stakeholders (83 out of 123, 67%) from all respondent groups except 

216 3 public authorities, and a large group of investment management, banking and insurance representatives. 
217 1 consumer organisation, 4 public authorities and investment management, insurance and banking 
representatives. 

77 

 
                                                           
for consumer organisations (of which only a third agreed) agreed that in case of the execution of 
orders or transmission and reception of orders of certain non-complex products, at the initiative of 
the client, no appropriateness test should be required. 

39  respondents  out  of  98,  or  40%,  mainly  business  organisations  and  associations  agreed  or 
strongly agreed that the demands and needs test in its current form was effective in avoiding mis-
selling of insurance products and in ensuring that products distributed correspond to the individual 
situation of the customer, opposed to the 9 (9%) that disagreed or strongly disagreed. However, 
51% of respondents, in large part consumer organisations and public authorities, indicated that they 
had no opinion (38) or viewed this as neutral (12). A few (21 out of 100, or 21%), being a minority 
from  all  stakeholder  groups  except  consumer  organisations,  all  of  which  voiced  no  opinion, 
identified problems with the demands and needs test, in particular its application in combination 
with the suitability assessment in the case of insurance-based investment products, including inter 
alia the failure to consider the consumer's global assets and/or possible over-insurance or double 
insurance and the fact that the line between suitability test and demands and needs test appeared to 
be blurred. Around one third (33 out of 96, 34%) disagreed that more detailed rules were needed 
in  EU  law  regarding  the  demands  and  needs  test  to  make  sure  that  it  was  applied  consistently 
throughout  the  internal  market,  opposed  to  roughly  19%  of  respondents  (18)  who  answered 
affirmatively. The majority of respondents (45, 47%), representing a majority from all different 
stakeholder groups, voiced no opinion. About one fourth of respondents (34 out of 93, or 37%), 
mainly public authorities, business associations and organisations, considered that the demands and 
needs test was sufficiently adapted to the online distribution of insurance products, while a much 
smaller  group  (8,  9%)  considered  that  this  was  not  the  case  and  an  absolute  majority  of  51 
respondents (55%) voiced no opinion. Respondents were also divided (out of 94, 20 affirmative 
(21%)  versus  25  negative  (27%))  on  whether  procedural  improvements  or  additional  rules  or 
guidance were needed to ensure the correct and efficient application of the test in cases of online 
distribution.  The  disagreeing  stakeholders  were  public  authorities,  business  associations  and 
organisations, whereas all consumer organisations voiced no opinion. 

Reviewing the framework for investor categorisation 

A strong majority (92 out of 137, or 67%), composed of a majority of public authorities, business 
organisations and associations, found that adjusting the existing definition of professional investors 
on  request  would  be  the  most  appropriate  approach  for  ensuring  more  appropriate  client 
categorisation. The introduction of an additional (semi-professional) client category received less 
support (51 out of 139, or 37%) while the “no changes”/other measures option gathered support 
from  an  even smaller  group (26 out  of 130, 20%). All  stakeholder  groups presented  a majority 
which disagreed with the latter two options, except consumer organisations which were evenly split 
among “yes”, “no” and “no opinion”. A significant majority of respondents indicated that changes 
were necessary to the criteria measuring frequency of transactions over the last four quarters (95 
out of 124, 77%, overwhelmingly from public authorities, business associations and organisations, 
with consumer organisations disagreeing), the existing wealth criteria (78 out of 126, 62%, mainly 
from business associations) and the criterion measuring a clients’ experience (88 out of 124, or 
71%, constituting a majority from all stakeholder groups). A majority of respondents (70 out of 
123, or 57%), mainly from business associations and organisations, also supported the introduction 
of  an  additional  fourth  criterion.  Regarding  the  criteria  for  companies  to  be  classified  as 
professional  investors,  around  half  49%  (56  out  of  114)  expressed  support,  with  most  business 
associations in agreement. 34 respondents (30%), including most business organisations, expressed 
no view, whereas 26 respondents (23%), including a majority of consumer organisations and public 
authorities, did not support the introduction. 

78 

 
Inducements and quality of advice  

When considering options aimed at protecting retail investors against receiving biased advice due 
to  potential  conflict  of  interests,  including  regulating  inducements,  the  option  of  ensuring 
transparency  had  the  largest  support  (100  out  of  126,  or  79%),  particularly  from  business  and 
company representatives of insurance, banking and investment management, as well as 10 public 
authorities, half of the consumer organisations, and NGOs. Only 9 respondents or 7%, including 1 
consumer organisation, considered that transparency had little impact on consumer behaviour.  

A  strong  majority  of  93  respondents  out  of  128,  or  73%,  in  particular  business/company 
representatives  from  banking,  insurance  and  investment  management  as  well  as  8  public 
authorities, considered that a ban on all forms of inducements for all retail investment products 
would not be effective. Among those opposing the ban, in total 20 or 17%, concerns were expressed 
inter alia about the quality and availability of advice. Consumer organisations, NGOs and 2 public 
authorities were instead in favour of a ban. Among those in favour of banning inducements, it was 
suggested  that  it  might  result  in  distributors  proposing  a  wider  range  of  cost-efficient  and  less 
complex products, pointing also to the experience of the Netherlands. A majority of respondents, 
(74  out  of  119,  62%)  in  particular  business/company  representatives  of  banking,  insurance  and 
investment management, as well as 6 public authorities and 1 consumer organisation, found that 
the  current  rules  on  advice  and  inducements  under  MiFID  ensured  sufficient  protection  against 
poor advice due to potential conflicts of interest. Among the 23 (19%) who disagreed were 3 out 
of 4 consumer organisations, 2 public authorities and NGOs, while the remaining 19% voiced no 
opinion.  The  views  in  relation  to  IDD  and  payments  of  inducements  to  providers  of  online 
platforms/comparison websites were less clear-cut. 31 respondents out of 114 (or 27%) including 
3  out  of  4  consumer  organisations,  NGOs,  3  public  authorities  and  representatives  of  mainly 
investment management, found that the current rules did not ensure sufficient protection. The 49 
respondents, or 43% that instead agreed that IDD provided sufficient protection included 4 public 
authorities and a majority of representatives from the insurance and banking sectors. The remaining 
30% expressed no preference.  

Out of the 114 who answered, a majority of 67 (or 59%) of respondents (among which 3 consumer 
organisations,  9  public  authorities,  NGOs  and  representatives  of  all  sectors  participating  in  the 
consultation) were in favour of aligning rules related to the payment of inducements across MiFID 
and IDD. Views were instead split (depending on the sector to which the respondent belonged) 
over whether IDD should be aligned to MiFID rules or vice versa. 53 respondents out of 128 (41%), 
mainly  businesses  and  company  representatives  from  the  banking  and  investment  management 
services as well as 4 public authorities, disagreed that legislative changes were needed to address 
conflicts  of  interest,  receipt  of  inducements  and/or  best  execution  issues  surrounding  the 
compensation of brokers based on payment for order flows from third parties. A third (44, 34%) 
however took the opposite view and supported the need for legislative change. They included 3 out 
of  4  consumer  organisations,  8  public  authorities,  NGOs  as  well  as  representatives  of  mainly 
market  infrastructure,  in  addition  to  banking,  investment  management  and  insurance.  The 
remaining 25% voiced no opinion.  

On  the  question  whether  there  was  merit  in  developing  a  voluntary  pan-EU  label  for  financial 
advisors to promote high-level common standards across the EU, the views were split (52 out of 
121,  or  43%  of  respondents  disagreeing,  47,  or  39%  of  respondents  seeing  such  merit,  and  the 

79 

 
remaining 22, or 18% sharing no opinion)218. A majority of respondents (61 out of 115, or 53%) 
were  of  the  view  that  robo-advisors  were  regulated  in  a  manner  sufficient  to  protect  retail 
investors219. A majority of respondents (66 out of 114, or 58%) also suggested that the use of robo-
advisors remained limited in the EU because customers placed greater trust in human advice220.  

Addressing the complexity of products  

Among  the  130  that  replied  to  the  question,  half  (65  out  of  130,  or  50%),  namely  consumer 
organisations and NGOs, 6 public authorities and company/business representatives of banking, 
investment  management  and  market  infrastructure,  considered  that  further  measures  should  be 
taken at EU level to facilitate access of retail investors to simpler investment products, whereas a 
smaller group (52, 40%, including 4 public authorities and company/business representatives of 
insurance,  banking  and  investment  management)  disagreed.  A  majority  of  respondents  were 
opposed to: (a) measures to reinforce or adapt execution of orders rules to better suit digital and 
online  purchases  of  complex  products;  (b)  measures  to  make  the  rules  which  prohibit  excess 
complexity of products that are sold to retail investors more explicit; (c) the development of a new 
label for simple products; (d) developing further rules to define and regulate simple products; and 
(e) measures to tighten the rules restricting the sale of very complex products to certain categories 
of investors. Consumer organisations and NGOs however generally supported such measures.  

Redress  

A  significant  majority  of  respondents  (78  out  of  113,  or  69%),  including  all  consumer 
organisations,  NGOs,  and  public  authorities,  as  well  as  a  majority  of  business  associations  and 
organisations, considered that it was somewhat or very important that retail investors had access to 
rapid and effective redress, in particular when investing in another Member State. Most respondents 
(71 out of 106, 67%) were of the view that the MiFID II requirement for investment firms to publish 
the  details  of  their  complaint  handling  process  was  sufficient  to  ensure  efficient  and  timely 
treatment of client complaints. This view was particularly strong among public authorities, business 
and company representatives, while the views of consumer organisations and NGOs were split. 
Most respondents (54 out of 101, or 53%), mainly business associations and organisations, were of 
the view that retail investors knew where to turn in case they needed to obtain redress through an 
out-of-court procedure, a view which was not shared by some consumer organisations, NGOs, and 
public authorities. Most respondents (65 out of 106, 61%), constituting a majority in all stakeholder 
groups except consumer organisations and NGOs (which expressed split views), also considered 
existing  out-of-court  procedures  to  be  (somewhat  or  very)  effective  at  addressing  consumer 
complaints  related  to  retail  investments/insurance-based  investments.  Consumer  organisations, 
NGOs and some other public authorities expressed however a number of concerns. A group of 46 
respondents  out  of  50  (92%)  were  of  the  view  that  further  efforts  might  be  needed  to  improve 
redress in a cross-border context, while 27 respondents (54%) shared the view that such efforts 

218 Those who saw merit in the initiative included half of the consumer organisations (2), 3 public authorities, NGOs 
as well as representatives from mainly investment management, but also banking and insurance. Among those who 
disagreed, instead, there were 6 public authorities, and representatives from banking, insurance and investment 
management. 
219 These included 6 public authorities, 1 consumer organisation and representatives of banking, investment 
management and insurance. 
220 These included half of consumer organisations (2), NGOs, representatives of banking, investment management 
and insurance as well as 4 public authorities. 

80 

 
                                                           
might be needed domestically.221 A sizable minority (49 out of 106, or 46%), mostly consisting of 
business associations and organisations, considered consumer redress in retail investment products 
somewhat or very accessible to vulnerable consumers, while a smaller group of 18 respondents 
(17%) found that redress was rather not accessible or not accessible at all. 53 (50%) respondents, 
including majorities of consumer organisations and public authorities, were either neutral or voiced 
no opinion. 

Product intervention powers  

A majority  of  respondents  (71 out  of 112, or 63%) indicated that the ESAs and/or NCAs  were 
making sufficiently effective use of their existing product intervention powers. A clear split was 
noted between a first group comprising business/company representatives and public authorities, 
and a second group made of consumer organisations and NGOs. The latter group was indeed of the 
view that ESAs/NCAs did not use their powers effectively. Views were also split as to whether 
further convergence of NCA powers was needed (42 out of 108, or 39% in favour, 36, or 33% 
against, and 30, or 28% voicing no opinion). On the side of industry, a larger group of respondents 
saw  no  need  for  further  convergence,  whereas  a  majority  of  public  authorities,  consumer 
organisations, and NGOs saw a need for further convergence. A majority of respondents (60 out of 
113, or 53%) saw no need to reinforce the product intervention powers of the ESAs. This view was 
particularly  shared  by  business  associations  and  company/business  organisations,  with  many 
respondents arguing that the current framework and powers of the ESAs were sufficient. However, 
a  majority  of  public  authorities  considered  that  it  would  be  necessary  to  reinforce  the  product 
intervention powers of the ESAs, with some arguing that ESA product intervention powers should 
be made permanent, or alternatively, have a longer duration. All consumer organisations (3, 100%) 
and  most  NGOs  (4,  80%)  were  by  a  large  majority  in  favour  of  strengthening  the  product 
intervention powers of the ESAs. 

Sustainable investing  

A  majority  of  respondents  (44  out  of  61,  or  72%),  constituting  the  majority  of  business 
organisations and associations, indicated that financial returns were the most important element 
when investing, followed by investments that contributed positively to the environment and society 
(10 out of 41, or 24%). The views of NGOs and consumer organisations on the ranking of priorities 
were split, with a majority indicating that the financial returns were least important. The majority 
of respondents (56 out of 104, or 54%), including all consumer organisations and a majority of 
NGOs  and  public  authorities,  considered  that  the  fear  of  greenwashing  represents  a  very  or 
somewhat important factor preventing more sustainable investment. The ‘lack of an EU label on 
sustainability related information’ (50 out of 106, 47%) and ‘poor financial advice on sustainable 
investment opportunities’ (48 out of 105, or 46%) were also considered important factors by almost 
half  of  the  respondents,  including  a  majority  of  consumer  organisations  and  NGOs.  Half  of 
respondents (59 out of 118, or 50%) considered that ‘detailed guidance for financial advisers would 
be  useful  to  ensure  simple,  adequate  and  sufficiently  granular  implementation  of  sustainable 
investment  measures’,  while  42  respondents  (36%),  mainly  business  organisations  and 
associations,  did  not.  There  was  clear  support  from  NGOs,  consumer  organisations,  public 
authorities, and trade unions for the former view, also shared by most citizens. A slightly larger 
group  (45  out  of  115,  39%),  composed  largely  of  business  associations  and  organisations, 

221 23 respondents, or 46%, selected noted that further efforts are required in both domestic and cross border 
contexts, resulting in a total number of responses being higher than the number of respondents. 

81 

 
                                                           
considered  that  the  reinforcement  of  the  current  research  framework  to  ensure  systematic 
consideration of ESG was not needed, as opposed to a smaller group (40, 35%), composed largely 
of consumer organisations, NGOs and public authorities, which considered it needed. 

Other issues 

A number of comments were provided on topics not covered by other chapters of the consultation 
with relevance to retail investments, including how new regulation may impact the level of direct 
participation of retail investors in capital markets, the interconnectedness of retail investment and 
wholesale  financial  markets,  the  increase  of  market  data  fees,  improving  participation  of  retail 
investors  in  corporate  governance  matters,  various  issues  pertaining  to  sustainability,  different 
aspects pertaining to supervision, in particular when services are provided on a cross-border basis, 
the prevention of fraud, and taxation issues.  

1. 

2. Targeted consultation on options to enhance the suitability and appropriateness 
assessments 

On 21 February 2022, the Commission also launched a targeted public consultation on options to 
enhance the suitability and appropriateness assessments. The deadline to respond was 21 March 
2022. The consultation looked into the feasibility of a new retail investor-centric approach to the 
MiFID  II  and  IDD  suitability  and  appropriateness  tests.  Such  a  proposal  was  the  result  of 
stakeholders’ suggestions received in the Retail Investment Strategy public consultation, regarding 
the  possibility  to  simplify,  improve,  automate,  and  standardise  the  way  investor  profiles  are 
currently assessed. Views were sought on the options proposed to enhance the client assessment 
regime and introduce a personalized asset allocation strategy.  

Overview of respondents 

In total, 69 respondents participated to this public consultation. The largest group of respondents 
came  from  business  associations  (36)  and  company/business  organisations  (21),  representing 
together  82%  of  all  respondents.  There  were  also  5  public  authorities  (7%),  1  consumer 
organisation (1%), 1 NGO, 1 trade union, 1 EU citizen, and 2 others (3%) who participated in the 
consultation.  

The largest group of respondents came from the investment services industry (27, 39%), followed 
by  the  insurance  industry  (16  or  23%).  Other  respondents  came  from  a  group  which  indicated 
“other” (16 or 23%), as well as from investment management (15, 22%), new technologies (6, 9%), 
pension provision (4, 6%), market infrastructure operation (1, 1%) and social entrepreneurship (1, 
1%). The respondents that indicated “not applicable” were only 2 (4%)222.  

The majority of respondents  came from  the EU  (98%, 68 respondents)  with  one response from 
outside of the EU (United States, 1%). The highest number of respondents came from Belgium 
(22%, 15 respondents), followed by Italy (16%, 11 respondents) and France (13%, 9 respondents). 
The above-average response rate from Belgium can be explained by the high number of EU-level 
organizations and associations who have their seat in Brussels.  

An enhanced client assessment regime – General 

Most  business  associations  and  organisations  considered  that  the  current  suitability  and 
appropriateness assessments were well-designed and did not require extensive changes, and hence 

222 Respondents were able to select multiple sectors, therefore resulting in higher total number of responses when 
compared to the total number of respondents.  

82 

 
 
 
                                                           
were not in favour of the idea of a standardised retail investor assessment regime. Conversely, only 
2 citizens, 1 NGO, and 1 trade union were in favour, while public authorities were split. A principal 
argument of the supporters of a more client-centric approach was that putting consumer interests 
at the centre would spur more competition. Some expressed support for a “retail investor passport” 
which  would  allow  a  retail  client  to  easily  switch  between  or  using  multiple  brokers/financial 
intermediaries. Others noted that a standardised retail investor regime could reduce discretion and 
improve harmonisation in the application of the assessment process, further enabling national and 
EU authorities to better supervise these processes and allowing individual investors to enforce their 
rights, thus making it easier to compare recommendations and assess “value for money”. On the 
NCAs side, several considered that an in-depth analysis of the weakness of the current regimes was 
needed  as  a  preliminary  step,  fearing  that  a  new  regime  could  bring  additional  burdens  on 
investment firms and a probable deathblow to existing execution-only distribution channels. 

The majority of respondents were of the opinion that a Personal Investment Plan (“PIP”) would not 
bring specific benefits  to  retail  investors and financial intermediaries, while a  sizeable minority 
expressed a positive view about the PIP’s potential. Most respondents believed that there would be 
certain drawbacks associated with the introduction of the PIP regime, noting large implementation 
costs requiring significant and complex adaptations of IT systems and internal processes. A few 
respondents  noted  that  standardisation  of  the  onboarding  process  would  reduce  the  margin  for 
financial intermediaries to use innovative machine learning tools and behavioural finance methods. 
They added that such standardisation would also reduce or remove the incentive for intermediaries 
to  compete  on  improving  the  quality  of  assessment  processes.  Other  respondents  stressed  that 
standardisation  of  the  PIP  questionnaires  at  EU  level  would  be  difficult  given  the  variance  in 
cultures and environments, as well as the bespoke nature of insurance-based investment products 
and execution-only services. On the latter, several respondents found that requesting a suitability 
assessment in such cases would contradict the basic approach of financial instrument transactions 
without advice. The different nature of investment services was viewed as justifying a different 
degree  of  information  to  be  obtained  and  assessed,  and  consequently  the  appropriateness  and 
suitability assessments should remain separate. Regarding the concept of a personal asset allocation 
strategy (“PAAS”) in general, several respondents noted that investment intermediaries would be 
biased  towards  products  that  are  part  of  their  offering.  Therefore,  these  strategies  may  differ 
significantly from one intermediary to another.  Some respondents highlighted that clients tend to 
be secretive about their financial situation, and that for a successful implementation of the asset 
allocation approach, it would have to be guaranteed that the client is transparent about their overall 
financial situation.  

Amongst the minority who supported the more client-centric approach, one business association 
indicated  that  this  initiative  could  be  game-changing  when  coupled  with  the  upcoming  Open 
Finance strategy, as it would spur more competition, put consumers’ wishes and interests at the 
centre, let clients be the true owners of their personal data, encourage digitalisation, and ultimately 
empower retail investors to participate more in capital markets. A majority of the respondents were 
however not in favour of giving retail investors the ability to transfer the results of their assessment 
together with their PAAS to brokers/financial intermediaries of their choosing, on the grounds of 
them being confidential know-how. Other respondents stated that the transferability and use of the 
assessment  and  PAAS  may  create  liability  risks  for  the  intermediary  providing  the  investment 
advice.  Several  respondents  believed  that  this  portability  could  lead  to  standardisation  and 
ultimately to an impoverishment of the product ranges, as well as a general deterioration of the 
quality  of  the  investment  advice  given  to  the  client.  Regarding  the  key  components  of  a 
standardised  PIP  and  the  main  investment  objectives  and  constraints  to  be  addressed  by  a  PIP, 

83 

 
respondents expressed some support to the different suggested elements, with little support for the 
elements related to the duties and responsibility of the adviser drawing up the PIP and for all rules 
and guidelines surrounding the drawing-up and review of the PIP. Elements regarding the client’s 
tax situation got little support as well. Respondents mostly agreed that the tax situation must not 
be included in any appropriate / suitability assessment, because of its complexity.  

On the electronic storage and accessibility of the suitability assessment  and the asset allocation 
strategy by all financial intermediaries (subject to client consent), opinions were evenly split. Many 
respondents expressed concerns about the risk of data profiling and client manipulation as well as 
liability and remuneration issues. Few responses were recorded about cost estimates for the PIP, 
with the values provided being varied and of little apparent use. In providing for the breakdown of 
costs, most warned of significant costs that would arise if firms were to implement a new regime, 
including  related  to  IT,  internal  processes,  adjustment  of  policies,  products,  contracts,  product 
manufacturing  and  distribution,  training  of  staff/HR,  and  updates  to  client  profiles.  A  similar 
sentiment  among  respondents  was  seen  with  regard  to  cost  savings.  Most  respondents  felt  that 
savings  are  dependent  on  the  details  of  the  new  regime,  the  set-up  costs  which  should  not  be 
underestimated,  and  the  additional  costs  to  a  bank’s  current  suitability  and  appropriateness 
framework. 

A personalised asset allocation strategy (PAAS) 

A  significant  majority  of  respondents  were  not  supportive  of  the  idea  of  standardised  investor 
profiles, with some noting that there is currently no standardisation across firms, Member States, 
and the industry in  general on how investors’ profiles are classified. Some said that investment 
service providers already have their own classification system based on the current legislation, their 
own products, research, and investment strategies. Others added that the use of a personalised asset 
allocation  strategy  would  not  be  coherent  with  standardised  investor  profiling,  and  that 
harmonising risk profiles may hinder competition and reduce choices for the retail client. However, 
some  respondents  did  contend  that  standardisation  could,  for  some  investors  under  certain 
circumstances, provide a meaningful simplification. 

Regarding  value-for-money  when  considering  asset  classes,  a  few  respondents  highlighted  that 
value-for-money criteria are already applied at the level of product governance processes. Some 
respondents noted that each advisor should assess what products constitute best value in light of 
the  investor’s  risk  appetite.  Several  respondents  remarked  that  value-for-money  screening  can 
effectively be performed only when selecting an individual financial instrument within an asset 
class, since the earlier stage involving the establishment of the PAAS is too high-level to comprise 
these criteria. Various respondents stated that a financial intermediary other than the one that drew 
up the client assessment should be able to propose a different asset allocation strategy (other than 
the  one  originally  established),  given  that  the  investment  environment,  the  investor’s  financial 
position as well as their risk appetite are subject to change over time. For this reason, a plan cannot 
be based on elements which cannot be standardised. Some respondents stated that investors should 
be given the choice as to whose views they trust and what advice they choose to follow, rather than 
be  stuck  with  a  mandatory  asset  allocation.  Other  respondents  claimed  that  in  the  interest  of 
liability, each ISP should be left with the possibility of adapting the PAAS.  

In  terms  of  additional  comments,  several  respondents  expressed  the  need  for  more  time  to 
deliberate  for  the  issues  in  consideration.  Various  respondents  stated  that  because  the  IDD  and 
MiFID II have only relatively recently been established, more data needs to be gathered on the 
issues that the proposal aims to address. Another point reiterated by respondents was the fear of 

84 

 
creating  a  free-riding  system:  if  the  asset  allocation  strategy  was  due  to  be  performed  without 
charging, there could be free-riding from other intermediaries 

2. 

3. Outreach to stakeholders 

Stakeholder outreach on suitability and appropriateness tests 

The  Commission  organised  and  held  several  rounds  of  stakeholder  outreach,  both  bilateral  and 
multilateral,  building  on  the  feedback  obtained  from  the  responses  to  the  above-mentioned 
consultations on the retail investor strategy and the suitability and appropriateness assessment. The 
objective of the outreach was to collect targeted data on the possible costs and benefits of option 
relating to Value for Money as well as the PIP to inform the preparation of the impact assessment. 

Summary of outreach to NCAs 

The Commission held bilateral calls with six NCAs between 24 and 28 September 2022. NCAs 
generally did not note any major issue with the current framework, reporting very limited (or even 
inexistent) client complaints to investment firms, although with some variations across Member 
States. With respect to the possibility of introducing a list of asset classes and a personalised asset 
allocation strategy, NCAs generally saw a risk of blurring the line between advised and non-advised 
services. More specifically, 2 NCAs noted that the definition of asset classes should be granular 
enough in order to be useful, while another remarked the need to carefully consider the algorithm 
used.  Moreover,  NCAs  did  not  see  the  overall  necessity  to  further  standardise  the  suitability 
assessment, noting the acceptability of existing industry standards, however 2 NCAs encouraged 
further simplification of the assessment for retail investors. Finally, 4 NCAs considered that the 
appropriateness test should be reinforced with questions on the client’s financial situation, ability 
to bear losses, and possibly risk appetite. 

Summary of outreach with the industry and consumer associations 

Workshop with the industry 

The Commission held a workshop with industry stakeholders on 28 September 2022. The general 
sentiment expressed by participants was that the current suitability and appropriateness assessment 
regime worked well, and adjustments were therefore seen as costly. Many participants were against 
having the same assessment for advised and non-advised (execution-only) services, with a large 
majority  also  against  the  standardisation  of  some  elements  of  the  suitability  assessment  across 
financial  intermediaries.  Amongst  the  participants  offering  execution-only  services,  a  majority 
(82%)  was  against  switching  from  the  appropriateness  assessment  to  a  suitability  assessment. 
Finally, only 38% of participants noted that they already identified particular asset classes suitable 
to their client as a result of the existing suitability assessment, whereas the remaining 62% did not. 

Workshop with consumer associations 

The Commission held a workshop on 28  September 2022 with two consumer associations. The 
general  sentiment  was  that  the  most  effective  remedy  to  shortcomings  in  the  retail  framework 
would be a ban on inducements, and that any other measures (including the PIP) would fall short 
of  making  substantial  improvements.  The  standardisation  of  certain  elements  of  the  suitability 
assessment  was  also  seen  as  unlikely  to  bring  additional  benefits.  Moreover,  participants  noted 
differences regarding the level of mis-selling across Member States, underlining that the detriment 
it caused to retail investors was estimated to exceed that caused by gamification. Finally, Value for 
Money  was  considered  a  more  important  topic,  with  the  associations  recommending  that  the 

85 

 
Commission explored how Value for Money could be linked to the suitability assessment instead 
of being confined to product governance. 

Stakeholder outreach on Value for Money 

During the first half of September 2022, the Commission held several discussions with a total of 8 
stakeholder organisations on the issue of Value for Money, based around a discussion note and an 
accompanying  short  questionnaire.  The  Commission  worked  in  close  coordination  with  both 
ESMA and EIOPA, who have already conducted significant work in this field. The discussions 
took place via dedicated meetings and were complemented by written follow-up of participants’. 
The  latter  included  3  consumer  organisations  as  well  as  representatives  from  the  banking, 
insurance, financial intermediaries and investment management industries. 

Consumer organisations broadly welcomed the idea of a strengthened Value for Money approach 
as part of the strategy, while industry representatives had more mixed reactions as to whether, and 
to what extent, the cost effectiveness of investment products was an issue. 

Consumer organisations set out clear ideas as to how a Value for Money approach could be framed 
in legislation. Industry representatives were generally more sceptical, and pointed to a number of 
practical difficulties, in particular relating to how to capture the concept of value across a broad 
range of very different products. 

Consumer organisations suggested having concrete and granular rules, such as the development of 
benchmarks against which the Value for Money prospect of proposed products might be compared. 
Industry representative, on the other hand, were rather favouring high-level principles only. Views 
also  differed  as  to  whether  the  assessment  of  Value  for  Money  should  be  made  at  the  product 
governance or advice stage, or both. 

With respect to whether new rules should apply across the full range of retail investment products 
or be restricted to products where problems had been identified, diverging opinions were expressed 
between  keeping  the  approach  broad  and  straightforward  versus  having  a  narrow  and  targeted 
approach. 

3. 

4. Call for evidence 

A call for evidence was opened between 3 May 2022 and 31 May 2022223 to request feedback from 
stakeholders on the retail investment strategy. Stakeholders were asked to provide views on the 
Commission's  understanding  of  the  problem  and  possible  solutions,  as  well  as  provide  relevant 
information, including on the possible impacts of the different options. 43 respondents replied to 
the call for evidence and presented their views. Out of those 43 respondents, 30224 had also replied 
to the public consultation with their views remaining broadly the same as outlined in the paragraphs 
above. 

The views of the 13 other respondents can be summarised as follows:  

1. 

The five EU citizens who responded raised concerns about low returns, fraud, the lack of 
clear and correct disclosures provided during the advice process (especially on costs) as 
well as on the differences in disclosure rules.  

223 Retail investment – new package of measures to increase consumer participation in capital markets (europa.eu) 
224 The respondents that had already replied to the public consultation represented: 6 company/business 
organisation, 18 business association, 1 non-governmental organisation (NGO), 1 trade union, 1 consumer 
organisation.  

86 

 
                                                           
2. 

3. 

4. 

Two financial institutions raised the issue of investor categorisation and recommended the 
inclusion of a semi-professional category in EU legislation. Two firms stated their support 
for strong financial literacy.    
Two representatives of the insurance industry were in favour of relying on existing rules, 
pointing at recent application of EU legislation for the sector, highlighting the particularities 
of the insurance industry and the need to properly represent insurance-specific information 
in the key information documents. A representative of the banking and insurance sectors 
remarked the need to simplify disclosures, reassess investor categorisation and avoid radical 
changes that could not fit the characteristics of national markets.  
A consumer organisation pointed to the complexity of disclosure information, including on 
costs,  conflicts  of  interests  and  sustainability.  It  also  highlighted  the  need  to  make  the 
suitability  and  appropriateness  assessments  more  consumer-focused,  increase  consumer 
protection in the digital environment and the need to address complexity of products offered 
to retail investors.  

Contribution from the Financial Services User Group (FSUG)  

As described in the Call for evidence, the consultation strategy included a thematic discussion with a 
written  contribution  from  the  FSUG  which  was  published  on  17  November  2022225.  In  its  position 
paper, the FSUG reviewed the relevant retail issues to be addressed as listed in the Commission’s April 
2021 roadmap and consultation, assessing whether and how the Retail investment strategy is expected 
to address the topic and what could be done to further improve the initiative.  

4. 

5. ESA recommendations 

A call for advice was issued by the Commission on 27 July 2021 and addressed to: (i) both ESMA 
and EIOPA to provide technical advice on a number of specific areas in the field of retail investor 
protection; and (ii) the Joint Committee of the ESAs regarding the PRIIPs Regulation. The deadline 
for ESAs to deliver their technical advice was 30 April 2022. 

Summary of ESMA’s recommendations 
The recommendations received from ESMA related to areas concerning disclosures (both digital 
and non-digital), and the treatment of digital tools and channels in the existing investor protection 
framework. Among other things, ESMA recommended to develop a standard EU format for the 
disclosure of costs and charges and identify amongst regulatory disclosure a short subset of “vital 
information” that should be prominently disclosed in all marketing communications to clients. The 
inclusion of a definition of marketing communications to capture (online) advertising and messages 
on social media (including via the use of influencers or other third parties engaging clients) was 
also recommended, as was the need to clarify the powers of NCAs to intervene in a timely manner 
in  the  case  of  misleading  marketing  practices  and  impose  the  use  of  risk  warnings  for  specific 
complex and risky financial instruments. In that context ESMA recommended to include in MIFID 
II an explicit mandate to ESMA to develop guidelines on the topic of marketing communications 
and more generally on the use of digital techniques and tools by firms. ESMA also recommended 
the  Commission  to  complement  its  legislative  proposal  on  the  review  of  MiFIR  through 
amendments of MiFID II so as to prohibit the receipt of payments for order flow from third parties  
based on investor protection concerns. Lastly on the topic of open finance, ESMA recommended 
to the Commission to consider specific potential risks and benefits when developing any legislative 
proposal.   

Summary of EIOPA’s recommendations 

225 FSUG opinions 2022 (europa.eu) 

87 

 
 
 
                                                           
EIOPA’s recommendations also related to digital disclosures and the treatment of digital tools and 
channels  in  the  existing  investor  protection  framework,  however  also  extended  to  the  issue  of 
damaging conflicts of interest in the sales process and product complexity in the retail investment 
product market. In particular, EIOPA recommended a shift to simpler disclosures which use digital 
layering  and  interactive  elements.  EIOPA  further  suggested  to  address  inconsistencies  between 
existing  disclosure  requirements,  specifically  between  Solvency  II  and  the  IDD.  To  enhance 
existing period disclosures at EU level, EIOPA recommended the idea of developing an annual 
statement,  similar  to  existing  statements  in  pensions  legislation,  providing  information  on  paid 
premiums,  past  performance,  current  value  of  savings  and  adjusted  individualised  projections. 
Regarding conflicts of interest, EIOPA suggested improvements to existing rules on inducements 
through a combination of several solutions, ranging from further transparency to an inducement 
ban. In particular, EIOPA recommended enhancing existing rules on product design, oversight and 
governance to address value for money, undue costs and risks of misunderstanding of the main 
features, costs and risks of the product. EIOPA also suggested the promotion of an affordable and 
efficient  sales process by  improving the suitability  and appropriateness  tests. Finally, regarding 
product complexity, EIOPA recommended the re-evaluation of the concept of complexity in the 
IDD and the PRIIPs Regulation.  
Summary of recommendations of the Joint Committee of the ESAs on PRIIPs 

The recommendations of the Joint Committee of the ESAs on PRIIPs focused on making KIDs 
more consumer friendly. The ESAs recommended targeted changes to the PRIIPs Regulation as 
part of a review of the PRIIPs framework.  In particular, the Joint Committee recommended the 
following amendments:  

1. 

2. 
3. 
4. 

5. 
6. 

Improving the presentation of the KID on digital media and providing more flexibility for 
their digital presentation; 
More visible presentation of ESG information in the KID through a separate section; 
Providing more specific cost information for insurance multi-option products; 
Incorporating  more  flexibility  into  the  KID,  including  by  allowing  different  types  of 
performance information depending on the product type;  
Making KIDs more tailored to specific product types; and 
Clarifying and tweaking the product scope of the PRIIPs Regulation by making it clear that 
certain corporate bonds are excluded. 

88 

 
 
 
 
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1. PRACTICAL IMPLICATIONS OF THE INITIATIVE 
The objective of this section is to set out the practical implications for the main stakeholders stemming from 
the preferred options under this initiative. Those implications are assessed in more detail in the following 
tables, however in summary: 
1. 

Manufacturers of investment and insurance-based investment products would be required 
to:  
  update the PRIIPs KIDs to new formats;  
  adapt marketing communications to the new rules 
  provide an annual statement of cost and performance under IDD and use an EU template 

2. 

3. 

4. 

for the disclosure of costs 

  adapt to the ban on inducements 
  assess value for money on the basis of criteria and benchmarks.  
Distributors of investment and insurance-based investment products would be required to:  
  adapt business models to the ban on inducements,  
  adapt suitability and appropriateness assessments to new rules;  
  provide  an  annual  statement  of  cost  and  performance  under  MiFID  and  use  an  EU 

template for the disclosure of costs 

  adapt marketing communications to new rules;   
  assess  value  for  money  on  the  basis  of  information  received  from  product 

manufacturers, criteria and benchmarks and including distribution costs. 

National Competent Authorities would be required to: 
  supervise  the  extended  scope  of  marketing  communications  and  new  rules  on 

disclosures;  

  check compliance on the ban on inducements in line with more straightforward rules; 
  check compliance with strengthened value for money rules.   
European Supervisory Authorities would be required to: 
  develop  more  specific  rules  at  level  2  for  a  range  of  measures  stemming  from  the 

strategy:  

  develop criteria and benchmarks in the context of Value for Money. 

2. SUMMARY OF COSTS AND BENEFITS 

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Direct benefits 

quality 

of 
Improved 
financial  advice:  reduction 
of  bias  in  financial  advice 
investments,  better 
for 
alignment 
interests 
of 
between intermediaries and 
investors  and 
improved 
advisor standards.  
(main  beneficiaries:  retail 
investors) 

Amount 

Comments 

This  benefit  is  expected  to  be 
significant, given the prominent 
role of financial advisors in the 
distribution 
investment 
of 
products  and  major  role  of 
inducements as a factor leading 
to  bias  in  the  provision  of 
investment services. 
An  accurate  estimation  of  the 
is 
amount  of 
difficult  to  establish,  due  to 
limitations 
strong 
of 
share 
regarding 

inducements 

data 
the 

The  ban  on  inducements  would  impact  the  ties  between 
investment product providers and distributors that exist as a 
result  of  commission  payments.  If  financial  intermediaries 
(advisors)  were  paid  by  their  client  rather  than  through 
commissions,  the  interests  of  intermediaries  and  clients 
would  be  better  aligned  and  there  would  be  a  stronger 
incentive  to  recommend  and  offer  products  based  on  their 
benefits for the client, rather than based on the relative size 
of  commission  income  from  different  products.  Overall,  a 
shift towards independent financial advice (including through 
portfolio  management)  and  execution-only  is  expected,  as 
discussed and evidenced in section 6.2 and Annex 7, as well 
as  consumers  being  offered  cheaper  and  simpler  retail. 

89 

 
 
 
investment  products.  The  quality  of  advice  would  also  be 
strengthened  due  to  better  alignment  of  rules  on  advisors’ 
knowledge and competence.  

one  market 

inducements  in  total  product 
costs  and  the  exact  number  of 
products in the market that carry 
inducements.  
By way of illustration and on the 
basis of a series of assumptions 
(presented  in  Annex  7C),  the 
total annual cost of inducements 
for 
segment 
(actively managed UCITS funds 
which are directly held by retail 
investors), 
to 
represent  EUR  5.13  billion 
(2019), EUR 5.25 billion (2020) 
and EUR 6.1 billion (2021). For 
previous  years  the  calculations 
would  be  in  a  similar  order  of 
magnitude. 

is  estimated 

transparency  on 
Greater 
costs, performance and the 
ESG  profile  of  investment 
(main 
products 
beneficiaries: 
retail 
investors,  potentially  also 
investment products which 
are  cheaper  or  have  better 
ESG characteristics) 

Better  understanding  of 
investment  products  (main 
beneficiaries: 
retail 
investors) 

Unquantifiable benefit 

Unquantifiable benefit 

Reduced risk of misleading 
(main 
information 
beneficiaries: 
retail 
investors) 

No estimate available 

template  on  costs,  would 

The annual cost and performance statement under MiFID and 
IDD  and  the  EU 
improve 
transparency  on  costs  and  performance,  enabling  all  retail 
investors to better consider the impact of all the costs on their 
investment  decisions  and 
the  net 
performance  of  their  financial  products.  Changes  to  PRIIPs 
KIDs  would  give  greater  visibility  to  key  information  about 
the products in scope including on their costs and ESG profile. 
Indirectly, both measures could contribute to a consumer shift 
towards cheaper and more sustainable investment products. 

to  better  monitor 

Improving  the  presentation  of  PRIIPs  KIDs  would  make  it 
easier for retail investors to understand key characteristics of 
the  investment  product  they  are  considering.  Including  vital 
information  in  marketing  communications  would  provide 
important context to marketing messages and would thus also 
contribute  to  better  understanding  of  key  elements  of 
investment  products.  The  annual  cost  and  performance 
statement would provide retail clients in one single document 
with  an  overview  of  the  performance  of  their  portfolio, 
together with the total or detailed amount (upon request) of all 
the costs borne and payments received. This would facilitate 
the comprehension of the cost impact on the performance. The 
use of EU templates for costs reports, whether on an ex-ante 
or ex-post basis, would also facilitate comparison and favour 
more competition.  

Inclusion  of  vital  information  in  marketing  communications 
would ensure that crucial information to help retail investors 
understand the product are always mentioned and presented in 
a prominent and balanced way. Changes to the PRIIPs KIDs 
would  also  (indirectly)  make  this  document  more  attractive 
and help retail investors to pay more attention to it relative to 
marketing 
that  marketing 
communications  (including  advertisement  and  associated 
persuasive techniques), whether made directly or indirectly by 
a firm (e.g. through social media), clearly appear as such and 
are bound by all rules on marketing communications, would 
avoid  misleading  communication  and  would  help  to  avoid 
misinformation of retail investors.   

communications.  Ensuring 

Removal of products which 
do  not  deliver  or  deliver 
poor  value  for  money  due 

Level  of  benefits  is  difficult  to 
quantify as it depends on many 

Enhancing  VfM  within  product  governance  rules,  which  in 
practice means adjusting the cost of products to their quality 
(expected returns, level of risk and value added by additional 

90 

 
 
(main 
to  undue  costs 
retail 
beneficiaries: 
product 
investors, 
manufacturers 
or 
distributors with more cost-
investment 
competitive 
distribution 
/ 
products 
systems) 

Broader access to financial 
(main 
instruments 
more 
beneficiaries: 
retail 
experienced 
investors, 
product 
manufacturers) 

would 

Investors 
be 
exposed  to  more  products 
which  would  be  better 
matched  to  their  needs, 
preferences and investment 
objectives. 

factors:  invested  amount,  asset 
class, performance, etc.  

products  features,  like  biometric  risk  coverage)  would  bring 
benefits  to  investors,  as  high  costs  undermine  expected 
returns.  

Unquantifiable benefit 

Unquantifiable benefit 

Easing  restrictions  for  certain  retail  investors  to  qualify  as 
professional investors: allowing better differentiation between 
the  diverging  needs  of  individuals  would  help  reduce 
unnecessary information disclosure to those clients who do not 
need it for their investment decisions, leading to cost savings 
for those  financial operators as well as allow broader access 
for those clients to financial instruments. 

take 

time 

sufficient 

to  conduct 

Retail investors  would benefit from better quality of  service 
leading to more appropriate investment decisions where firms 
(i) 
suitability  and 
appropriateness  assessments,  ensuring  more  accurate  client 
profiling,  (ii)  consider  in  their  screening  and  assessment  for 
advised  services,  more  client-specific  information  ,  with 
certain  key elements  made  mandatory and  standardised, and 
(iii) include in their screening and assessment for non-advised 
services,  the  financial  capacity  and  ability  to  bear  losses  of 
their retail clients. 
In an advice setting - facilitate, for retail clients, comparability 
between 
recommendations,  when 
approaching  different  firms.  Also,  the  considerations  of  the 
existing  client  portfolio  and 
for  portfolio 
diversification would improve the overall diversification of the 
client’s investments and limit potential losses.  
In  a  non-advisory  environment,  clients  would  benefit  from 
stronger  warnings,  allowing  them  to  avoid  potentially 
detrimental investment decisions that would have been taken 
in  disregard  of  their  financial  capacity  and  ability  to  bear 
losses 

assessments 

the  need 

and 

Unquantifiable benefits 

No estimate available 

Enhancements  to 
  retail 
investor protection through 
stronger  NCA  powers,  
more effective cross border 
supervision  and  improved 
complaints  mechanisms 
(main  beneficiaries:  retail 
supervisory 
investors, 
authorities) 

Indirect benefits 

market 
Strengthened 
oversight 
(main 
beneficiaries:  supervisors, 
retail 
investors,  broader 
society) 

NCAs  would  be  better  equipped  to  more  rapidly  detect  and 
address problems and misleading marketing communications, 
reducing  the  amount  lost  by  investors  to  frauds,  scams  and 
unsuitable investments.  
The  process  and  cooperation  between  home  and  host  NCAs 
would  become  more  efficient.  Supervision  of  cross-border 
activities  would  be  enhanced  by  enabling  NCAs  to  work 
together  and  benefit  from  sharing  of  supervisory  expertise, 
while at the same time preventing jurisdiction shopping. 
Retail  investors  would  benefit  from  clear  information  and 
instructions and adequate access to communication channels 
and complaints mechanisms.  

Some of the measures, notably providing clarity on the scope 
of the definition of marketing communications as well as the 
introduction of an EU template for costs, the annual cost and 
performance  statement  and  the  development  and  use  of 
benchmarks for assessing value for money, will make it easier 
for supervisors to fulfil their supervisory mandates.  Due to the 
ban on inducements, supervisors will no longer have to check 
quality enhancement and detriment tests.  

91 

 
 
 
 
 
Multiple  measures  included  in  the  preferred  option  would 
indirectly  contribute  to  making  investment  products  more 
affordable  for  retail  investors,  fostering  competition  and 
innovation in the market.  

The  ban  on  inducements  would  contribute  to  a  reduction  in 
costs paid by retail investors and increase in quality of services 
and products distributed to them: i) by aligning incentives and 
making  financial  advisors  much  more  likely  to  recommend 
more  cost-efficient  and  higher  quality  products,  and  ii)  by 
investment  product 
encouraging  more  competition 
distribution (also across the EU single market).     

in 

product 

governance 

requirements 

Strengthening 
for 
manufacturers and distributors (Value for Money) would help 
eliminate  from  the  market  those  products  that  are  likely  to 
present investors with poor value for money (both directly as 
captured above and indirectly, by fostering more comparison 
of products and thus stronger competition), while shifting the 
overall product mix towards cheaper (and likely more simple 
and higher quality) investment products.  

Other  measures,  such  as  ex-post  statements  on  costs  and 
performance  could  also  contribute  to  a  reduction  in  costs  as 
they would improve client awareness about the ongoing cost 
and performance of products. 

Cheaper  and  better  quality 
investment  products 
for 
more 
clients, 
retail 
competition and innovation 
(main  beneficiaries:  retail 
investors, broader society) 

The size of the impact of Value 
for  Money  and  other  measures 
has    been  quantified  through 
convergence 
scenarios, 
suggesting  monetary  benefits 
estimated  in  the  range  of  EUR 
4.4  billion  to  up  to  EUR  22 
billion,  depending  on 
the 
effectiveness  of  convergence 
pressure  (13.8  billion  for  fund 
for 
products, 
insurance products)226.  

billion 

8.4 

to 

ban 

imply 

switch 

account 

However, 
on 
the 
inducements is expected to lead 
to  a  significant  cost  reduction, 
as  the  UK  and  NL  markets, 
first 
where 
bans  were 
demonstrate 
introduced, 
lower 
significantly 
(management)  fees  for  retail 
investment products227.  
Taking 
the 
into 
dynamic effects of a ban, which 
would 
that  a  certain 
percentage  of  retail  investors 
would 
cheaper 
products  (as  experiences  in  the 
NL  and  the  UK  have  shown),  
these  effects  would  be  even 
higher.  Assuming  that  5%  of 
investments  in  the  EU  would 
low-cost  investment 
shift  to 
products  (such  as  ETFs),  this 
could 
further 
generate 
aggregated cost savings of EUR 
0.5  billion  (2019),  EUR  0.6 
billion  (2020)  and  EUR  0.8 
(2021).  The  above 
billion 
illustration  of 
the  value  of 
inducements  is  limited  to  only 
one  market  segment  and  could 
therefore  be  considered  as  a 
significant  underestimation  of 
the overall impact. 

Digital  shift  in  financial 
product  distribution  (main 
retail 
beneficiaries: 
innovative 
investors, 
the  financial 
players 
sector, and broader society) 

in 

Improved financial literacy 
(main  beneficiaries:  retail 
investors, broader society) 

Unquantifiable benefit 

The  ban  on  inducements  in  particular  might  accelerate  an 
already  ongoing  trend  towards  digitalisation  and  increased 
innovation of the value chain, in particular at the distribution 
level. 

Unquantifiable benefit 

By  supporting  and  supplementing  the  work  of  EU  Member 
States in promoting financial literacy, financial literacy levels 
would increase. As established in the main body of this report, 
this  would  have  further  positive  consequences  for  retail 

226 The results for insurance products are strongly influenced by observations for 2 Member States, for which the data 
used is based on few observations. 
227 Meanwhile service fees increased to a certain amount, depending on provider and services offered. 

92 

 
 
 
 
 
                                                           
Unquantifiable benefit 

Possible  increase  in  retail 
investment 
participation 
(main  beneficiaries:  retail 
investors,  financial  sector, 
companies 
non-financial 
and broader society) 

and 

More 
effective 
accumulation of capital for 
other 
retirement 
(main 
objectives 
beneficiaries: 
retail 
investors/households  and 
potentially state budgets) 

shift 

to  quantify,  as 

This  benefit  would  be  very 
it 
difficult 
depends strongly on the size of 
the  expected 
towards 
cheaper  products.  Given  the 
underlying  compound  interest 
mathematics, 
small 
savings  on  annual  costs  could 
translate  into  a  large  long-term 
benefits for retail investors.  

even 

investors. i.e. enabling them to better understand investment 
products.  

A  combination  of  the  benefits  mentioned  above  (better 
understanding of products, lower risk of being misled, aligning 
incentives,  cheaper  products,  strengthened  supervisory 
enforcement, better quality advice) resulting from the different 
measures  in  this  initiative  would  likely  over  time  lead  to 
increased trust levels among retail investors and through this, 
potentially  their  greater  participation  in  the  market  for 
investment products. This benefit could thus also be reflected 
in  greater  business  volumes  for  asset  managers  and  other 
providers of retail investment products in the long run228 and 
to some extent in potentially more funding for companies.    

Reduced costs of retail investment products discussed above 
would  improve  after-fee  performance,  allowing  invested 
capital  to  accumulate  at  a  higher  rate.  Improved  financial 
literacy  levels  could  also  stimulate  wider  retail  investor 
participation in capital markets, leading to more people being 
able to accumulate more capital for their retirement and other 
life objectives.   

Administrative cost savings related to the ‘one in, one out’ approach* 

No estimate available 229 

on 

such 

existing 
Saving 
on 
requirements 
inducements 
as 
disclosures  and  quality 
enhancement 
no 
(main 
detriment 
financial 
beneficiaries: 
sector) 

test 

/ 

Investor 
categorisation 
(main  beneficiaries:  retail 
investors, financial sector)  

Benefit  expected,  but  rather 
small and difficult to quantify 

Where  inducements  are  applied,  this  currently  has  to  be 
appropriately disclosed. Firms also need to comply with other 
regulatory requirements for the payment of inducements (e.g. 
ensuring  that  inducements  satisfy  the  quality  enhancement 
(under MiFID) and no-detriment (under IDD) tests). A ban on 
inducements  implies  such  requirements  would  no  longer 
apply, and savings on related administrative burdens.  

Existing criteria for professional clients on request would be 
adapted  to  accommodate  those  investors  with  appropriate 
knowledge, experience and ability to bear losses, who should 
hence be able to benefit from regulatory alleviations offered to 
professional investors, reducing information overload for this 
new  investor  category.  This  also  implies  that  after  checking 
who  belongs  in  this  category,  product  manufacturers  and 
distributors  would  be  able  to  save  resources  dedicated  to 
assessing  clients’  needs  and  objectives  and  providing 
information to them.  

II. Overview of costs – Preferred option 

Consumers 
investors) 

(retail 

Businesses  (financial  product  providers  and 
financial advisors) 

Supervisory authorities 

One-off 

Recurrent  One-off 

Recurrent 

One-
off 

Recurrent 

228 In the short run, a decline might be seen, in particularly in the advised segment of the market. 
229 In addition to the actual saving compared to the baseline, there is a potentially substantial saving compared to 
the alternative option considered in this impact assessment, which would require strengthening disclosures on 
inducements in order to safeguard interests of retail investors. (As regards quantification, it is not possible to 
determine approximate magnitude of the saving, as the evidence gathered points to potential non-compliance with 
the existing requirements, which would likely make any estimations unreliable). 

93 

 
 
 
 
 
 
                                                           
Direct 
adjustment 
costs 

None 

None   

None 

None 

None 

None 

for 

costs 

The 
adapting/updating 
existing  (automat-ed) 
systems to provide an 
annual  statement  on 
cost and performance, 
under  MiFID  and 
IDD,  the  total  EU-
wide  cost  could  be 
estimated  in  a  range 
of  EUR  €19  –  67.5 
million231.  

Disclosures 
and 
marketing 
communic-
ations 

Direct 
administrat
ive costs230 

None 

None 

The costs for adapting 
existing  (automated) 
tools  to  incorporate 
the  EU  template  on 
cost disclosures under 
MiFID  and  IDD  and 
internal 
adjust 
policies, 
would 
depend  on  how  the 
format  is  developed. 
This  will  be  assessed 
while  developing  the 
relevant level 2 acts.  

Update  of  PRIIPs 
KIDs to comply with 
the  new  rules:  very 
limited cost.  

Adapting 
marketing 
communication 
templates 
and 
internal  policies 
and  procedures 
on 
marketing 
communication: 
likely 
limited 
cost, but difficult 
to quantify.  

Investment  firms  will 
incur new ongoing costs 
in relation to the annual 
statement  on  costs  and 
performance  for  clients 
who  currently  do  not 
receive 
annual 
information  on  costs 
(e.g. clients with whom 
not 
the 
considered  to  have  “an 
ongoing  relationship”). 
The  estimate  of  these 
costs  is  EUR  5  per 
client/per year232. It was 
not possible to quantify 
the  number  of  “new” 
clients  that  would  be 
covered by this233. 

firm 

is 

Negligible 
PRIIPs234 
marketing 
communications. 

for 
and 

None 

None 

Direct 
regulatory 

None 

None 

None 

None 

None 

None 

230 Although these costs relate to the substantive requirements of the proposal which are necessary for the fulfilment of 
the objective of informing retail investors, they are categorised as administrative costs for “one in, one out” purposes.    
231 It should be noted that it was not possible to estimate the number of new clients under MiFID who at present do 
not receive annual information on costs, nor was it possible to gather data on the number of clients under portfolio 
management who already receive information on costs and performance, to be able to deduct these costs from the 
estimated one-off costs (see Annex 4).  
232 Based on the Retail investment study (page 217). 
233 Considering the divergent interpretation and practices of the investment firms and Member States on the 
qualification of “ongoing relationship” in the context of costs disclosure, it is not possible to estimate the number of 
new clients under MiFID who at present do not receive annual information on costs (see Annex 4). 
234 Sustainability information in KIDs will also be updated, but this will be done based on information already 
collected and disclosed under the SFDR. This is not expected to change the frequency of updates. With regard to the 
annual cost and performance statement under MiFID and IDD, no significant additional costs in cases where clients 
already receive annual information.  

94 

 
 
 
 
  
 
                                                           
and 

fees 
charges 

Direct 
enforcemen
t costs 

None 

None 

None 

None 

None 

Indirect 
costs 

None 

None 

Possible costs related 
of 
application 
to 
digital 
in 
features 
KIDs  (voluntary,  but 
companies  may  face 
competitive  pressure 
to 
provide  more 
appealing KIDs) 

Possible 
cost  pass-
through to 
clients: 
likely 
limited by 
the  small 
size of the 
additional 
cost  

Acquisition 
or  develop-
ment 
of 
supervisory 
tools 
and 
training  for 
to 
staff 
control 
the 
extended 
scope 
marketing 
communic-
ations 
(NCAs). 

of 

Other 
measures: 
slightly 
adapting 
supervision 
to the new  
approach 

Enforcement 
of 
the  obligation  to 
vital 
include 
information 
in 
marketing 
documents 
and 
providing  annual 
low 
statements: 
cost 
implications 
expected.  

Further  costs 
to 
supervise  a  larger 
range of marketing 
techniques  under 
the 
extended 
definition.  This  is 
to 
difficult 
quantify 
it 
would  depend  on 
of 
volume 
issues 
identified 
and 
intensity  of 
supervision 
selected by NCAs. 

as 

Disclosures: 
negligible 
supervisory 
impact235 

cost 

Inducement
s 

Direct 
adjustment 
costs 

None 

None 

lower 
or 
Similar 
ongoing 
compliance 
costs  compared  to  the 
baseline scenario.  

None 

None 

Change  in  business 
models 
of 
distributors236  
(including  changing 
contracts, new billing 
systems): not possible 
to  quantify  but  large 
impact expected. 
An  extrapolation  of 
the expected costs has 
been  provided on  the 
basis of cost estimates 
which 
were 
performed  in the NL 
and UK at the time of 
introduction  of 
the 
bans  on  inducement. 
These illustrations are 
based  on  a  series  of 
and 
assumptions 
caveats  as  presented 
in  Annex  7C.  On  the 
NL 
the 
basis 

235 For PRIIPs KIDs, the scope of supervision does not change significantly (very limited number of datapoints would 
be added, which are disclosed on websites and other documents under existing legislative frameworks). Similarly, 
for the annual statement on costs and performance, there is already supervision in place and the number of 
datapoints will only increase moderately. Where more work would result, this would likely be tackled through slight 
reprioritisation rather than budget increase.   
236 e.g. more roboadvice solutions, chatbox functions or application of other digital distribution and marketing tools.   

95 

 
 
 
 
                                                           
Direct 
administrat
ive costs 

Direct 
regulatory 
fees 
charges 

and 

Direct 
enforceme
nt costs 

Indirect 
costs 

estimates, the one-off 
costs  for  investment 
asset 
and 
firms 
managers  in  the  EU 
would be in the range 
58-69 
of 
EUR 
million237.  On 
the 
the  UK 
basis  of 
estimates, the one-off 
costs  for  the  sector 
could  amount  to  a 
range  between  EUR 
15.03 
and 
13.91 
billion. The impact on 
types  of 
different 
stakeholders 
is 
presented  in  Annex 
7C. 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None238 

None 

None 

None 

None 

None 

None 

None 

Costs 
of 
enforcement  of  the 
ban (NCAs). 

None 

to 

Retail 
investors 
would 
have 
pay 
upfront 
for 
investmen
t  services, 
including 
financial 
advice,  as 
these 
costs 
would  no 
longer  be 
incorporat
ed  in  the 
overall 
fees.  The 
upfront 
payment 
for 
the 
investmen
t service is 
however 
not 
expected 
to  lead  to 
cost 
a 
increase 
for 
investors 

retail 

None 

None 

some 
Migration  of 
asset  holdings 
into 
inducement-free  share 
classes 

to 
The  changes 
existing  market 
structures 
and 
business/ 
distribution 
models, may affect 
the 
and 
cost 
revenue  base  for 
financial 
institutions.  Apart 
in 
from  changes 
the cost structure, a 
ban 
on 
inducements  may 
imply  a 
loss  of 
revenues,  but  may 
an 
also 
create 
opportunity 
for 
financial 
institutions.  The 
impact 
exact 
would  depend  on 
existing  business 
the 
models, 
that 
choices 
financial 
institutions  would 
make 
the 
in 
transition to a new 
fee  model  and  the 
duration  of  any 
transitional period. 

237 On the basis of the NL estimates it was not possible to perform an extrapolation for other types of affected 
stakeholders (such as insurance undertakings).  
238 Only sanctions in case of non-compliance to ensure the ban is adequately enforced.  

96 

 
 
                                                           
compared 
to 
the 
baseline 
(see 
indirect 
benefits).   

Direct 
adjustment 
costs 

None 

None 

and 

of 
Adaptation 
internal 
existing 
IT 
processes 
systems 
assess 
to 
VfM  of  investment 
products 
against 
bench-marks 

Direct 
administra
tive costs 

None 

None 

for 

Value 
money   

Moderate  increase  in 
supervisory reporting 
costs  from  updating 
already 
existing 
structures  (estimated 
around  €60  million 
(range 
€13-252 
million) 

None 

None 

None 

Direct 
regulatory 
fees 
and 
charges 

Direct 
enforceme
nt costs 

None 

None 

None 

None 

retail 

Loss  of  business  from 
products  that  do  not 
offer 
investors 
good  value  for  money 
and  possible  pressure 
on  margins  (both  for 
product  manufacturers 
and 
distributors): 
potentially sizeable, but 
not possible to estimate. 
In the long run, may be 
mitigated  (partially  or 
fully)  by  growth  in  the 
retail 
investment 
market 239.  

supervisory 
Ongoing 
reporting 
costs 
estimated  to  be  minor 
€2.3-22.6 
million 
annually across the EU. 
These  costs  would  be 
further  assessed  and 
refined  by  the  ESAs 
when  preparing 
their 
technical  advice  on  the 
more  detailed  rules  to 
be  adopted  by 
the 
Commission at L2. 
for 
Additional  costs 
VfM 
at  distribution 
level  could  not  be 
reliably estimated. 

Fees to cover the cost of 
may 
supervision 
increase,  depending  on 
national systems 

None 

None 

None 

None 

None 

None 

Adjustment 
of 
super-
vision by  the 
NCAs, 
including 
possible 
changes to IT 
systems 
or 
reporting 
channels.  

Enforcement 
of 
for  money 
value 
rules240  (NCAs  and 
and 
ESAs) 
development 
of 
VfM 
benchmarks 
(ESMA,  EIOPA). 
Final 
effect  not 
clear as there would 
on 
be 
savings 
of 
enforcement 
product  rules  that 
could  offset 
this 
increase in costs241.  

239 Making costs more effective may attract more investors to capital market increasing the scale of retail 
participation, thus also profits for financial intermediaries.  
240 Additional costs for NCAs to receive the relevant information from product manufacturers and pass it on to the 
ESAs are expected to be limited.  
241 Under the current framework, despite efforts by the ESAs to coordinate, some NCAs have expressed concerns 
that the rules are difficult to enforce. 

97 

 
                                                           
None 

None 

None 

None 

Indirect 
costs 

None 

Dependin
g  on  the 
of 
size 
costs 
to 
the 
industry, 
there  may 
be  a  cost 
pass-
through to 
clients.  

Flanking Measures 

Consumers 
investors) 

(retail 

Businesses  (financial  product 
providers 
financial 
and 
advisors) 

Supervisory authorities 

One-off 

Recurrent  One-off 

Recurrent 

One-off 

Recurrent 

Client 
orisation  

categ-

Direct 
adjustment 
costs 

Non
e 

None 

Marginal:  
related  to  one-
time 
re-
classification of 
some clients 

None 

None 

None 

Non
e 

Non
e 

Direct 
administrativ
e costs 

Direct 
regulatory 
fees 
charges 

and 

Direct 
enforcement 
costs 

Non
e 

None  

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

Indirect costs  Non

None 

None 

None 

None 

None 

e 

Non
e 

Direct 
adjustment 
costs 

Enhance
d 
suitabilit
y 
and 
appropria
teness 
assess-
ments 

None 

None 

Retail 
clients 
would 
spend  more 
time  filling 
out 
suitability 
and 
appropriate
ness 
assessments
. 

to 

Adjust-
ments 
IT 
systems 
and 
training of 
financial 
advisors: 
estimated 
approxim
ately 
in 
the  range 
of  €12.5-
48.5 
million.242 

for 

More time 
dedi-
to 
cated 
suitability 
and 
appropriat
eness 
assessme
nts 
exist-ing 
and  new 
clients: 
estimated 
approxim
ately 
in 
the  range 
€7.1-
of 
19.1 
million.243 

242 For breakdown of this figure and estimation details including key assumptions, refer to Annex 8. 
243 For breakdown of this figure and estimation details including key assumptions, refer to Annex 8. This is mostly driven 
by the enhancement of the suitability assessment. 

98 

 
 
 
 
 
 
 
                                                           
Non
e 

Non
e 

Direct 
administrativ
e costs 

Direct 
regulatory 
fees 
charges 

and 

Direct 
enforcement 
costs 

Non
e 

Indirect costs  Non

e 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

pass-

the 

Possible 
cost 
through 
from 
financial 
sector. 

Supervisory  
enforcement 

Direct 
adjustment 
costs 

Non
e 

None 

Adjustment 
to 
rules  on  com-
plaints handling 

Running 
reinforced 
complaints 
process 
quantified) 

(not 

More  data  fields 
to  assess  in  case 
of  a  complaint, 
but possibly more 
to 
simple  due 
standartisation: 
overall 
impact 
negligible 

cost 
likely 

Maintenance  costs  for 
centralised 
the 
reporting  tool  and  for 
the  tool  for  reported 
data  on  cross-border 
activity. 

Possibl
e  costs 
to adapt 
IT 
system
s 
to 
process
/verify 
digitali
sed 
inform
ation. 

for 

Setting  up  a 
centralis-ed 
tool 
reporting 
potential 
scams  
and  updating 
reporting 
tool  for  data 
on 
cross-
border 
activity 
would  imply 
for 
costs 
ESAs 
(not 
quantified) 

Establishing 
processes  for 
increased 
enforcement 
and 
information 
exchange 
between 
NCAs 
ESAs.  

and 

None 

Increased  enforcement 
in some Member States 
increased 
and 
information  exchange 
between  NCAs  and 
ESAs:  

face 
NCAs  may 
costs 
further 
depending  on  any 
increased 
of 
(new) powers. 

use 

Direct 
administrativ
e costs 

Non
e 

None 

None 

None 

Adjustment  of 
to 
documents 
include 
risk 
warnings  
(negligible) 

Ongoing  costs 
additional 
of 
reporting 
of 
cross-border 
activities 
quantified) 

(not 

None 

None 

None 

None 

None 

Non
e 

Direct 
regulatory 
fees 
charges 

and 

Direct 
enforcement 
costs 

Non
e 

None 

None 

None 

Indirect costs  Non

None  

None 

e 

99 

the 

Some  of 
increased 
enforcement 
costs 
ESAs 

for 

the 
and 

 
 
 
 
 
 
Qualificatio
n of advisors 

Direct 
adjustment 
costs 

Non
e 

None 

NCAs  may  be 
reflected 
in 
higher 
supervisory 
fees. 

None 

None 

Advisors 
and 
their  firms  may 
incur  additional 
costs 
to  meet 
higher 
professional 
requirements 

and 

Some  
investment 
firms 
insurance 
distributors 
would  incur 
higher  costs 
of 
continuous 
training  and 
associated 
processes, 
depending 
on  the  level 
of 
current 
standards.   

Non
e 

Non
e 

Direct 
administrativ
e costs 

Direct 
regulatory 
fees 
charges 

and 

Direct 
enforcement 
costs 

Non
e 

Indirect costs  Non

e 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

None 

Possible 
costs 
linked 
to 
adaptation 
of 
supervisor
y practices 

Possible 
increase  in 
fees 
charged 
to 
customers, 
correspond
-ing  to  an 
increased 
quality  of 
services 

Costs related to the ‘one in, one out’ approach 

None 

None 

Direct 
adjustment 
costs  

Inducements: 
large  market 
adjustment 
impact;  could 
not 
be 
quantified 

Total 

to 

for 

Value 
Money: 
adaptation 
revised 
product 
governance 
rules  and  use 
of 
benchmarks; 
not  possible  to 
quantify 

of 

for 

Value 
money: 
loss 
revenues 
for 
products 
that  do  not 
offer  good 
VfM,  but 
could  not 
be  reliably 
quantified.
244 

Flanking 
measures: 
reinforced 

244 Over time, this is expected to be (partially) mitigated by growing retail investment participation and greater use of 
payment-based financial advice and alternative distribution models such as roboadvice. 

100 

 
 
 
 
 
 
                                                           
to 

Flanking 
measures: 
adjustment 
rules on  
complaints 
handling  and 
to  meet  higher 
requirements 
for 
one-time 
reclassificatio
n  of  clients: 
could  not  be 
quantified  but 
expected  to  be 
rather low 

advisors; 

None 

Indirect 
adjustment 
costs 

Inducements
: 
direct 
payment  for 
financial 
and 
advice 
services  or 
alternative 
ways 
obtain 
information 

to 

All 
measures: 
possible pass 
of 
through 
costs 
to 
clients 
(likely 
limited 
the 
expected 
size  of  some 
impacts  on 
the industry) 

by 
low 

in 

Flanking 
measures: 
possible 
increase 
advisory 
fees  charged 
to  customers 
due to higher 
qualification 
requirements  

None 

None 

Admin-
istrative 
costs 
offsetting) 

(for 

Inducements: 
enhancing 
digital and other 
alternative 
distribution 
models 
possible 
quantify; 
offsetting 
factors 
expected245); 
migration 
some 
holdings. 

(not 
to 
large 

of 
asset 

Disclosures: 
voluntary  costs 
for  application 
digital 
of 
features 

Disclosures 
and  marketing 
communicat-
ions: 
adaptation  for 
annual 
statement 
approximate 
range  of  EUR 
€19  –  67.5 
million,  some 
cost  impact  of 
to 
adaptation 

in 

complaints 
process  and 
additional 
training  for 
financial 
advisors 
(could  not 
be 
quantified) 

None 

Disclosures 
and 
marketing 
communica
t-ions: 
providing 
annual 
statement 
to 
clients:  
EUR  5  per 
client/per 
year 

(total 

new 

245 Notably the ongoing savings from not having to pay inducements to financial advisors.  

101 

 
 
 
 
 
 
 
 
 
 
                                                           
template 
cost 

EU 
on 
disclosures: 
cost 
be 
to 
assessed at L2. 
cost 
Limited 
impact 
of 
marketing 
communicatio
n 
(not 
quantified)246.   

measures 

for 

Value 
Money: 
supervisory 
reporting  costs 
to 
estimated 
amount 
to 
between 
(approximate) 
EU  total  €13-
€192  million 
(costs 
to  be 
further  assessed 
at  L2  by  the 
ESAs247) 

Flanking 
measures: 
Adjustment  of 
to 
documents 
include 
risk 
warnings 
(negligible). 

not 

could 
be 
quantified). 
Negligible 
cost  impact 
for  PRIIPs 
and 
marketing 
communica
tions248. 

for 

Value 
Money: 
supervisory 
reporting 
EU  total  of 
€2.3-32.2 
million  per 
annum 
(costs  to  be 
further 
assessed  at 
L2  by  the 
ESAs)249 

Flanking 
measures: 
Ongoing 
costs 
additional 
reporting  of 
cross-border 
activities.  

of 

3. RELEVANT SUSTAINABLE DEVELOPMENT GOALS 

III. Overview of relevant Sustainable Development Goals – Preferred Option(s) 

Relevant SDG 

Expected progress towards the Goal 

Comments 

SDG no. 8 – decent work and 
economic growth 

Indirect impact on target 8.10 “Strengthen the 
capacity of domestic financial institutions to 
encourage  and  expand  access  to  banking, 
insurance  and  financial  services  for  all”  by 
encouraging  retail  investment  participation 
and  better  investment  outcomes  for  retail 
investors.  Further  impact  is  expected  on 
accumulation  of  more  money  to  finance 
retirement and other life needs.  

By  shifting  the  incentives  for  financial 
advisors  towards  the  interests  of  retail 
investors  and  addressing 
informational 
deficiencies  that  hinder  sound  decision-
making, this initiative can increase trust and 
participation of citizens in financial markets 
through  retail  investment  products.  Retail 
investors would be also more likely offered 
products  which 
cheaper 
translates  into  being  able  to  accumulate 
more money over time for their life needs.  

investment 

246 Although these costs relate to the substantive requirements of the proposal which are necessary for the fulfilment of 
the objective of informing retail investors, they are categorised as administrative costs for “one in, one out” purposes.    
247 The supervisory reporting costs for Value for Money do not take into account cost reductions from synergies with the 
supervisory reporting introduced by the AIFMD review. 
248 Although these costs relate to the substantive requirements of the proposal which are necessary for the fulfilment of 
the objective of informing retail investors, they are categorised as administrative costs for “one in, one out” purposes.    
249 Additional costs for VfM at distribution level could not be reliably estimated. 

102 

 
 
 
 
 
 
 
 
                                                           
Multiple  SDGs, 
notably 
SDG no. 13 – climate action 

increase 

The inclusion of an ESG dashboard in PRIIPs 
KIDs  would 
the  visibility  of 
environmental  and  social  factors  towards 
retail  investors,  indirectly  contributing  to 
greater  emphasis  on  these  factors  in  the 
financial markets 

More visible presentation of information on 
the  sustainability  profile  of  investment 
products would contribute to greater use of 
such  information  when  selecting  products 
and  could  produce  a  behavioural  nudge 
towards  more  sustainable  products.  The 
impact would link more with SDG no. 13 as 
existing  sustainability  metrics  focus  more 
on climate impacts.   

103 

 
ANNEX 4: DISCLOSURES AND MARKETING COMMUNICATIONS 

This Annex presents in more detail the measures proposed under Options 2 and 3 of the impact assessment 
in the area of disclosures and marketing communications, as well as a number of technical measures.  

Option 2: Targeted changes to disclosure rules to improve their relevance for retail investors 

Measures relating to the PRIIPS Key Information Documents (KIDs) 

This part of the annex further elaborates on the measures suggested with regards to PRIIPs KID under the 
Option 2 for addressing informational deficiencies.  

1. 

Digital KIDs and the inclusion of a dashboard summary 

1.1 Problem description 

The  Joint  ESA  advice  on  digital  finance  and  the  results  of  the  Retail  investment  study  evidenced  that 
disclosures to retail investors, including those in PRIIPs KIDs, are not sufficiently adapted to the digital 
age. For instance, there are constraints and inconveniences to the use of KIDs on smartphones and for the 
use of layering250, which could help reduce the information overload, that was also well-documented by the 
Retail  investment  study.  This  deprives  retail  investors  from  receiving  disclosure  information  in  a  more 
engaging way. The evaluation published in parallel to this impact assessment also confirms that this limits 
the effectiveness and coherence (notably in contrast with PEPP KID) of the framework on disclosure rules 
for retail investors.   

Key information documents can be provided to retail investors on paper, using a durable medium 
or, under certain conditions251, by means of a website. When provided through a website, PRIIPs 
requires that the client can durably download a KID and consult it for a certain period. The current 
legal text hence does not prevent digital use of KIDs, including possible layering of information, 
but it also does not encourage it. While it provides some flexibility for supervisors to specify the 
details of the presentation of a KID when distributed electronically, it prevents changes to the order 
of  the  PRIIPS  KIDs  sections.  Under  the  current  legal  framework,  this  would  limit  layering  to 
presenting  the  information  in  a  menu  to  display  the  headings  and  hide/unhide  the  information, 
which  may  not  be  sufficient.  Moreover,  KIDs  are  currently  not  well  adapted  to  be  viewed  on 
different electronic devices (such as smartphones or tablets), which are becoming the dominant 
way in which especially younger generations of investors access information about their accounts 
and investment products. 

At the same time, information from PRIIPs KIDs is already set to become easier to be used digitally under 
the baseline, as the contents of PRIIPs are set to become available through the European Single Access 
Point  (ESAP)  in  a  data  extractable  format  as  of  2026,  pending  the  outcome  of  the  negotiations  on 

250 Layering is a practice of organizing information into related groupings and then presenting or making available only 
certain groupings at any one time. In the case of PRIIPs key information documents, this implies breaking down each 
section of a document into layers in order to allow for a simplified view (first layer) where only several pieces of 
information are shown, with a possibility to expand the view to see the more details for any section of interest. 
251 Notably, the regulation requires that the retail investor should be given the possibility to choose between 
information provided on paper and information by electronic distribution (cf. Paragraph 5(b) and in case of 
electronic distribution a paper copy should be provided upon request (cf. paragraph 3). 

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Commission’s proposal252. The targeted changes in PRIIPs discussed in this annex are considered to be 
coherent and complementary with the inclusion of PRIIPs KIDs in ESAP. While ESAP will improve access 
to and digital use of information in PRIIPs KIDs by requiring that they are submitted to ESAP in a data 
extractable format, targeted changes proposed in this impact assessment would make this information more 
user-friendly for the reader. Easier digital use is unlikely to significantly affect the necessity to read the 
KID  by  retail  investors  and  financial  advisors,  notably  when  assessing  characteristics  of  a  specific 
investment products. As the KID presents key information about a product in one place and in 3 pages, it 
is expected to remain a crucial document, hence the need to make the document more user-friendly remains 
relevant as well. 

1.2 Proposed measures  

Proposed  measure  A1:  Adapting  the  PRIIPS  KIDs  to  the  digital  environment  and  increasing  the 
usability of its information 

The Advice of the ESA joint committee on PRIIPs pointed to the fact that digitization can facilitate 
a more consumer-centric approach and provide retail investors with interactive tools, which could 
make  information  more  engaging  and  easier  to  understand.  This  may  help  overcome  the 
fear/reticence  of  retail  investors  to  engage  with  financial  information.  This  option  would 
implement specific recommendations of the ESAs outlined below: 

1.  Allowing the use of layered approach, i.e. interactive web-based formats would allow for 
the  presentation  of  information  in  multiple  layers,  allowing  for  sequential  presentation  of 
product information to investors and minimizing the impression of information overload for 
retail investors.  

2.  Allowing more flexibility in the digital presentation of PRIIPs KIDs and some degree of 

personalisation or customisation in the 3-page PDF document:  

1.  The inclusion of a menu, contents sidebar or similar feature on a webpage, which the reader 
can  use  to  immediately  go  to  different  sections  of  the  disclosure  (for  example  to 
information on risks, the costs of the product, or how to complain). 

2.  Facilitating greater inclusivity by, for example, adding functionality to make information 

accessible to visually impaired consumers253.  

3.  Interactivity: marketing staff should be authorised and enabled to present a personalised 
KID  or  to  compare  different  products  on  the  same  webpage.  This  would  allow  retail 
investors to personalise the information, such as the holding period or investment amount, 
as well as choose how the information is presented, for example in a graph or a chart.  

4.  They should be able to retrieve the KID and the results of this simulation. 

ESMA would be mandated to develop more specific rules for layering of information and digital 
presentation of KIDs (e.g. specifying vital information to appear in the first layer or to ensure that 
navigation between the layers is straight-forward). 

Proposed measure A2: summary dashboard 

252 Commission Proposal amending certain Regulations as regards the establishment and functioning of the 
European single access point, COM/2021/725 final. 
253 This can be achieved through the presentation and format by providing, for example, sufficient contrast 
between colours, making it possible to enlarge font size and limiting colour in the interface. 

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This option would add a short summary dashboard in the PRIIPs KID, based on the example of 
the PEPP KID, where consumer testing has demonstrated that a dashboard may be an effective 
way to quickly understand key elements in a static format such as a PDF254. While specific contents 
would be determined at Level 2 PRIIPs to allow for sufficient flexibility, the PRIIPS dashboard 
would  likely  include  basic  elements  on  the  costs,  performance,  and  risks  of  the  product.  This 
dashboard would take some space among the 3-page PRIIPS KID, which may leave less room for 
other content. As is currently the case, it will be up to the RTS to determine how to distribute the 
available space among the different types of content required at Level 1 to ensure that the 3-page 
limit is adhered to.  

1.3 Assessment of the proposed measures 

Benefits: Improved presentation of the PRIIPs KID by greater use of layering and inclusion of a 
summary dashboard would make it easier for retail investors to understand key characteristics of 
the  investment  product  they  are  considering  (e.g.  its  costs,  performance  or  whether  there  are 
guarantees).  This  would  help  achieve  specific  objective  1  ”Improve  information  provided  to 
investors and their ability to take well-informed investment decisions” by helping retail investors 
understand investment products. Through this, it would to some extent contribute to facilitating 
the choice of a product that matches their needs. It would also bring an opportunity for PRIIPs 
manufacturers to attract retail investors to their products as consumers are more likely to purchase 
products they understand.  

Costs:  This option implies a one-time adjustment of PRIIPs KIDs (and automated tools that the 
industry typically uses to develop them) to adapt to the new rules.  

Affected groups of stakeholders: 

1.  Industry: This option would enable PRIIPs manufacturers to make greater use of layering 
and digital formats in KIDs. This could make disclosure documents and potentially also 
some of their products, more easily understandable and attractive for consumers. At the 
same time, while the use of layering would remain voluntary, PRIIPs manufacturers may 
feel competitive pressure to make use of these new possibilities. This option also implies 
a slight change in the format of PRIIPs KIDs. Where a new summary dashboard would be 
added, this would imply a one-time change of KIDs and related costs which are expected 
to be relatively small (as discussed above) and some prioritisation of textual information 
to fit in the page limit.  

2.  Consumers: retail investors would clearly benefit from more user-friendly disclosures as 
they  would  be  able  to  more  effectively  search  for  information  they  need  to  make  their 
decision and read it with more convenience on smartphones and tablets. Especially younger 
consumers  would  benefit,  as  they  use  smartphones  more  for  this  purpose.  Clear 
specifications at Level 2 would prevent potential misrepresentation of information when 
layering is used.  

3.  Supervisors: only limited impacts are expected for national supervisory authorities, as they 
would  need  to  slightly  adapt  their  approach  to  supervise  and  enforce  rules  for  digital 
formats. Supervisors themselves have not voiced any significant concerns in this regard. 
No  significant  impact  is  expected  on  the  resources  of  ESMA  and  EIOPA,  as  their 

254 See: https://www.eiopa.europa.eu/sites/default/files/publications/pepp-consumer_testing_final_report.pdf 

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involvement  and  roles  under  this  option  can  be  performed  as  part  of  their  existing 
regulatory and supervisory work.    

Stakeholder  views:  This  option  has  strong  support  of  stakeholders.  In  response  to  the  Call  for 
Evidence, the majority of stakeholders including consumer associations as  well as insurers and 
asset managers also expressed support for being able to present the KID in a layered format. 

Overall, these measures are complementary and would both bring additional benefits at little expected cost 
and would contribute to the objectives of the Retail investment strategy. Hence, based on the assessment 
above, both measures A1 and A2 have been selected to be part of the preferred option.  

2.  

Presentation of Environmental, social and governance (ESG) information in PRIIPs KIDs 

2.1 Problem description 

Retail investors have a demonstrable need for information on the sustainability performance of the 
financial products and the companies in which they invest. Recent EU legislative initiatives such 
as the SFDR, the CSRD, and the provisions on disclosure in the Taxonomy Regulation seek to 
provide  information  that  can  be  useful  for  investors,  including  retail  investors,  to  understand 
relevant  sustainability  aspects.  While  much  of  this  data  has  become  or  is  becoming  available 
through websites and documents, these disclosures may be rather complex for retail investors to 
navigate and may not be sufficiently visible to them. 

As  the  PRIIPs  KIDs  provide  key  information  on  financial  products,  they  should  also  include 
information about the sustainability profile of investment products. The PRIIPs Regulation already 
includes a requirement for ESG information to be included in the KID as part of the product’s 
objectives within the ‘What is this product?’ section (Article 8(3)(c)(ii)), where this is applicable.  

However, despite empowerments in the Regulation that would allow both the Commission and the 
ESAs to further specify these disclosures, those empowerments were not exercised, partly due to 
a preference to wait and adapt to the development of other EU legislative initiatives relating to 
sustainability  disclosures.  This  has  included,  in  particular,  the  adoption  of  the  SFDR  in  2019, 
followed by the ESAs’ draft RTS, specifying the content and presentation of sustainability-related 
disclosures in the prospectus of investment funds, in the KIDs of PEPPs, and, for IBIPs as part of 
pre-contractual disclosures to policy holders under Solvency II. 

In  the  responses  to  the  ESAs’  call  for  evidence  on  PRIIPs  in  the  context  of  the  Joint  ESA 
committee’s advice, several respondents raised the issue of the inclusion of ESG information in 
the PRIIPs KID. In particular, EFAMA indicated that the current format of the PRIIPs KID does 
not allow inclusion of information on the ESG profile of investment products in a way that would 
provide sufficient visibility255. In addition, the evaluation (Annex 11) confirmed that this poses a 
challenge with regards to relevance of PRIIPs KIDs.  

2.2 Proposed measures  

Proposed measure B:  ESG dashboard in PRIIPs KIDs 

255 Excerpt from EFAMA response: "We consider the current nature of the PRIIP KID to be overly prescriptive in each 
of the elements to be disclosed, making it impossible to insert the (soon to be needed) ESG information into the 
PRIIP KID (unless it is squeezed together with ‘other information’, such as a link to the past performance), which 
would be unhelpful in providing such new key information elements to investors.". 

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The proposed measure entails adding an ESG dashboard in PRIIPs KIDs, as a dedicated section that would 
present  key  ESG  information  about  the  product.  A  dashboard  would  draw  from  available  data  about 
investment products that are collected under existing sustainable finance disclosures under the SFDR. It 
would take into consideration relevant developments in the sustainable finance legislative framework. This 
information  could  include the  environmental  and  social objectives that are  pursued  by  the  product,  and 
relevant KPIs and infographics on the share of the product that is invested into Taxonomy-aligned activities, 
information  on  sustainability  risks,  the  principle  adverse  impacts  of  the  product,  and  other  types  of 
information included in pre-contractual documentation under SFDR.  

Compared to exercising level 2 empowerments, the specification at level 1 would allow:  
1. 
2. 

To present ESG information in a separate section in the KID.  
To  specify  at  level  1,  details  on  the  type  of  ESG  information  that  should  go  into  this 
section/dashboard, thereby increasing legal certainty.  

Discarded option: Exercising the existing empowerments in the PRIIPs Regulation. This option would 
give  further  details  on  how  the  requirements  of  Article  8(3)(c)(ii)  of  the  PRIIPs  Regulation  should  be 
specified, and in particular, in light of the extensive work that has been conducted by the ESAs under the 
SFDR, which ESG information – and in what format – should be included in the PRIIPs KID, including 
what  is  envisaged  under  SFDR,  and/or  how  the  ESG  reference  included  under  the  SFDR  should  be 
referenced in the PRIIPs KID (as suggested by some stakeholders such as EFAMA) and the implications 
from a consumer perspective.  
However, this option would not allow for the creation of a separate or dedicated section of the PRIIPs KID 
devoted to ESG information, as the name and order of sections are governed by the level 1 Regulation. 
Hence, this information would be less visible to investors. 

2.3 Assessment of the proposed measures 

Benefits: With an ESG dashboard, the PRIIPs KID would act as a snapshot on ESG information, 
with a reference to the pre-contractual disclosure documents where the full set of ESG information 
is available. It would provide easy access to basic ESG information on an investment product in 
the PRIIPs KID, such as Taxonomy-alignment and ESG objectives, risks, and impacts. This would 
allow retail investors to easily compare products with respect to ESG elements, avoiding the need 
to browse through multiple documents to obtain basic product and ESG information.  

Costs:  The ESG dashboard would be devised in such a way as to only reuse information, KPIs, 
and infographics that are already included in other pre-contractual documents, such as on the share 
of the product  that is  invested into Taxonomy-aligned  activities.  In this  way, costs for product 
manufacturers would be minimal, and the information will already be under supervision through 
the SFDR.   

Affected groups of stakeholders:  

1.  Industry: PRIIPs manufacturers will need to update their KID production processes and ensure 
that  the  information  from  the  SFDR  product  disclosures  is  included  in  the  ESG  dashboard 
where necessary. When SFDR product disclosures are updated, this will need to be reflected in 
the PRIIPs KID, but this is not a significant additional burden as there are already requirements 
to  regularly  update  PRIIPs  KIDs  and  information  from  SFDR  product  disclosures  is  not 
expected to change with a particularly high frequency.  

2.  Consumers: Retail investors would have easy access to ESG information and be able to more 

easily understand and compare products along this dimension.  

3.  Supervisors:  No impact expected, as the information will already be under supervision through 

the SFDR.   

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Stakeholder  views:  The  inclusion  of  ESG  information  in  the  KID  was  requested  by  several 
environmental NGOs and also by parts of the fund industry. There are no stakeholders that are 
specifically opposed to the inclusion of such information in the KID, as far as we are aware.  
Based on the assessment above, measure B has been selected to be part of the preferred option.  

3.  

Transparency of costs of Multi-Option Products (MOPs) in PRIIPs KIDs 

3.1 Problem description 

One of the most specific technical issues identified as part of the evaluation activities256 has been 
transparency on costs in the case of KIDs for insurance Multi-Option Products (“MOPs”). MOPs 
are PRIIPs which consist of a wrapper (insurance contract) and an underlying investment where 
clients  choose  between  multiple  options  (up  to  several  hundreds).  In  some  countries,  they 
constitute  envelopes  that  enable  retail  investors  to  make  investments  under  advantageous  tax 
conditions. The investment options are usually made up of collective investment products that are 
themselves  packaged  (e.g.  UCITS  funds).  Therefore,  the  retail  investor  bears  the  costs  of  two 
packages:  the  first  is  the  insurance  product  itself  (the  wrapper),  the  second  is  a  collective 
investment vehicle (UCITS or other). This double level of fees makes it difficult to understand the 
total costs borne by the retail investor.  

The Advice of the ESA joint  committee  confirms  that it is  sometimes difficult  for investors to 
identify  the  total  costs  related  to  a  particular  investment  option  and  that  information  on  the 
underlying investment option typically does not include the total costs of investing in that option 
(because the cost of the wrapper is found in a separate document). This hinders retail investors’ 
ability to comprehend costs related to these products and hence reduces the effectiveness of PRIIPs 
KIDs for this market segment. This also poses a moderate challenge to the internal coherence of 
the PRIIPs framework, as the level of transparency of costs of different products is not the same. 

Under the PRIIPs Regulation, MOP manufacturers have two options:  

1. 

2. 

produce as many KIDs as there are investment options. Each KID shall include both the 
costs of the wrapper and the costs of the chosen investment options; 
produce one generic KID for the wrapper and one specific information document for each 
investment option. 

Since the main purpose of a PRIIP KID is to inform retail investors on the cost of each financial 
product and to allow them to compare these products, the current situation leads to some concerns 
which have been also voiced by the ESAs: 

1. 

It is difficult for retail investors to identify the total costs related to a particular option they 
are  considering.  The  generic  KID  usually  shows  only  a  range  of  costs  (from  the  most 
expensive investment option to the least expensive), but does not always identify which 
costs  are  specific  to  the  investment  option  and  which  costs  are  related  to  the  insurance 

256 This issue is rather covered here as a more technical issue, with only a short mention in the evaluation annex, to 
keep the relevant explanations close to the text that assesses the problem and possible solutions.   

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contract. This would be necessary, as the costs of the insurance contract are usually not 
fixed and depend on the investment option selected. The costs may be sufficiently high to 
significantly affect the performance of this investment option, especially over longer time 
periods  (assuming  compound  interest).  This  hinders  investors’  ability  to  understand  the 
implications of their choices between different options and hence could make such choices 
less likely to lead to the right product for them.  
When investors are provided a specific information document for each investment option, 
it does not usually include the total costs of investing in that option. This does not allow 
sufficient transparency on total costs for retail investors. This situation could further affect 
retail investors’ ability to compare different MOPs with each other, especially in situations 
where two or more MOPs they are choosing from use a different presentation of options in 
the fund catalogue.  
Information  on  the  exact  costs  of  the  selected  combination  of  underlying  options  plus 
package is not explicitly required by the PRIIPs RTSs, and is often not provided within the 
KID documentation. The provision of this information may require the dynamic calculation 
of costs, depending on the underlying options chosen in each case, as it is not possible to 
know in advance which allocation retail investors will choose. 

2. 

3. 

3.2 Proposed measure 

Proposed measure C: Adapting PRIIPS KIDS to MOPs 

Assessing  the  current  situation  regarding  MOPs,  and  taking  into  account  the  ESAs 
recommendations,  the  following  areas  for  improvement  were  identified:  1)  Improving 
transparency on the costs of the insurance contract; 2) Demonstrating more clearly the impact of 
the  costs  of  the  insurance  contract,  for  example  on  the  performance  of  the  product;  3)  Better 
facilitating comparison between retail investors' investment options within a MOP and between 
different MOPs; and 4) Better reflecting how different investment options can be combined within 
a MOP. 

Building on the ESAs’ recommendations, this option would require manufacturers to develop and 
use an online digital tool that would allow retail investors to compare different investment options 
in order to establish the best combination suited to their needs. This IT tool would give dynamic 
“real-time” information on costs to retail investors. It should distinguish very clearly between the 
costs due to the wrapper and the costs due to the selected investment options. After having filtered 
the  investment  options  that  interest  them,  retail  investors  could  then  view  the  KID  or  specific 
information documents related to the more limited set of investment options that interest them. 
Under this option, the content of this tailored KID would still be derived from the KIDs drawn up 
by the PRIIP manufacturers, and liability would remain with the PRIIPs manufacturer.  

Discarded  option:  An  option  was  considered,  but  discarded, to  require KIDs to  be  produced for  all 
combinations. This option would not be optimal as it would be costly for PRIIPs manufacturers and could 
lead to information overload for retail investors when the number of underlying options is significant. In 
fact, there are signs that the existing number of KIDs for MOPs already leads to some degree of information 
overload. To make sound decisions, investors need to have a comprehensive view of the total costs, with 
both the costs related to the wrapper and those related to the underlying investments. 

3.3 Assessment of the proposed measure 

Benefits:  Improvements to the presentation of cost information in the PRIIPs KID for MOPs are 
expected to increase transparency on costs for this segment of retail investment products, where 

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total costs are particularly challenging to understand. This would directly benefit retail investors, 
making  it  easier  for  them  to  understand  key  features  of  investment  products  and  contribute  to 
making  retail  disclosures  more  fit  for  purpose.  Indirectly,  this  would  also  contribute  to  SO3, 
“Ensure that retail investors are offered cost effective products effective”, as making total costs of 
MOPs  more  transparent  and  easier  to  compare  could  increase  the  pressure  on  costs  of  these 
products. It would also contribute to greater coherence of the PRIIPs framework, levelling the field 
between MOPs and other products within PRIIPs scope on transparency of costs.  

Costs:  Development of a tool to display total costs of combinations of a wrapper and different 
options would naturally imply certain one-off costs. These costs would be difficult to estimate and 
would likely vary between companies, based on the solution selected, their in-house IT resources 
and other factors. It is likely that such a tool would not need to be very advanced and would likely 
be similar to other tools that PRIIPs manufacturers already have in place, which would help ensure 
that costs are reasonable.   

Affected groups of stakeholders: 

1.  Industry: There would be limited one-off costs related to the development of such online 
tools (as discussed above). Further economic impacts could materialise in the long run, in 
case the greater transparency on costs of these products leads to product switching, either 
towards other MOPs or for instance to UCITS.   

2.  Consumers: This measure would increase transparency towards consumers with respect to 
total costs they would pay for MOPs (and possibly finding other characteristics about these 
products more easily through digital means). Indirectly, this could contribute to making 
these products cheaper in the long run, as it may encourage product switching.  

3.  Supervisors: Only negligible impact is expected with respect to resources, as supervisors 
would only need to somewhat adapt enforcement to check whether the adapted rules are 
followed. Since the information would be presented digitally and more transparently, it 
would also be likely somewhat easier to check for the supervisor, effectively increasing 
oversight over this market segment.  

Stakeholder views: Stakeholder views differ between groups. While the option would appear to be 
overall supported and notably by supervisors and consumer associations, stakeholders from the 
insurance sector are more sceptical. Some indicated a preference to keep the status quo (which 
however seems suboptimal from other perspectives).  

Based on the assessment above, measure C would bring useful benefits and increase coherence 
within PRIIPs. As such, it has been selected to be part of the preferred option.  

4. Clarification of the scope of PRIIPs regarding corporate bonds and immediate annuities 

4.1 Problem description – corporate bonds 

Another technical issue that is covered in this annex is the lack of legal clarity over the exclusion 
of certain types of corporate bond from the scope of PRIIPs, which according to some stakeholders 
is one of the factors limiting the offer of these instruments towards retail investors.  

Plain corporate bonds (i.e.  which are not particularly complex) have a number of advantages that 
would seem to justify their purchase by retail investors. For example, they are relatively easy for 

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investors to understand and, compared to equities, corporate bonds issued by the same issuer are 
considered  a  less  risky  form  of  investment.  From  the  point  of  view  of  the  issuer,  more  retail 
investor participation in corporate bond markets would benefit companies by giving them a more 
diversified investor base for their funding needs. 

It is therefore unfortunate that there has been a decline in the number of corporate bonds sold to 
retail investors in the recent years. In a study conducted in 2021 by BaFin, the German national 
competent supervisor notes an overall decline in the total value of annual corporate bond purchases 
by retail investors from 4.5 billion Euros in 2016 (which was before the entry into force of PRIIPs 
on 1 January 2018) to around 2.5 billion Euros in 2019. Other asset classes, such as government 
bonds or DAX stocks, which are excluded from the application of the PRIIPs Regulation, have not 
seen such declines. 

It would appear that there is a link with the requirements of the PRIIPs Regulation, even as plain 
corporate bonds do not satisfy requirements to be included in the PRIIPs scope257. In 2019 the 
ESAs observed that: “Uncertainty over the application of the PRIIPs Regulation to bonds, has led 
to negative consequences for the functioning of bond markets, and access to these markets by retail 
investors.258”  

The uncertainty was especially linked to  bonds  with  so-called  “make-whole clauses”, which is 
defined in the supervisory statement as “a clause that allows the issuer to pay off the remaining 
debt early using a reference rate to determine the net present value of future coupon payments that 
will not be paid”. Because the investor is exposed to a reference rate should the issuer call back 
the bond, some issuers had interpreted the make-whole clause  as meaning that the bond was a 
PRIIPs, according to criteria 1 in recital (6). However, the Supervisory Statement did not settle the 
matter of whether bonds with make-whole clauses should be categorised as PRIIPs259. Although 
NCAs were recommended to apply the guidance when supervising these requirements, this still 
resulted in significant uncertainty remaining on the market. And as illustrated above, the limited 
offer of plain corporate bonds to retail investors may be partially explained by this legal clarity 
issue260. 
In the Call for Evidence, the ESAs asked for views and experiences regarding the Supervisory 
Statement.  The vast majority of respondents expressed support for the Statement while also stating 
that there remains legal uncertainty on the application of the PRIIPs Regulation to bonds, given 
that  the  Statement  is  a  non-binding  measure.  Some  respondents  also  argued  that  a  number  of 

257 In the PRIIPs Regulation, recital (6) explains that the scope should include “all products, regardless of their form 
or construction, (…) where: i) the amount repayable to the retail investor is subject to fluctuation because of exposure 
to reference values, ii) or subject to the performance of one or more assets which are not directly purchased by the 
retail investor.” Plain corporate bonds do not satisfy either of these requirements, as the repayable amount is fixed (= 
the coupon and the principal) and the asset (the bond) is held directly by the retail investor.  
258 ESAs: Supervisory Statement on the application of the scope of the PRIIPs Regulation to bonds (JC 2019 6497). 
259 It concluded that: “The inclusion of a clause that allows the issuer to pay off the remaining debt early using a 
reference rate to determine the net present value of future coupon payments that will not be paid (i.e. make 
whole) is expected to mean that the amount repayable to the retail investor is subject to fluctuations because of 
exposure to reference values. However, where the mechanism to calculate the discount rate is known in advance 
to the retail investor, this could be considered as a separate case, which does not satisfy the criteria in Article 4(1). 
Therefore, not all callable bonds are considered to be in scope, but some are expected to be on the basis of the 
specific “callable” feature, as well as depending on the other contractual features of the bond.” 
260 Other factors are likely involved as well, such as typical higher amounts needed for an investment or low 
liquidity of such bonds in secondary markets, but these are outside the remit of PRIIPs and the Retail investment 
strategy more broadly. 

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additional features of bonds, in particular “make-whole” clauses, should not result in a bond being 
deemed  a  PRIIP.  As  a  result,  plain  vanilla  corporate  bonds  are  still  hard  to  access  for  retail 
investors since it has not been fully clarified that these financial products are not considered as 
“packaged” retail investment products (PRIIPs). Consequently, these bonds cannot be purchased 
by retail investors unless the issuer of the bond publishes a KID.  

Apart from retail investors, stakeholders particularly affected are: 

1.  Non-European firms which do not explicitly market their bonds to European retail investors and 

therefore do not publish a KID in Europe, or 

2.  European firms that do not want to take the risk associated with the publication of a KID. The 
industry standard is that issuers sell their bonds to their bank consortium and have no further 
interest in the reselling of these bonds by the banks, in particular to retail investors. It would 
therefore seem that the entities most disadvantaged by this situation are the banks that resell the 
corporate bonds. 

4.2 Problem description – immediate annuities 

There  is  also  an  issue  with  the  legal  clarity  concerning  inclusion  or  exclusion  of  immediate 
annuities in the PRIIPs scope. Annuities are products which pay a monthly income for a certain 
period of time based on an existing lump sum. Within this product space, immediate annuities are 
retirement products without a saving or accumulation component which considerably reduces risks 
to retail investors. There is a problem with inconsistent treatment of these products with regards 
to PRIIPs scope across the Union, with only several Member States considering them to fall within 
the  scope  of  the  PRIIPs  Regulation.  The  Joint  Committee  of  the  ESAs  has  recommended  to 
explicitly exclude these products from the scope.  

4.3. Proposed measure  

Proposed measure D: Amending the scope of PRIIPs to explicitly exclude bonds with make-
whole clauses and immediate annuities 

This option would clarify the scope of PRIIPs at L1 to explicitly exclude bonds with make-whole 
clauses. Given that make whole clauses are a mechanism that allows the manufacturer to end the 
product early without detriment to the investor, it may be argued that this is not the type of structure 
that was originally intended to be captured by the PRIIPs Regulation. The amendment would hence 
correct this with the aim to increase legal clarity and access of retail investors to corporate bonds. 

In their Supervisory Statement, the ESAs defined such clauses as ‘the inclusion of a clause that 
allows the issuer to pay off the remaining debt early using a reference rate to determine the net 
present value of future coupon payments that will not be paid’. A relevant criterion was considered 
to  be  whether  the  mechanism  to  calculate  the  discount  rate  is  known  in  advance  to  the  retail 
investor. In the meantime, a similar definition of “make-whole clause” has been introduced into 
MiFID II as follows: “make-whole clause” means a clause that aims to protect the investor by 
ensuring  that,  in  the  event  of  early  redemption  of  a  bond,  the  issuer  is  required  to  pay  to  the 
investor holding the bond an amount equal to the sum of the net present value of the remaining 
coupon payments expected until maturity and the principal amount of the bond to be redeemed;’ 
ESMA also recommended exclusion of immediate annuities from the PRIIPs scope. 

This definition could also be used to identify such clauses in the context of PRIIPs. 

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4.4 Assessment of the proposed measures 

Benefits:   
Clarifying  the  product-scope  of  PRIIPs  to  exclude  certain  corporate  bonds  would  potentially 
encourage more banks to resell corporate bonds to retail investors. This could potentially increase 
retail investor access to wholesale capital markets and encourage corporate issuers to target retail 
investors. For corporate bonds for which PRIIPs KIDs are produced today, in certain cases PRIIPs 
KIDs would no longer have to be produced and updated, which would lead to cost savings. The 
magnitude of these savings is difficult to assess and is likely relatively small. The exclusion of 
immediate  annuities  (without  an  accumulation  phase)  would  promote  a  more  harmonised 
treatment of these products across the Union and could also positively impact their offer to retail 
investors. This, together with possible further smaller clarifications in the legal text, would also 
improve legal clarity and would imply some savings on legal advice.   

Costs:   
By explicitly removing corporate bonds with make-whole clauses from the scope of PRIIPs, there 
may be some cases where retail investors will not properly understand or not be able to properly 
compare the attributes of one corporate bond with another, because they do not benefit from the 
short, simple, and standardised disclosures of a PRIIPs KID. This may increase costs for retail 
investors to locate the best investment proposition for their needs, and in a worst case could lead 
to instances of mis-selling. But this risk is expected to be proportionately rather small.  

Affected groups of stakeholders: 

1.  Industry: this measure would benefit the banks that resell corporate bonds and to a certain 
also the issuers of corporate bonds by potentially helping them reach a more diverse set of 
investors, as detailed above.  

2.  Consumers;  as  mentioned  above,  retail  investors  may  benefit  from  better  access  to 

wholesale capital markets, but would also have less access to useful disclosures.  

3.  Supervisors:  this  measure  would  aim  to  align  supervisory  practices  across  the  EU  by 
providing  more  clarity  on  how  to  apply  the  PRIIPs  Regulation  in  the  case  of  corporate 
bonds. This could save some work for supervisors in the long run.  

Stakeholder  views:  consumer  organisations  are  not  in  favour  of  removing  products  such  as 
corporate bonds with a make-whole clause (or any other bonds) or immediate annuities from the 
scope of the PRIIPs Regulation. They tend to support increasing the scope of PRIIPs to include 
more  products,  including  pension  products.  The  option  is  however  generally  supported  by  the 
financial industry and some supervisors. 

Based on the assessment above, measure D has been selected to be part of the preferred option.  

Measures relating to MiFID and IDD 

5. Annual statements on costs and performance  

5.1 Problem description 

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Both  MiFID  II  and  IDD261  require  that,  where  applicable,  investors  shall  be  provided  with 
information on all costs and charges on a regular basis, at least annually, during the life of the 
investment.  

The requirements under MiFID II are further specified in Delegated Regulation (EU) 2017/565262 
which clarifies that “investment firms shall provide annual ex-post information about all costs and 
charges related to both the financial instrument(s) and investment and ancillary service(s) where 
they have recommended or marketed the financial instrument(s) or where they have provided the 
client with the KID/KIID in relation to the financial instrument(s) and they have or have had an 
ongoing  relationship  with the client  during the year. Such information shall  be based on costs 
incurred and shall be provided on a personalised basis.” Specific rules also exist in respect of 
portfolio management services which include a comprehensive list of information to be provided 
to all clients periodically263.  

Except in the case of portfolio management services, this means that the annual costs and charges 
disclosure requirement only applies if several conditions are met and in particular where there is 
an  “on-going  relationship”  between  the  investor  and  the  investment  firm  or  the  insurance 
distributor. As the notion of on-going relationship is not defined in the Directives, ESMA clarified 
this  notion  by  publishing  Q&A264  with  a  non-exhaustive  and  non-cumulative  list  of  on-going 
relationships. Despite such clarifications, the notion of on-going relationship remains subject to 
interpretation when used in the context of the ex-post annual costs statement. In situations where 
this condition is considered not to be met, some retail investors are prevented from receiving an 
annual statement on costs and charges linked to the financial products they hold.  

In addition, except in the case of portfolio management services, there is no obligation to provide 
retail  investors  with  an  annual  report  on  the  performance  of  their  financial  instruments.  The 
obligation under MiFID II that requires investment firms that hold client financial instruments or 
clients’ funds to send them at least on a quarterly basis265 or in another periodic statement266, a 
statement of those financial instruments or funds, but does not include any obligation to include 
information  on  performance267  or  on  costs  and  charges.  The  same  is  true  for  the  regular  cost 
information under IDD. Even if some distributors nonetheless provide, on a voluntary basis, such 
information, the lack of legal requirement to do so leaves many retail investors without this very 

261 Article 24.4, last paragraph MiFID II and Directive 2011/61/EU and article 29(1) 3rd subparagraph IDD. 
262 Article 50.9 of Delegated Regulation (EU) 2017/565. 
263 Articles 60 and 62 of Delegated Regulation (EU) 2017/565. 
264  ESMA Q&A on MIFID II and MIFIR investor protection and intermediaries’ topics, section 15, Other issues, 
Question 1, answer 1. 
265 Article 63.1 of Delegated Regulation (EU) 2017/565. 
266 Article 63.2, last paragraph of Delegated Regulation (EU) 2017/565: there is however not obligation to provide 
such periodic statement “where the investment firm provides its clients with access to an online system, which 
qualifies as a durable medium, where up-to-date statements of client’s financial instruments or funds can be easily 
accessed by the client and the firm has evidenced that the client has accessed this statement at least once during 
the relevant quarter”. 
267 Article 63.2 (f) of delegated regulation (EU) 2017/565 requires only to mention in the statement of client assets 
the ”market or estimated value, when the market value is not available, of the financial instruments included in 
the statement with a clear indication of the fact that the absence of a market price is likely to be indicative of a 
lack of liquidity. The evaluation of the estimated value shall be performed by the firm on a best effort basis”. 

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useful information. Without a complete annual report, covering the different elements necessary 
to assess the effective performance of their financial products, many retail clients do not have a 
comprehensive view on their portfolio’s performance which would enable them  to consider the 
quality of their investments and investment services and to assess any need to adjust in order to 
achieve a better outcome.  

While mandatory annual updates on the development and performance of an investment are only 
provided for pension products, in the form of the Pension Benefit Statement under the IORP II 
Directive268  and  the  PEPP  Benefit  Statement  under  the  PEPP  Regulation269,  at  national  level, 
several  Member  States  have  introduced  periodic  disclosure  requirements  for  life  insurance 
products or insurance-based investment products.270 

In  the  EIOPA  advice  on  retail  investor  protection,  EIOPA  specifically  recommended  the 
development  of  an  annual  statement  in  the  IDD  that  would  be  similar  to  the  Pension  Benefit 
Statement  for  IORPs  and  PEPPs.  The  introduction  of  such  a  statement  appears  particularly 
appropriate in the case of IBIPs, as IBIPs are long-term structured products which are very often 
purchased  as  an  alternative  or  a  complement  to  pension  products.  In  view  of  this  functional 
equivalence with pension products, EIOPA recommended that the content of the annual statement 
should  to  a  large  extent  be  similar  to  that  of  the  Pension  Benefit  Statements.  It  proposed  in 
particular to include adjusted individualised projections as important information for investors to 
take into account when considering if they are on track to meet their aims for retirement saving or 
other long-term savings objectives. 

5.2 Proposed measures  

Proposed measure E: Introduction of annual statements on costs and performance  

In order to ensure that all retail investors get, at least on an annual basis and regardless of their 
relationship with their financial intermediary, the necessary information to evaluate the costs and 
performance  of  their  portfolio,  an  obligation  would  be  introduced  for  investment  firms  and 
insurance undertakings to present an annual statement on costs and performance to all retail clients 
in a way which would allow them to easily appreciate the costs and charges paid and the effective 
performance of their financial products. 

This  obligation  would  be  introduced  at  Level  1,  requiring  investment  firms  and  insurance 
undertakings to provide all their retail investors who owned financial instruments in a securities 
account held with such firms or have insurance-based investment products manufactured by them, 
with  an  annual  statement  including  a  global  and  detailed  view  on  all  elements  necessary  to 
appreciate the costs and the performance of their portfolio. The statement should provide in an 
easy-to-understand format, the below personalized key information:  

For investments falling under MiFID II, this annual statement would contain at least the following 
elements:   

1.  details of all financial instruments held by the investment firms for the client at the end;  

268 Articles 38 to 40 of Directive (EU) 2016/2341 (IORP II Directive). 
269 Articles 35 to 37 of Regulation (EU) 2019/1238 (PEPP Regulation). 
270 See, for example: Germany – § 155 Versicherungsvertragsgesetz, VVG; France – Law No 2019-486 of 22 May 
2019, Article L.132-22 Code des assurances; Belgium; Ireland - Consumer Protection Code. 

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2.  the market or estimated value (when the market value is not available) of the financial 

instruments;  

3.  the total costs and charges (including tax) related to both the financial instrument(s) and 
the associated investment and ancillary services incurred during the reporting period. The 
total  costs  and  charges  would  nonetheless  itemize  separately  (i)  total  costs  and  charges 
charged by the investment firm for the investment service(s), (ii) total costs and charges 
charged for the financial instruments, (iii) total third party remuneration received or paid 
by the investment firm in connection with the services provided to the retail client and (iv) 
total taxes withheld by the firm and borne by the retail client. A more detailed breakdown 
per financial instrument and per service would be provided by the firm upon request of the 
client;   

4.  the  total  amount  of  dividends,  interest  and  other  payments  received  during  the 
reporting  period  in  relation  to  the  client’s  portfolio.  A  more  detailed  breakdown  per 
financial instrument would be provided by the firm upon request of the client; and 

5.  the annual performance of each financial instrument held by the client and the annual 
global performance of their portfolio  (at least  for the financial instruments purchased 
through an investment advice service or RTO service or execution of order service of the 
firm).   

For  insurance-based  investment  products  falling  under  the  scope  of  IDD,  the  annual  statement 
would  have  to  be  provided  by  the  insurance  undertaking  manufacturing  the  insurance-based 
investment product. It would contain the following elements:  

1.  Current value of the investment; 
2.  Payments made by the retail investor (investments, deposits, contributions, premiums, fees, 

etc.) over the previous 12 months, deducting any withdrawals made; 

3.  A breakdown of all costs and charges incurred, directly or indirectly, by the retail investor 
over the previous 12 months and the amount of any remuneration paid to the distributor on 
an ongoing basis by the manufacturer or another party except the customer in connection 
with the distribution of the investment product; comparison of the costs with benchmarks 
for comparable products (developed in the context of VfM); 

4.  Past  performance  of  the  investment  (during  the  relevant  year  compared  to  previous 

periods); 

5.  Adjusted individual projections of the expected outcome at the end of the contractual or 
recommended  holding  period,  based  on  the  current  value  of  the  investment  and  its 
performance development so far and linked to the pre-contractual performance scenarios 
in the PRIIPs KID, and a disclaimer that those projections may differ from the actual final 
value of the investment; 

6.  Information on the conditions and financial consequences of an early termination of the 
investment  or  switching  of  providers,  including,  in  the  case  of  an  insurance-based 
investment  product,  the  surrender  value  and  conditions  for  surrendering  the  insurance 
policy; 

7.  Information on what happens when the insured person dies or another insured event occurs; 
8.  In  the  case  of  unit-linked  protection  policies  for  which  the  policy  terms  and  conditions 
provide  for  periodic  premium  reviews,  the  projected  premiums  required  to  maintain 
existing protection benefits until the ages of 55, 65, 75 and 85. 

5.3 Assessment of the proposed measure   

Benefits: The information provided in the annual statement would enable all retail investors to get 
a comprehensive view of their portfolio’s performance and the global costs they bear, without the 

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need to collect all necessary pieces of information or to make calculation by themselves. It would 
enable them more easily to consider the quality of their investments and investment services and, 
where needed, to adjust them in order to achieve better outcome. The standardised format of the 
document would greatly contribute to these benefits and also allow for better comparability. More 
broadly, this transparency may also lead to increased competition on the supply side, eventually 
putting downward pressure on prices charged for products and services from which all investors 
benefit  collectively.  It  could  also  facilitate  cross-border  business  by  ensuring  a  harmonised 
standard of investor protection. As regards supervisory authorities, this measure would support 
their supervisory actions by giving them the possibility to access more and better data on costs and 
charges and performance, helping them to  better compare the effective value for money of the 
financial products.     

Costs: Investment  firms  and  insurance  distributors  are  already  subject  to  annual  ex-post 
disclosures on costs and in some cases, on performance to their clients. The introduction of the ex-
post annual statement on costs and performance would deepen the existing disclosure obligations 
in terms of (i) content, by including the element of performance and payments received (in addition 
to costs) to all clients under MiFID and IDD and personalized projections in relation to clients 
under IDD, and (ii) broaden the circle of clients receiving such annual statement under MiFID, 
since the obligation to provide an ex-post annual information would apply in relation to all clients 
(and not only to those with whom the investment firm has an ongoing relationship or are under 
portfolio management)271.  

The introduction of the ex-post annual statement on costs and performance would represent a one-
off cost for the industry, which would consist of costs for the adjustment of existing (IT) systems 
so that the element of performance and payments received (and projections in the case of IDD) 
could  also  be  provided  and  that  the  statements  would  be  extended  to  all clients.  In  the  Impact 
Assessment  accompanying  the  Proposal  for  the  IORP  II  Directive  (SWD(2014)  103  final  of 
27.3.2014),  the  Commission  estimated  the  one-off  cost  for  the  implementation  of  a  short  and 
standardised  annual  Pension  Benefit  Statement  containing  both  personalised  and  generic 
information about the pension scheme, on average, at around 7 EUR per member (which would 
equal  EUR  7.7  per  member  adjusted  to  2022  price  levels).  As  investment  firms  and  insurance 
undertaking are already expected to provide annual information on costs to clients, the calculation 
of the one-off  costs could  be based on an assumption that that the changes/updates of  existing 
systems  would amount to  a range of 5-15% of these costs (per client).  For an investor base of 
between 49-58.5 million retail investors272 the one-off costs could be estimated to be in the range 
of EUR 19 – 67.5 million. It should however be noted that, considering the divergent interpretation 
of investment firms and Member States on the qualification of “ongoing relationship” (see above) 
and the different  practices of investment  firms  (some providing on  a voluntary  basis  extensive 
information, beyond the legal requirements), it is not possible to estimate the number of new clients 
under MiFID who at present do not receive annual information on costs. There is also a substantial 
percentage of clients under MiFID who already receive information on performance (e.g. clients 
under portfolio management). For these clients, the systems of the investment firms would already 

271 Under IDD, insurance undertakings are already under an obligation to provide information on costs to all 
clients. 
272 Based on the assumption that about 25-30% of the households hold capital market instruments, which given 
195.4 million households in the EU and an average household size of 2.3 individuals results in an absolute number 
of 49-58.5 million clients. The number of estimated retail investors could vary, although likely not significantly, due 
to the fact that some investors might have accounts with different intermediaries or due to the fact that some 
retail investors might be categorized as professional investors in the future (see annex 6). 

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be adjusted to provide such information. It was however not possible to gather data on the number 
of clients under portfolio management to be able to deduct these costs from the estimated one-off 
costs.    

In relation to ongoing costs, the Retail investment study quantified the existing costs for private 
pensions and insurance products covering the preparation and update of periodic information at 
EUR 5 per client per year273. It could be assumed that the costs for the ex-post annual statement 
on  costs  and  performance  would  be  in  a  similar  range  (if  not  lower).  The  ongoing  costs  for 
investment firms and insurance undertakings are not expected to increase in relation to clients who 
already receive annual information, since after the adjustment of the systems, the information that 
is  already  available  at  the  level  of  the  firm  (or  easily  retrievable  from  trading  venues 
platforms/websites) could be provided to clients without any significant additional costs. As the 
number of clients under IDD who already receive annual information (on costs) would not increase 
compared  to  the  baseline,  the  ongoing  costs  for  insurance  undertakings  are  not  expected  to 
increase. For investment firms an increase of ongoing costs is expected in relation to clients who 
currently  do  not  receive  annual  information  on  costs  (e.g.  clients  with  whom  the  firm  is  not 
considered to have “an ongoing relationship”). For those clients, investment firms would start to 
incur ongoing  costs of EUR 5 per  client/per  year. Considering the divergent  interpretation  and 
practices of the investment firms and Member States on the qualification of “ongoing relationship” 
in  the  context  of  costs  disclosure (see  above),  it  is  not  possible  to  estimate  the  amount  of  new 
clients under MiFID who at present do not receive annual information on costs.  

No material increase of costs is expected for the NCAs, as such controls already exist and existing 
IT tools should be able to absorb a bigger amount of data. No significant impact is expected on the 
resources of ESMA and EIOPA, as their involvement and roles under this option can be performed 
as part of their existing regulatory and supervisory work.    

Finally, this option would impose no new direct costs on retail investors, but there is a risk that 
investment firms and insurance companies may shift the costs they bear to provide such enhanced 
annual statements onto their retail clients via an increase of their investment and ancillary services 
costs. 

Affected groups of stakeholders: 

Industry: This option would allow investment firms and insurance undertakings to more clearly 
and  in  a  standardized  way  communicate  with  their  clients  the  information  relating  to  their 
investments. Enhanced transparency may also lead to increased competition on the supply side, 
eventually  putting  downward  pressure  on  prices  charged  for  products  and  services  to  retail 
investors. This development could be further stimulated by the appearance of service providers 
and advisers focusing on switching opportunities for retail investors. 

Consumers: As the existing requirement to provide an annual statement on costs and charges to 
retail  investors  will  be  extended  to  all  MiFID  II  and  IDD  retail  investors,  regardless  of  their 
relationship with the firm, and would also include additional elements, in particular information 
on  performance,  all  retail  clients  would  benefit  from  increased  transparency,  enabling  them  to 
more  easily  compare  different  products  and  consequently  take  better  informed  investment 
decisions.  Investors  would  obtain  a  more  comprehensive  view  concerning  the  costs  and 
performance associated with their investments. This information would be backward looking and 
personalised. It would allow retail investors to get at a glance a global view or a detailed view 

273 Retail investment study, page 217. 

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should they request so, on how their financial instruments have performed over a year time, taking 
into account all costs and charges and any received payments. As information would be provided 
on an annual basis, clients could better assess the quality of their investments and decide whether 
to hold their investments, reinvest or disinvest if deemed appropriate. In the case of insurance-
based investment product which are typically bought for retirement or other long-term investment 
purposes,  adjusted  individualised  projections  and  additional  information  on  termination  and 
switching options will allow retail investors to check if they are still on track to meet their savings 
objectives and to take the necessary steps if this is not the case. 

Supervisors: The measure is expected to help supervisory authorities in their control processes. 
Allowing access to more data on costs, charges and performance to supervisors, would help them 
to  better  compare  the  effective  value  of  financial  products  marketed  to  retail  clients.  It  is  not 
expected that this measure would lead to any material increase of costs for the NCAs.     

Stakeholder views: 

In the insurance sector, representatives of insurance intermediaries and consumers are supportive 
of  the  annual  cost  and  performance  statement  which  they  see  as  an  important  improvement  of 
investor  information.  They  in  particular  call  for  the  inclusion  of  information  about  past 
performance and performance projections. On the other hand, a majority of insurance undertakings 
expressed  criticism,  pointing  out  that  the  existing  information  and  annual  statements,  where 
provided for under national law or voluntarily by firms, are sufficient and also better adapted to 
the specific features of the different Member States. They were particularly critical of the proposal 
for personalised performance projections for IBIPs, which they consider overly burdensome and 
difficult to realise in the case of products which have no clear holding period. Should an annual 
statement be realised on a European-wide level, it would have to replace existing national solutions 
to avoid duplication and overlap. 
A large majority274 of distributors of investment products also expressed a strong reluctance to 
change the current rules on costs and charges disclosure, considering the current regime as strong 
enough  to  ensure  transparency  of  costs  and  cost  impacts  for  retail  investors.  They  expressed 
concerns that the enhanced annual statements on costs and performance may lead to an information 
overload. Others (in particular consumer associations) however considered that the current regime 
is not always efficient, as the information may be too complex and confusing for retail investors. 
Simplification and standardization appear particularly useful in a digital context.  

Based on the assessment above, measure E would bring useful benefits and increase coherence 
between MiFID and IDD. As such, it has been selected to be part of the preferred option.  

6.  A standard EU format for costs disclosure under MiFID and IDD 

6.1. Problem description: 

The divergent use of the terms to describe and present costs to retail investors has been signalled 
as an information deficiency. In practice, this results in the use of a plethora of different words 
(e.g. costs, charges, expenses, fees, commissions etc) to present the same or similar concepts which 

274 Between 65 and 71.9 % of business associations and business organisation. 

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on the one hand can easily confuse or mislead retail clients, and on the other hand make it difficult 
to compare the costs across different products. The same applies to the format for the presentation 
of disclosure of costs and performance: there is currently no standardised format in the EU.  

In  the  ESMA  advice  on  retail  investor  protection,  ESMA  highlighted  that  “the  discretionary 
powers given to Member States with regards to the format that can be used to disclose relevant 
information do not appear to be an optimal solution to create a single market of financial products 
and  services”275.  A  majority  of  respondents  (62.5%)  to  the  public  consultation  on  the  Retail 
investment strategy mentioned that they are aware of overlaps, inconsistencies, redundancies, or 
gaps in the EU disclosure rules with respect to the way product cost information is calculated and 
presented. The Retail  investment  study also  concluded that costs disclosure rules  and practices 
were  complex and sometimes inconsistent,  making comparison and the use of this information 
challenging for retail investors. In the vast majority of product information documents which were 
reviewed, retail investors were presented with multiple cost items. To allow investors to clearly 
identify and compare costs and performance in the disclosure documents, it is important to make 
such disclosures more standardized and understandable for retail investors.  In the context of an 
increased provision of cross-border services by digital providers, the lack of standard EU format 
for  the  disclosure  on  costs  does  not  facilitate  comparability  and  development  of  cross-border 
investments. 

6.2 Proposed measures  

Proposed  measure F: Introduction of a standardized EU format for the disclosure of cost 
under MiFID and IDD 

This measure would imply the introduction of a standardized EU format for disclosures in the area 
of costs. ESMA and EIOPA would be mandated, after having conducted consumer and industry 
testing, to develop draft regulatory technical standards to specify i) the standard costs and charges 
terminology to be used by the investment firms when delivering statements on costs and charges 
and ii) the relevant format for the presentation of such statements. This standardization aims to 
improve understandability and comparability of cost disclosures for retail clients.  

The relevant regulatory technical standards would likely need to cover several formats, depending 
on the category of financial products and whether the information on costs is to be provided before 
or after a transaction on financial products takes place276.  

6.3 Assessment of proposed measure 

Benefits: An EU format for the disclosure of costs provided to retail clients would make it easier 
for  retail  investors  to  understand  the  impact  of  the  different  costs  on  the  performance  of  their 
considered  or  on-going  investments.  This  would  help  achieve  specific  objective  1  ”Improve 
information provided to investors and their ability to take well-informed investment decisions”. 
This measure could facilitate the choice of a product that matches the retail client’s needs.  

Costs: This measure implies a one-off cost for the industry to adjust existing systems for the new 
EU  standardised  formats  for  costs  disclosure.  This  will  require  costs  for  the  automated  tools 

275 ESMA advice on retail investors protection, see point 19, page 8. 
276 This would in particular concern the ex-ante costs and charges disclosure and the ex-post annual costs 
statements. 

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usually developed by the industry for this kind of reporting. It may also require firms to adjust 
their  pricing  strategy  in  view  of  the  cost  transparency  this  new  format  should  bring  and  the 
enhanced competition  it might  create. The exact  impact  will also  depend on how the format is 
developed, which will be assessed in the context of the development of the relevant Level 2.  

Affected groups of stakeholders: 

1.  Industry  

The industry would benefit from an EU template, as firms would no longer need to conceptualize 
standards  in-house.  This  does  not  apply  to  companies  that  have  already  established  disclosure 
formats, which would need to be realigned to the new template. Considering that firms already 
have in place templates for costs disclosure, the implementation of the new standard will lead to 
one-off compliance costs for investment firms and insurance undertakings.  

2.  Consumers 

An  EU  standard  for  the  information  shown  to  clients  would  harmonise  existing  disclosures  on 
costs across different investment firms and insurance undertakings. Investors would benefit from 
more  and  better  streamlined  transparency  and  would  therefore  be  able  to  better  compare  costs 
product-by-product. 

3.  Supervisors 

The development of a standardized template would facilitate the work of supervisory authorities 
as there would be less divergence between the documents they would have to review. It would 
also provide supervisors with relevant and comparable data for their supervision. Furthermore, it 
would allow them to check on a bigger scale the costs communicated ex-ante and the costs actually 
charged  to  retail  investors.  No  significant  impact  is  expected  on  the  resources  of  ESMA  and 
EIOPA, as their involvement and roles under this option can be performed as part of their existing 
regulatory and supervisory work.    

Based on the assessment above, measure F would bring useful benefits and increase coherence 
within MiFID and IDD. As such, it has been selected to be part of the preferred option.  

Option 3 – Addressing shortcomings in relation to marketing communications 

7.  Addressing the relevance of information in marketing communications 

7.1 Problem description  

Retail investors currently receive abundant information about investment products and services, 
through multiple sources, including marketing communications. Considering the complexity and 
abundance of the information provided, retail investors are often inclined to base their decisions 
on retail-friendly marketing information277. Such information can consequently play a key role in 
investment decisions, particularly if it is the first information that retail investors receive. This is 

277 ESMA advice on retail investor protection, point 108, and in particular 2021 AMF study into investment scams: “ 
Considering that social media have therefore become a source for investors to base investment decision upon, it is 
important that communications on social media platforms are compliant and monitored timely.” Also October 
2021 UK FCA press release: “58% of younger high-risk investors say that both a hype on social media and in the 
news lies behind their investment decisions.”. 

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due to the fact that individuals tend to be more influenced by the first piece of information they 
receive (put more focus on it) in relation to a specific product278.   

Source: IOSCO report on retail distribution and digitalisation – October 2022 
Figure: 

Identifying key information in marketing communications can be difficult for retail investors, as 
some material information (e.g. on the costs or the risks) may be hidden or missing,279 or the way 
key  information  is  presented  may  not  be  appealing  (e.g.  presentation  of  risky  or  inappropriate 
elements in particular may be minimised compared to a more prominent presentation of positive 
and attractive elements)280. Unbalanced presentation causes informational deficiencies that hinder 
the ability of investors to make well-informed decisions and is particularly impactful in the context 
of an increasing use of digital channels for retail investing.  

In a digital context, retail investors are often exposed to influences from social media and online 
channels  (see  table  above).  Online  marketing  tools  in  particular  present  risks,  such  as  the 
possibility for firms to exploit investors’ biases, to target inappropriate market segments, to push 

278 ESMA advice on retail investor protection, point 22: “ESMA notes the key role that marketing communications 
can play in determining consumer behaviour and influencing investment decisions, especially considering the 
phenomenon of ‘anchoring bias’ that makes people be over reliant on the first piece of information they receive. 
For many retail investors, decisions about if and how to invest are significantly influenced by information conveyed 
in marketing communications. Retail investors who are subject to misleading marketing communications are more 
likely to be mis-sold an unsuitable/inappropriate financial product and service, even where correct information is 
provided through regulatory disclosures (such as PRIIPs KIDs or UCITS KIIDs).”. 
279 ESMA advice on retail investor protection: point 37. 
280 ESMA advice on retail investor protection, pages 10 and 14. 

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unsuitable products281 or to distort the investor’s ability to appreciate risks and costs282. Marketing 
techniques  can  also  use  segmentation,  personalisation  and  retargeting  methods  that  exploit 
investors’ biases283, as  well  as  product  placements, enticements and  reward schemes via social 
media and influencers284. The use of behavioral biases and the lack of financial education result in 
consumers taking ill-informed choices and doing so on the basis of information or advice they 
might  not  have  consciously  perceived.  Such  digital  marketing  approaches  present  particular 
challenges in regulation, especially where the marketing is carried out by a third party, such as an 
influencer, and not directly by the firm. 

According to the aforementioned IOSCO’s study, 10% of surveyed firms already use influencer 
marketing, and the majority are considering increasing or starting to use influencers as part of their 
marketing strategy285. The growing interest of firms to use influencers is taking place in a context 
of growing use of social media by retail investors. The December 2021 Dutch AFM’s study into 
financial influencers286 showed that 15% of execution-only investors with less than two years of 
investment experience use social media as a source of information. These percentages have likely 
further increased in the meantime, emphasizing the need for clarification in this area. The French 
AMF has also been paying specific attention to the growing trend of influencers in the financial 
products and services sphere, in particular by developing an educational module in partnership 
with  the  French  ARPP  (Advertising  Self-regulatory  Organisation)  on  best  practices  and  rules 
applicable  to  influencer  campaigns  and  communications  on  financial  products  and  services. 
Influencing practices are also being scrutinized in other jurisdictions (e.g. the US, where a recent 
SEC ruling explicitly required disclosure by influencers of the remuneration they receive for the 
placement or advertisement of financial services or products287). ESMA has also highlighted that 
finfluencers, which are already required to flag sponsored posts under general advertising rules, 
should also comply with rules for financial products and services communications and ensure that 
the information they present is ’fair, clear, and not misleading’288. 

The use of behavioural biases of consumers, through gamification techniques and techniques that 
present certain information more prominently, or in other cases ‘hidden’, is also increasing and 
becoming a source of concern289. Such techniques, when applied to communications by firms, can 

281 IOSCO report on retail distribution and digitalisation, page 6. 
282  ESMA report on the European Commission mandate on certain aspects relating to retail investor protection   
283 IOSCO report on retail distribution and digitalisation “While marketing communications, in particular through 
digital means, presents certain benefits for retail investors, in particular in terms of flexibility, convenience and 
ease of access to the information, they also present potential risks such as biasing investors’ choice, unsolicited 
offers, offers targeting an inappropriate segment, pushing towards unsuitable products, increased misconduct, 
difficulties for competent authorities to control the digital marketing, enforcement challenges, etc”. 
284 This is seen especially in relation to the advertisement of more volatile and risky products, such as crypto assets 
285 IOSCO report on retail distribution and digitalisation – pages 16 and 17. 
286 See: AFM - the pitfalls of finfluencing.  
287 In the US, Section 17(b) of the Securities Act makes it unlawful for any person to: “publish, give publicity to, or 
circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication 
which, though not purporting to offer a security for sale, describes such security for a consideration received or to 
be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, 
whether past or prospective, of such consideration and the amount thereof. 
288 ESMA advice on retail investor protection: point 113, page 35. 
289 ESMA advice on retail investors protection: page 27. 

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entice consumers to purchase a product or use a service. This can be achieved through various 
techniques, such as use of limited offers, reward programs, sign-up bonuses, etc.290.  

In  order  to  the  protect  retail  investors  from  misleading  or  harmful  marketing  practices,  it  is 
important  that  online  activities,  in  particularly  through  third  parties,  such  as  influencers,  are 
covered  by  the  existing  rules  on  marketing  and  fall  under  the  responsibility  of  the  relevant 
investment firm or insurance undertaking. However, as indicated in the ESMA advice on retail 
investor  protection,  there  is  confusion  in  the  application  of  the  definition  of  marketing 
communications  as  to  whether  online  advertising  and  firms’  private  messages  to  clients  and 
potential clients on social media fall under this definition291, both when communicated directly by 
the firm or through third parties’ social media (i.e. ‘finfluencers’ who operate on behalf of financial 
service providers).  

NCAs also face significant challenges in monitoring new forms of marketing communications, for 
instance as regards the use of finfluencers by firms or other developing means to engage clients 
via third parties through social media292. While it should be clear that the outsourcing of marketing 
to  an  influencer  is  ultimately  the  responsibility  of  the  (management  of  the)  financial  service 
provider, who should monitor whether the information provided by finfluencers complies with the 
necessary  regulation,  ESMA  and  EIOPA  consider  that  more  detailed  rules  on  the  control  and 
oversight  to  be  exercised  by  investment  firms  and  insurance  companies  on  marketing 
communications is necessary to ensure a consistent approach across all Member States. A majority 
of  respondents  in  the  public  consultation  considered  that  there  was  a  need  for  further  EU 
coordination/harmonisation of national rules on online advertising and marketing  of investment 
products293.  

7.2  Proposed measures  

Proposed measure G1: introduction of vital information in marketing communications  

Under  this  measure,  the  existing  requirements  on  marketing  communications  would  be 
strengthened by requiring firms (and where relevant third parties) to include all “vital information” 
in marketing communications relating to financial products and services. Such vital information 
(i.e. essential characteristics of the product or the service) should appear in a prominent way and 
be  accessible  at  a  glance,  in  all  marketing  communications294.  The  Commission  would  be 
empowered  to  adopt  a  delegated  act  to  specify  the  essential  characteristics  of  financial 
instrument(s)  or  investment  and  ancillary  service(s)  to  be  disclosed  in  all  marketing 
communications targeting retail clients.   

The vital information to be displayed should ensure that retail investors get an easy overview of 
the key product features of the financial instruments, including the main risks. This necessity of 

290 The UK FCA for example has also noted that utilisation of techniques such as the offer of sign-up bonuses can 
induce consumers to invest, UK FCA CP 22/2, page 26 
291 ESMA advice on retail investor protection, page 9, point 21. 
292 ESMA advice on retail investor protection, page 11, point 25. 
293 See 2021 Public consultation, Q3.6. 
294 In the ESMA advice on retail investor protection (see point 42, page 15), ESMA considers that vital information 
should appear in all marketing communication, including where such communication is in the form of extremely 
brief social media messages. 

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this measure is reflected in the strong growth of the use of online marketing295 over the past ten 
years and future trends296 for the increasing use of such marketing tools297.  

Proposed measure G2: inclusion of a definition of “marketing communication” under MiFID 
and IDD  

Under this measure, a definition of marketing communication would be introduced in MiFID II 
and IDD to provide clarity as to the application of the existing rules on activities that are to be 
considered  as  marketing  communication,  in  particular  as  it  is  used  in  a  digital  environment.  A 
definition of marketing communication would ensure better compliance with existing MIFID II 
and IDD rules and a provide clearer mandate for enforcement.   

MiFID II states298 that “all information, including marketing communications, addressed by the 
investment firm to clients or potential clients shall be fair, clear and not misleading. Marketing 
communications shall be clearly identifiable as such”. However, MiFID II does not provide for a 
specific definition of “marketing communication” and has no explicit provisions that apply to the 
digital  marketing  of  financial  products  and  services.  Delegated  Regulation  2017/565  provides 
some clarifications and requirements299 as to the need for the marketing materials to be fair, clear, 
not misleading and consistent with any information provided by the firm to its clients in the course 
of  providing  investment  and  ancillary  services.  It  also  includes  precise  requirements  as  to  the 
content of the marketing communication300. The same Delegated Regulation also specifies301 that 
a recommendation as defined in Article 3.1, point 35, of the Market Abuse Regulation (MAR)302, 
not meeting the conditions to be qualified as investment research shall be treated as a marketing 
communication and clearly identified as such. However, those requirements do not address, or not 
properly enough, the identified problems, especially in a digital context. 

The proposed measure would clarify the concept of marketing communication in MiFID II and 
IDD to ensure that all marketing communications and advertising (in particular those carried out 
digitally), made directly or indirectly by an investment firm (including through third parties, such 
as influencers) in any format and using any marketing techniques, with the aim to offer, market, 
recommend,  suggest  or  entice  any  investment  in,  or  promote,  in  a  direct  or  indirect  way,  any 
specific financial products or services under MiFID II and IDD or the activities of firms falling 

295 IOSCO report on retail distribution and digitalisation, page 15. 
296 Idem – see page 18. 
297 It would also reflect, as mentioned by ESMA in its advice on retail investors protection, “the key role that 
marketing communications can play in determining consumer behaviour and influencing investment decisions, 
especially considering the phenomenon of ‘anchoring bias’ that makes people be over reliant on the first piece of 
information they receive”. Reason why, according to ESMA, “vital information should also be disclosed in marketing 
communications, to avoid that such communications are only highlighting the potential gains and do not mention, 
or hide, the costs and risks”. 
298 MIFID II Article 24.4. 
299  Delegated Regulation 2017/565 art 44.2 f) , article 46.5. 
300 See Articles 44, 46(5) and (6) of Delegated Regulation 2017/565. 
301 Delegated regulation 2017/565, articles 36.2 and 37.1. 
302 Regulation (EU) 596/2014 on market abuse – Article 3.1, point 35: ‘investment recommendations’ means 
information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several 
financial instruments or the issuers, including any opinion as to the present or future value or price of such 
instruments, intended for distribution channels or for the public. 

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under the scope of MiFID II and IDD would be covered by the rules on marketing communication. 
The definition of marketing communication would thus also cover advertisement303 (together with 
promotions,  sales,  branding  and campaigning), social media messages, the use of third parties, 
nudging techniques and tools, and surreptitious communication304.  

The definition would also capture all marketing practices aimed at influencing investors’ decisions 
to  capture  the  risks  highlighted  by  IOSCO  (i.e.  new  marketing  practices  such  as  for  instance 
influencer marketing (with influencer endorsements) and placements in audio-visual content305). 
The same would also  apply to  the use of tools  and techniques that directly or indirectly  entice 
consumers to purchase products or to use investment services more frequently306 or in a gamified 
manner307.  

The definition would also ensure that MiFID II and IDD rules apply to marketing communications 
that do not target any specific MIFD II, respectively IDD, financial products or services or any 
specific firm, but rather refer to a broad category of such financial products or services or to broad 
category of firms, with the ultimate aim of enticing retail investors to invest in those products or 
to  subscribe to  those services, or to  consider trading with  a specific category of those firms.  It 
would also capture marketing communications that do not refer precisely or globally to any MiFID 
II/IDD  financial  products,  services  or  firms  but  nonetheless  entice  retail  investors  to  consume 
MIFDI II/IDD services.  

The clarification of the notion of marketing communication would be accompanied with measures 
reinforcing the investment firms’ obligations to have internal policies and procedures sufficiently 
strong to ensure investor protection when it comes to marketing communication. Those policies 
and  procedures  will  also  concern  the  management’s  responsibility  for  the  accuracy  and  non-
misleading aspect of the marketing communication, including when provided via social media and 
other third party channels. 

ESMA and EIOPA would be mandated to develop guidelines on marketing communications. This 
tool would ensure the necessary flexibility to quickly adjust those guidelines to evolving marketing 
communications and practices. It would also complement the existing supervisory convergence 
tools that the ESAs and supervisors may use to address the various issues on misleading marketing.   

7.3 Assessment of proposed measures 

Benefits: Measures G1 and G2 would ensure better protection of retail clients by ensuring: i) more 
transparency  on  the  nature  of  the  marketing  communication  made,  directly  or  indirectly,  by 
investment firms, also through digital channels (e.g. social media); ii) reducing the lack of clarity 

303 See ESMA advice on retail investor protection: point 29, page 12. 
304 The reference to surreptitious communication is inspired from art 9 of DIRECTIVE (EU) 2018/1808 OF THE 
EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 November 2018 amending Directive 2010/13/EU on the 
coordination of certain provisions laid down by law, regulation or administrative action in Member States 
concerning the provision of audiovisual media services (Audiovisual Media Services Directive) in view of changing 
market realities – art 9 of this directive prohibits the use of surreptitious audiovisual commercial communication. 
305 IOSCO report on retail distribution and digitalisation,page 16, point 62. 
306 Ibid – point 64. 
307 Idem – page 1, point 2 « Nonetheless, increased digitalisation and cross border offerings bring various new risks 
for investors, and challenges for IOSCO members. For instance, apparent risks are associated with the accrued 
complexity of financial products and services, the rapid pace of innovation, the ongoing gamification trends, and 
increasing levels and volumes of self-directed trading among retail investors, that may have not been accompanied 
by a proportionate increase in financial consumer education.”. 
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about the scope of the definition of marketing communications and the applicability to influencers 
and  other  alternative  means  of  advertisement,  iii)  reinforced  firm’s  procedures  and  policies  on 
marketing communication and on management’s responsibility, facilitating legal actions in case 
of misleading marketing communication and iv) the inclusion of key elements related to financial 
products  and  investment  services,  in  all  marketing  communications.  These  measures  would 
increase  the  quality  of  information  provided  to  investors,  which  would  contribute  to  better 
understanding  of  marketed  products  by  retail  investors.  These  measures  would  also  facilitate 
interventions and enforcement on the part of the competent authorities in relation to (misleading) 
marketing communications.  

Costs: For the industry, it is expected that compliance obligations would increase. The requirement 
to have vital information in all marketing communications and the clarification as to the concept 
of  marketing  communication,  enhanced  with  reinforced  organisational  and  responsibility  rules 
would  require  additional  oversight  by  investment  firms,  leading  to  higher  regulatory  costs. 
However, the measures would also be expected to provide further clarity on the regime and reduce 
grey-areas,  providing  additional  certainty  for  ensuring  compliance.  This  could  lead  to  cost 
reductions  for  compliance  and  legal  advice,  especially  for  smaller  firms,  due  to  the  additional 
clarity provided by the definition. The measure would not impose direct costs on investors.  

Affected groups of stakeholders: 

1. 

Industry  

Measure G1 would help the industry to know precisely the essential elements that should always 
be in a marketing communication and how they should be presented. Measure G2 would facilitate 
understanding  by  firms  and  third  parties  about  with  whom  they  may  interact,  and  about  what 
constitutes  a  marketing  communication  under  MiFID  II  and  IDD.  This  would  consequently 
facilitate better compliance with relevant rules on marketing communications. 

2. 

Consumers  

The  measure  would  help  retail  investors  more  easily  identify  digital  marketing  of  financial 
products and would help ensure that such marketing provides them with clear information about 
the  products.  This  would  contribute  to  specific  objective  1  “Improve  information  provided  to 
investors and their ability to take well-informed investment decisions”. The proposed measures 
would also help reduce the lack of clarity as to the applicability of the rules to influencers and 
other  alternative  means  of  advertisement.  Clarification  as  to  the  responsibility  of  the  firms’ 
management as regards the fair, clear and not misleading aspect of the marketing communication, 
including when made via a third party, would facilitate legal actions of retail clients and would 
increase their protection.  

In addition, with harmonisation at the EU level, more equal protection for retail investors would 
be ensured in cases of cross-border activity by firms, regardless of their location: the cross-border 
nature of digital  platforms  and channels  used for marketing communications pleads for further 
harmonisation  of  the  marketing  communication  definition  at  the  EU  level.  The  use  of  digital 
communication channels, and especially social media, is not confined to the territory of a specific 
member state. 

3. 

Supervisors 

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The requirement for firms to have vital information, presented in an accessible and understandable 
way, in all their marketing communications, would facilitate the control of those communications 
by the supervisory authorities and should not trigger any material additional costs. Clarification as 
to the concept of marketing communication and the responsibility of the firms’ management for 
such  communication  would  allow  for  easier  intervention  and  enforcement  by  supervisory 
authorities. This measure would also provide a basis upon which the enforcement in relation to 
novel marketing techniques, such as influencer campaigns, could be applied. While the monitoring 
role  and  supervisory  power  of  the  competent  authorities  in  the  domain  of  marketing 
communications would remain the same, to increase efficiency of any supervisory actions there 
may however be a need for technology-based detection and investigatory techniques and qualified 
staff, which may involve one-off and further costs, depending on the volume of identified issues 
and intensity of supervision decided on by NCAs. Nevertheless, No significant impact is expected 
on the resources of ESMA and EIOPA, as their involvement and roles under this option can be 
performed as part of their existing regulatory and supervisory work.    

Stakeholder views:  
The public retail consultation showed a majority of respondents (more than half representing the 
industry)  supporting  the  need  for  further  EU  coordination/harmonisation  of  national  rules  on 
online advertising and marketing of investment products. A harmonised definition of “marketing 
communications”  and  a  single  set  of  requirements  for  the  content  of  these  communications, 
including  those  delivered  through  digital  means,  was  viewed  as  allowing  for  more  consistent 
information and a reduction in costs that would benefit all EU investors. They also argued that 
further harmonisation would ensure the same level of protection for the investors and the same 
market conditions for the various product and service providers. It was viewed as crucial that new 
trends such as influencers, personalised targeting and online disclosures (examples mentioned by 
respondents)  were  regulated  at  EU  level  for  investment  products.  Those  respondents  who 
considered that there was no need for further EU coordination on online advertising and marketing 
of investment products, argued that current rules were sufficient and problems, where they existed, 
related more to the lack of supervision in certain Member States.  

Based on the assessment above, measure G1 and G2 would bring useful benefits and increase 
coherence within MiFID II and IDD. As such, they have been selected to be part of the preferred 
option. 

129 

 
 
 
 
 
 
ANNEX 5: FINANCIAL LITERACY 

1. 

Introduction 
1. 

Background and problem definition 

The  level  of  financial  literacy308  in  the  EU  is  low.  The  most  comprehensive  exercise 
measuring financial  literacy is  the Standard  & Poor’s Global  Financial  Literacy Survey 
conducted in 2014. According to the survey, financial literacy levels in the EU range from 
as  high  as  71%  for  the  population  in  Scandinavian  countries  to  as  low  as  13%  in  the 
Southeast of the EU, demonstrating that there are large differences among Member States. 
The OECD/INFE 2020 International Survey of Adult Financial Literacy confirmed this. 
The latest  OECD survey of adult financial literacy309  (2020) showed that the combined 
financial  literacy  score  in  14  EU  Member  States  varied  between  11.1  (Italy)  and  14.7 
(Slovenia) out of a maximum score of 21310. The survey did not ask for expert knowledge, 
but for a general understanding of key concepts such as inflation, interest rates and risk 
diversification. The financial knowledge score311, which is part of the combined financial 
literacy score together with attitudes and behaviour, was also relatively low: the average 
score of the EU Member States was 6.1, which is lower than the OECD average of 6.2. 
Furthermore, five of the 14 participating EU Member States scored lower than the average. 
Finally, financial literacy and education were identified as an issue in the EBA’s Consumer 
Trends  Report  (CTR)  2018/19312,  similarly  to  the  issue  of  insufficient  digital  financial 
literacy, raised in EBA’s Consumer Trend Report 2020/21.  

Low financial literacy has an important impact on retail investment more generally and on 
the  effectiveness  of  retail  investment  protection  measures  laid  down  in  EU  law,  more 
specifically.  Low  financial  literacy  reduces  the  effectiveness  of  disclosure  of  financial 
information  provided  to  an  investor,  as  it  implies  that  the  average  citizen  may  lack  the 
ability  to  properly  understand  the  information  received.  At  the  same  time,  it  increases 
reliance on advice, be it good or bad, due to the lack of awareness of the available tools 
(instead or in addition to professional advice) to  form an opinion on financial products. 

308 Financial literacy, according to the 2020 OECD Recommendation on Financial Literacy, refers to a 
combination of financial awareness, knowledge, skills, attitudes and behaviours necessary to make sound 
financial decisions and ultimately achieve individual financial well-being.  
309 https://www.oecd.org/financial/education/oecd-infe-2020-international-survey-of-adult-financial-
literacy.pdf  
310 Scoring the maximum of 21 effectively means that an individual has acquired a basic level of 
understanding of financial concepts and applies some prudent principles in their financial dealings. 
Achieving the maximum thus suggests a basic knowledge of and use of finance.  
311 The financial knowledge score is computed as the number of correct responses to the financial 
knowledge questions, and it ranges between 0 and 7. 
312 https://www.eba.europa.eu/sites/default/documents/files/documents/10180/2551996/75e73a19-
d313-44c9-8430-fc6eca025e8b/Consumer%20Trends%20Report%202018-19.pdf  

130 

 
 
 
 
 
 
                                                           
Citizens may also not be aware of the importance of a budget and savings or may not even 
know where to start or what questions to ask. Finally, many citizens struggle to understand 
the basic financial concepts of interest, compound interest, and how to calculate them; the 
relationship between risk and return; the concept of risk diversification and/or the concept 
of inflation. The uptake of FinTech and digital tools in the area of financial services raises 
additional challenges for citizens who may not have a sufficient level of digital literacy.313 
Similarly, with the rise in appetite for ESG products, investor education is needed to make 
sure that on the retail side there is a proper understanding of ESG product offerings and 
disclosures, as well as of the sustainability impact of different investment strategies314. 

Increasing the level of financial literacy of citizens as retail investors can provide them 
with a greater understanding of the risks involved when investing money, can help them 
plan and make better budgetary decisions and participate in capital markets in a way that 
meets their needs. These skills will be even more important for individuals (and, indirectly, 
businesses) as the economy gradually recovers from the COVID crisis, as well as in context 
of the current inflationary trends that can erode the value of consumers’ savings.  

Financial literacy is a Commission priority315 aimed at contributing to an EU economy in 
which retail investors are financially resilient and feel empowered to make decisions that 
contribute to their financial wellbeing. The Commission has therefore recognised the need 
to address it as part of its broader Retail Investment Strategy.  

A growing body of evidence shows that well-designed  financial  education programmes 
have  had  a  positive  effect  on  both  financial  knowledge  and  downstream  financial 
behaviours316. In this context, the Commission is developing several measures to support 
Member States in improving the financial literacy levels of their citizens. For instance, in 
January 2022, the Commission and the OECD-INFE published their financial competence 
framework for adults in the EU317. The framework was developed jointly with EU Member 
States  to  create  a  shared  understanding  of  financial  competences  for  adults  across  the 
European Union318, and defines the competences that individuals need in order to make 

313 Financial Education in Europe : Trends and Recent Developments | OECD iLibrary (oecd-ilibrary.org) 
314 This is notably underlined by ESMA: https://www.esma.europa.eu/sites/default/files/library/esma30-
379-1051_sustainable_finance_roadmap.pdf  
315 It is worth noting that also the founding Regulations of the ESAs contain a mandate to review and 
coordinate financial literacy and education initiatives by the competent authorities (article 9(1)(b) of the 
three founding Regulations. 
316 See e.g. Kaiser, T., Lusardi, A., Menkhoff, L., & Urban, C.J. (2020). Financial education affects financial 
knowledge and downstream behaviours, Wharton Pension Research Council Working Paper No. 2020-07. 
317 https://ec.europa.eu/info/publications/220111-financial-competence-framework_en  
318 The framework is for adults aged 18 years and over, it defines 564 competences that adults in the EU 
need to make efficient personal finance decisions and to improve their financial wellbeing. The goal of the 
framework is that Member States, educational institutions, industry and individuals will use it to develop 
public policies, financial literacy programmes and educational materials. It will also facilitate the 
assessment of financial literacy levels and the evaluation of financial literacy initiatives. 

131 

 
 
 
 
 
 
                                                           
appropriate  decisions  in  the  area  of  personal  finance.319    The  framework  was  made 
available  for  voluntary  uptake  amongst  Member  States  and  stakeholders.  However,  its 
adoption is not a silver bullet that could alone solve the problem and, since the latter is 
likely  to  persist,  additional  actions  are  needed  to  improve  financial  literacy  in  the  EU, 
especially when it comes to investing in capital markets.  

In order to address this problem, the High Level Forum on CMU suggested that the co-
legislators  should  build  on  the  principle  set  out  in  Article  6(1)  of  the  Mortgage  Credit 
Directive (MCD)320 and reflect it in other financial sector legislation, with a view to: 

1. 

2. 

Requiring  Member  States  to  promote  formal  and  informal  learning  measures  that 
support the financial education of consumers in relation to responsible investing; 

Requesting the Commission to assess the financial education available to consumers in 
Member  States  and  to  identify  best  practices.  The  Commission  is  also  requested  to 
assess which sectoral legislation would be the most appropriate to extend the principle 
set out in Article 6 MCD (e.g., MiFID, IDD, PEPP, UCITS, PRIIPs, etc.). 

For this reason, in Action 7B of the 2020 CMU Action Plan321 the Commission committed 
to  assess  the  appropriateness  of  extending  the  principle  enshrined  in  Article  6  MCD  to 
relevant sectoral legislation, with the objective of promoting learning measures to support 
the financial education of consumers in the context of retail investment. 

The present Annex to the impact assessment explains why a provision in EU law addressed 
to  Member  States  to  put  in  place  measures  supporting  the  education  of  consumers  in 
relation to the distribution of investment products would address the identified problem of 
low  levels  of  financial  education  in  the  EU.  It  considers  options  of  how  to  address  the 
problem  in  the most effective and cost-efficient  way for stakeholders.  In doing so,  it is 
aligned with the aims of the first specific objective (SO1) laid out in chapter 4.2 of the 
main  body  of  this  impact  assessment,  that  is  to  improve  retail  investors’  ability  to  take 
well-informed investment decisions322. The measure presented in this Annex, on its own, 

319 Specific attention is given to competences pertaining to digital finance, sustainable finance and 
financial resilience. 
320 Article 6 (1) MCD: “Member States shall promote measures that support the education of consumers in 
relation to responsible borrowing and debt management, in particular in relation to mortgage credit 
agreements. Clear and general information on the credit granting process is necessary in order to guide 
consumers, especially those who take out a mortgage credit for the first time. Information regarding the 
guidance that consumer organisations and national authorities may provide to consumers, is also 
necessary.” 
321 Action 7 - Empowering citizens through financial literacy | European Commission (europa.eu) 
322 SO1, i.e. ‘Improve information provided to investors and their ability to take well-informed investment 
decisions’, as described in the main body of this impact assessment, is the relevant specific objective for 
this Annex. Overall, this financial literacy flanking measure is in line with the general objectives of the 
retail investment strategy, and especially that of strengthening the protection framework for retail 
investors to empower them when taking investment decisions. To that end, the measure supports the 
improvement of retail clients’ financial literacy, which is relevant when it comes to investors’ 

132 

 
 
 
 
 
 
 
                                                           
however,  cannot  address  the  identified  problem  in  full  and  should  only  be  seen  as  a 
complementary or flanking measure to other measures assessed in this impact assessment, 
as well as to other ongoing or future actions taken by the Commission and Member States 
in the area of financial education (including the ones mentioned above).  

1. 

Effectiveness of Article 6(1) MCD and merit to its extension to other 
areas 

The  transposition  deadline  for  the  MCD  was  21  March  2016.  The  conformity  studies 
performed during 2016-2017 by an external contractor showed that 7 Member States (CY, 
ES,  PT,  MT,  LU,  IE,  RO)  literally  transposed  Article  6(1)  MCD  and  delegated  the 
competence to an NCA. Other Member States (DK, EE, PL, LV), instead, provided for a 
general  obligation  to  promote  financial  education  or  knowledge/awareness  on  financial 
products. Overall, the studies identified several initiatives that have been put in place, in 
particular by NCAs, to promote and support financial education. However, while it is likely 
that many of these initiatives were triggered (at least in part) by the implementation of the 
legal  provision  in  MCD (or the corresponding national  provision  transposing it), it was 
difficult to establish the exact extent to which they were specifically linked to the MCD’s 
implementation. 

Examples of such initiatives (identified in the studies) include: 

1. 

2. 

3. 

4. 
5. 

Provision of information about mortgages (e.g. mortgage borrowing process, how to 
best  choose  the  mortgage  credit,  responsible  borrowing,  rules  applicable  during  the 
credit  lifetime,  consumers’  rights),  on  consumer  financial  education  websites  set 
up/managed by NCAs or on NCAs’ websites (AT, BE, DE, RO, LT, EE). 
Establishment  of platforms to  enhance the financial awareness  by organising events 
(NL). 
Provision of guidance documents containing information about types of home loans, 
mortgage loan process and access, costs and other expenses, event of default on the 
mortgage, consumers’ rights, management of personal finance, dispute resolution (DK, 
ES323, IT324), mortgage shopping around checklist (IE). ES and IT published/updated 
the guidance documents in May 2016.  
Organisation of seminars for teachers and students concerning credit (AT). 
Establishment of a programme in 2016 to improve consumers’ budget management, to 
prevent over-indebtedness by providing solutions as soon as possible to consumers in 
financial difficulties (FR).  

competences in the area of investing and management of personal finances, more broadly, as well as to 
investors’ understanding of disclosure documents and marketing communications, as laid out in SO1, 
more specifically.   
323 ES mortgage loan access guide published in May 2016. 
324 IT guide to immovable property loans was updated in May 2016.  

133 

 
 
 
 
 
 
 
                                                           
6. 

Provision  of  consumer  support  by  consumer  organisations  (SE);  customer  service 
centre and call centre processing written consumer claims and providing information 
(HU); free legal advice both online and by phone by some organisations (CZ).  

As part of the continuous effort to ensure that rules are fit for purpose, the Commission 
launched in November 2021 an open public consultation325 on the MCD review, to gather 
evidence on the MCD’s functioning. The consultation included, among others, a question 
on Article 6 of the Directive and its effectiveness in increasing the financial education of 
consumers (Question 10). The results showed that: 

1.  35.9% of the respondents considered that Article 6 has been effective in increasing 
the  financial  education  of  consumers.  The  majority  of  them  were  industry 
representatives  (companies/business  organisations  and  associations).  Several 
considered  that  Article  6  promoted  financial  literacy  and  encouraged  Member 
States to be more active in this area. Notably, a few, mentioned that the exact impact 
of Article 6 would be difficult to assess.  

2.  33.3% of the respondents (mixed stakeholders) considered that Article 6 has not 
been effective in  increasing the financial  education of consumers. Among them, 
several stressed that there was no significant evidence of the impact of Article 6 on 
financial literacy programs/initiatives in Member States and highlighted the general 
lack of financial education among the population.  

3.  30.8% of the respondents did not know or did not answer.  

While a majority of respondents agreed with a positive impact of Article 6 MCD, some 
respondents  struggled  with  providing  a  positive  response,  the  main  reason  being  the 
difficulty  to  demonstrate  causality  between  this  provision  and  the  national  financial 
education measures that were taken as a consequence. This is because some Member States 
were already rather active in this field and proactively took measures seeking to increase 
the level of financial education of their citizens. At the same time, financial education has 
not been (at least originally, i.e. at the time of the adoption of MCD) on the political agenda 
of all Member States and the explicit provision in MCD could have triggered action from 
those Member States that were not planning (and hence would not have put forward) any 
actions on their own. Furthermore, it can be assumed that the specific focus on responsible 
borrowing  ensured  that  those  Member  States  that  were  already  planning  their  financial 
education campaigns, ensured that due attention was paid to this specific aspect of financial 
education. 

On this basis, it can be concluded that the Article 6 MCD has had a positive impact at least 
in some Member States. It should therefore be considered as a relevant supporting measure 
to provide equal incentives for all Member States to work towards promoting initiatives 
related to the financial literacy of their citizens.  

The below assessment is based on the presumption that creating such incentives is better 
than taking no action at all at EU level, as the latter case would leave taking any action 

325 See at: https://ec.europa.eu/info/files/2021-mortgage-credit-review-consultation-document_en  

134 

 
 
 
 
 
 
                                                           
entirely to the choice of Member States, which may have different schedules and objectives 
in  their  national  financial  education  strategies.  This  is  without  prejudice  and  fully 
respecting to the principle that Member States have legal competence in the matters related 
to financial education and that the European Union (as per Article 165 of the Treaty on the 
Functioning of the EU) can only contribute to developing quality education by encouraging 
cooperation  between  EU  countries,  and  supporting  and  supplementing  their  action. 
Increasing the level of financial literacy can be considered as a key complement to financial 
consumer protection policy, as enshrined in Article 169 TFEU. 326 

1.  Identification of “other relevant sectoral legislation” and scope 

This section frames the policy options set out in the next section. It discards upfront the 
solutions that would be too costly and inefficient. It allows to focus then on  the options 
that are credible and most efficient in dealing with the identified problem. 

For  an  effective  replication  of  Article  6  MCD,  Member  States  should  focus,  in  their 
national  transposition,  on  as  wide  a  universe  of  investment  products  as  possible.  The 
legislative mapping carried out in the context of this analysis327 has shown that coverage 
can be maximised by acting at the level of legislation on distribution of financial products, 
rather  than  at  the  level  of  individual  product  legislation.  This  is  because  EU  product 
legislation  is  numerous  and  broad;  and  acting  on  it  would  imply  possible  multiple 
transposition  rounds  for  Member  States,  risk  of  further  fragmentation  and  of  leaving 
possible  gaps  unattended  (for  example,  innovative  products  not  captured  in  the  current 
legislation could be left out of scope).  

Acting at the level of the distribution, instead, would have three main benefits. Firstly, it 
would compel action in relation to the vast majority of products marketed and distributed 
in the Union to  retail investors (including through digital  channels). Secondly, it would 
streamline the transposition efforts as well as eliminate the need to cater for the specificities 
(e.g. traditional investment vs insurance) that would arise by acting on individual product 

326 According to article 165 TFUE, education policy is a Member State competence that the EU can support 
and supplement. Nonetheless, increasing the level of financial literacy can be considered as a key 
complement to financial consumer protection policy, as enshrined in Article 169 TFEU. With this in mind, 
the co-legislators agreed to have an article requiring Member States to promote financial education 
initiatives in the context of the sale of mortgage products (Article 6 MCD). The current proposal for a 
review of the Consumer Credit Directive (CCD) includes an article that widens the scope of Article 6 MCD 
to the loans covered by the CCD. Article 169 TFEU relates to consumer protection and states that to 
promote the interests of consumers and ensure a high level of consumer protection, the Union shall 
contribute to protecting the health, safety and economic interests of consumers, as well as to promoting 
their right to information, education and to organise themselves in order to safeguard their interests. 
Article 169(2) TFEU specifies that these objectives can be reached through measures adopted pursuant to 
Article 114 in the context of internal market completion. 
327 The legislative mapping was carried out in 2022. It analysed the scope of products and/or providers 
regulated under the UCITS Directive, AIFMD, PRIIPs Regulation, IDD, IORPs Directive, PEPP Regulation and 
CRD.  

135 

 
 
 
 
 
 
 
 
 
                                                           
rules.  Finally,  the  focus  on  distribution  would  put  the  spotlight  on  the  moment  of 
interaction between the distributor and the client, where the financial literacy of the latter 
is key.  

In this context, it is important to underline that the replication of Article 6 MCD in the 
distribution rulebook328 would not impose any direct obligation on financial intermediaries 
and distributors as the provision would be addressed to the Member States. It would call 
on them to support and promote financial education for retail investors through the means 
they see most appropriate.  
Since the Markets in Financial Instruments Directive (MiFID) and Insurance Distribution 
Directive  (IDD)  are  the  cornerstones  of  the  EU’s  distribution  rules,  the  policy  options 
around the replication of Article 6 MCD would focus on them. Additionally, this would 
build on the already existing principle under these two frameworks that distributors have 
to know their clients – and in particular the level of their financial knowledge.  

The legislative scope would not go beyond MiFID and IDD, as the products distributed 
outside of these two frameworks generally would not reach the average retail investor. For 
example, in the case of AIFMD329 regulated entities, asset managers would rarely distribute 
products themselves and, if they did, they would require a MIFID license therefore entering 
the established scope (moreover, they would be focused on distributing units of their own 
investment funds only). As a result, the replication of Article 6 MCD in AIFMD would not 
add to achieving better financial literacy level for retail clients as a whole. 

2. 

Necessity and added value of an EU action 

The  problem  as  set  out  above  persists  despite  actions  already  undertaken  at  national, 
international (OECD) and European level in non-binding format330, including the recently 
developed EU/OECD financial competence framework for adults331, which is for voluntary 
uptake by Member States. 

Further  EU  action  is  needed  at  legislative  level,  as  neither  national  measures  nor 
multilateral  soft  measures  have  so  far  been  fully  effective  to  remedy  the  low  level  of 
financial  literacy  across  the  EU  (and  in  particular  in  some  Member  States).  Only  a 
combination of measures on financial education can prove to be effective in tackling the 
problem,  creating  positive  externalities  and  scale  and  scope  effects.  A  coherent  and 
comprehensive solution at EU level might be able to lower the cost of fragmentation for 
national  administrations,  investors,  financial  intermediaries,  and  companies  alike.    The 
preferred option must however respect  the principle of subsidiarity  and proportionality, 
achieving the objectives yet avoiding excessive, negative consequences on Member States. 

328 MiFID and IDD. 
329 Alternative Investment Fund Managers Directive. 
330 For example, a Council recommendation on “Key competences on lifelong learning” is a soft law tool, 
however, due to its nature, it would not be feasible to include financial literacy into it (financial skills are 
only mentioned as an example of mathematical competences). 
331 Financial competence framework for adults in the European Union (europa.eu) 

136 

 
 
 
 
 
 
 
 
 
                                                           
Policy Options 

3.  What are the available policy options? 

Option label 

Baseline (Option 1) 

Option description 

Do  nothing  to  change  the  current  legal 
framework.  

Option 2 

Option 3 

on 

the 

existing 

Rely 
enforcement 
mechanisms to ensure that the existing rules 
(Article  6  of  MCD)  and  proposed  rules 
(article  34  of  CDD  in  case  adopted)  are 
correctly  applied,  however  limited  to  credit 
agreements  for  consumers  and  relating  to 
residential immovable property.  
Support  and  supplement  the  work  of  the 
Member  States 
this  domain,  by 
in 
replicating  a  similar  provision  to  the 
Article 6 MCD into the relevant financial 
legislation  on  distribution  of  investment 
products. 

EU  law  will  call  upon  Member  States  to 
promote  financial  education/digital  literacy 
initiatives,  without  however 
specifying 
further the content of these initiatives (in line 
with Art. 6(1) MCD and Art. 34 of CCD). 
Achieve  more  harmonisation  in  financial 
education  matters: 
similar 
provisions  to  Article  6  MCD  into  the 
relevant financial legislation (as in Option 
3)  and,  in  addition,  introduce  regular 
reporting 
on  national 
educational measures, while establishing a 
quality control system. 

requirements 

replicate 

4.  What are the impacts of the options and how do they compare? 

1. 

Baseline (Option 1) 

Under  the  baseline  scenario,  the  schedule  of  (possible)  legislative  financial  education 
initiatives remains unaligned being determined entirely by Member States. The currently 
isolated  EU-level  provisions  in  MCD  and  CCD  would  be  complemented  with  separate 
national  measures  in  other  areas  only  according  to  the  needs,  timelines  and  political 
willingness  of  national  authorities.  The  EU  can  continue  to  foster  financial  education 

137 

 
 
 
 
 
 
 
 
 
through  complementary  (non-legislative)  workstreams,  such  as  the  EU/OECD  financial 
competence frameworks. 

The baseline would not be effective in addressing the existing problem. It implies a very 
low level of harmonisation and coordination, leaving policy decisions to Member States. 
The baseline also creates a high risk of fragmentation between the schedules of initiatives 
adopted at national level due to non-coordination among Member States. The EU would 
limit  itself  to  complementary  (non-legislative)  measures  that,  while  contributing  to  the 
objective, would not address fully the identified problem.  

2. 

 Option 2 

Under  this  option,  the  EU  would  replicate  Article  6  of  the  MCD  in  other  sectoral 
legislation, therefore increasing the scope of financial products for which Member States 
would need to promote financial education measures. These financial education measures 
could  potentially  build  on  the  deliverables  of  other  initiatives  in  the  area  of  financial 
education,  such  as  the  EU/OECD  financial  competence  framework  for  adults,  which 
should  facilitate  the  development  of  targeted  trainings  and  training  material  in  a 
harmonised manner across Member States. In such a manner, the timing, intent and, to a 
certain extent, content of national educational measures could be better aligned across the 
EU. Under this option, the Commission would, however, neither monitor nor assesses the 
educations measures put forward by Member States.  

Benefits 

In terms of consumer protection and integrity of the single market, this option adds to the 
ongoing work of the Member States by providing a legal commitment to foster action on 
financial literacy. Nevertheless, Member States would retain control over which measures 
they should adopt and promote, as they see fit to their national agenda, and would also be 
able to coordinate their efforts and exchange best practices on implementation, owing to 
the fact that they would be transposing the same legislative requirement. Under the option, 
Member  States  may  find  it  easier  to  put  in  place  educations  measures  than  without 
coordination/  exchange  of  best  practices  with  other  Member  States.  Consumers,  whose 
level of financial education would (gradually) increase, would be the main beneficiaries 
under the option (although it would be impossible to quantify the amount of such benefit 
accruing  to  consumers).  Longer-term  benefits  would  include  wider  retail  investor 
participation  in  capital  markets  (ultimately  benefitting  financial  intermediaries),  better 
saving (pension) opportunities for consumers (at the same time reducing the risk of their 
over-indebtedness) and more available funding for companies across Member States. 

Costs 

This option would only generate limited costs for Member States and very low costs (if 
any)  for  other  stakeholders.  Public  authorities  would  be  able  to  save  costs  due  to  the 
possibility to exchange best practices during the implementation of the provisions. Since 
no  ex-post  reporting  would  be  required,  costs  for  public  authorities  would  be  rather 

138 

 
 
 
 
 
 
 
contained. Financial intermediaries could potentially have to bear some costs depending 
on the actions taken at national level. There will be no costs for consumers. 

Conclusion 

This option ensures a sufficient level of policy coordination across the EU while leaving 
full  flexibility  on  implementation  to  Member  States,  allowing  for  Member  States  to 
exchange best practices to increase the level of coherence. While not being sufficient on 
its own to tackle the identified problem (i.e. to increase the level of financial education 
across the EU), it has the potential to effectively complement and reinforce the impact of 
other measures taken by the EU in this area. It thus has a fair level of effectiveness, while 
being a cost-efficient option. 

3. 

Option 3 

This policy option would introduce a higher degree of centralisation, building on but also 
going beyond option 2. It would aim to achieve a higher level of harmonisation in financial 
education matters than under option 2. In addition to replicating the provision in Article 6 
MCD  to  promote  financial  education  measures  in  other  sectoral  financial  legislation 
(similarly to option 2), it would introduce mandatory regular reporting requirements for 
NCAs  regarding  the  national  financial  educational  measures  taken,  as  well  as  a  quality 
control for such measures. NCAs would be required to regularly report such information 
to  both  the  ESAs  and  the  Commission  by  means  of  progress  reports.  The  Commission 
would then need to adopt a quality control system to ensure that the educational measures 
are effective. Under this quality control system, the Commission would assess and approve 
the educational measures based on a system of key performance indicators (KPIs) to be 
developed by the Commission.  

Benefits 

As  under  option  2,  benefits  would  arise  for  consumers/citizens,  Member  States  and 
financial intermediaries from the level playing field that would be created by leveraging 
on  the  existing  mechanisms  implementing  MCD-related  financial  literacy  programmes. 
This would in fact empower Member States to use the already existing credit framework 
as an example of how to promote financial literacy initiatives in the area of investment, 
and in doing so, to use the same educational channels that both citizens and the industry 
already  have  access  to.  Compared  to  option  2,  however,  option  3  would  potentially 
generate  higher  benefits  for  consumers/citizens  who  would  stand  to  benefit  more  from 
measures  whose  effectiveness  would  be  vetted  by  the  Commission  under  the  quality 
control mechanism.   

Costs 

Option 3 would also lead to higher costs than option 1, in particular for public authorities 
and Commission/European Supervisory Authorities (ESAs):  

139 

 
 
 
 
 
 
 
 
5. 

6. 

Public authorities would incur higher administrative costs related to regular reporting 
on educational measures in the form of progress reports.  
The  Commission  and/or  ESAs  would  need  to  pre-approve  notified  measures  in 
accordance with the quality control mechanism. It would require the development of 
KPIs.  

Financial intermediaries may incur costs due to the need to adapt their existing educational 
tools  to  the  new  (potentially  stricter/more  far  reaching  than  under  option  2)  national 
measures. This option would not generate any costs for consumers/citizens. 

Conclusion 

Option 3 is likely to be more effective in tackling the identified problem than option 2. It 
could also be a more coherent option since all education measures would be subject to the 
same quality control put in place by the Commission/ESAs. Nevertheless, option 3 would 
entail  a  much  higher  cost  for  Member  States,  the  Commission,  ESAs  and  financial 
intermediaries and therefore would be a much less cost-efficient option than option 2.  

Summary 

Baseline (Option 1) 
Option 2 
Option 3 

Effectiveness 
+ 
++ 
+++ 

Cost efficiency 
+ 
+/- 
--- 

Coherence 
0 
++ 
+++ 

Legend:   +++ = very positive  ++ = positive  
-- = negative 

negative 

+ = slightly positive   0 = no effect  
--- = very negative 

4. 

Preferred option  

Option 2 should be considered as the preferred option based on the overall assessment described 
above.  

140 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 6: INVESTOR CATEGORISATION 

1. 

Background and problem definition 

MiFID II makes a distinction between retail investors, professional investors and eligible 
counterparties.  The  distinction  is  important  because  different  levels  of  protection  and 
safeguards, including disclosure requirements, are associated with each investor category. 
In addition, other pieces of financial services legislation like AIFMD, ELTIF or PRIIPS 
also refer to these types of investors. 

MiFID  II  introduced  measures  to  protect  retail  investors  at  a  time  where  access  to 
investments in financial instruments became more commonplace, also for retail investors. 
These  measures  have  helped  safeguard  investors,  but  also  restrained  access  to  some 
financial instruments and introduced a number of additional protective measures, such as 
substantial disclosure requirements towards clients. Compliance with these requirements 
helps ensure adequate protection for most retail investors, however it can also represent a 
burden  for  or  overprotect  those  with  sufficient  knowledge  and  experience  and  relevant 
financial capacity (i.e. ability to absorb losses), who, due to these requirements, sometimes 
cannot easily access certain financial instruments and feel that they are over-loaded with 
information that they do not deem necessary or useful. This also constrains the ability of 
experienced  investors  falling  under  the  retail  investor  category  from  better  diversifying 
their portfolios and achieving improved investment-outcomes.   

In  addition,  the  existing  legal  requirements  in  MiFID  II  may  also  create  unjustified 
administrative burden for financial services providers who have to produce and disclose 
information that more sophisticated investors do not need and do not use in their investment 
decisions.  

Currently, even if some retail clients possess the appropriate knowledge and experience 
and demonstrate the ability to absorb losses, it is very difficult for them to be re-classified 
as professional investors. Estimations suggest that currently only 0.09% of existing clients 
are treated as professional332. In order for retail investors to be re-classified as professional 
investors  “upon  request”,  investment  firms  have  to  assess  whether  at  least  two  of  the 
following conditions are satisfied: (a) the client has carried 10 transactions per quarter, (b) 
the size of the client’s financial instrument portfolio (including cash) exceeds EUR 500 
000,  and  (c)  the  client  works  or  has  past  professional  experience  with  the  envisaged 
transactions or services for at least one year. Furthermore, under the current framework, 
legal  entities  are  also  treated  as  retail  investors,  where  they  are  not  considered  as  large 

332 Calculations based on data provided to the commission services by a large bank, indicating the types of 
services provided and number of clients in each category. In summary, the bank services 5 347 536 
clients, out of which only 4 761 are categorised as professional clients. 

141 

 
 
 
 
 
 
                                                           
undertakings (balance sheet below EUR 20 million, net turnover below EUR 40 million, 
own funds below EUR 2 million). 

The creation of a new client  category or the modification of the existing conditions  for 
professional  clients  on  request  could  give  a  subset  of  retail  investors  with  appropriate 
knowledge, experience and financial capacity broader and more comprehensive access to 
capital  markets.  It  would  also  help  ensure  that  the  information  received  by  investors  is 
more targeted to their specific needs, contributing towards specific objective 1 (SO1) as 
described in section 5 of this impact assessment. This would bring additional sources of 
funding to the EU economy and allow those investors to benefit from better diversification 
of their portfolios. Any adjustments to the rules have nevertheless to cater for the necessary 
degree of investor protection for all groups of investors while improving engagement with 
the  capital  markets  and  removing  unnecessary  (excessive)  administrative  burden  for 
market operators. 

2.  What are the available policy options? 

The impact assessment considers two options, other than the baseline scenario set out under 
option 1, to address the identified problem. Both options are assessed against the baseline 
that would maintain the existing client categorisation framework as it is.  

Under option 2, a separate new intermediate category of semi-professional investors would 
be created in MiFID II with tailored, more easily fulfillable criteria. The new definition 
would imply setting out a new list of criteria that semi-professional investors would have 
to  comply  with,  which  would  be  significantly  less  restrictive  than  for  professional 
investors. It would also require a review of the existing investor protection measures for 
investors currently defined as retail investors with a view to determining which ones would 
stay  relevant  for semi-professional  clients  and which ones would no longer apply. This 
would apply to  MiFID  II, however also  to  all other financial services legislation which 
refers to these definitions. The result would be 4 distinct categories of investors that would 
be  used  in  the  financial  services  acquis:  retail  investors,  semi-professional  investors, 
professional investors and eligible counterparties. Financial service providers would have 
to  adjust  their  IT  systems  and  procedures,  in  line  with  the  new  requirements  for  the 
treatment of semi-professional clients.  

Under option 3, the existing criteria for professional clients on request would be adapted 
in order to make this category more accommodative for those investors with appropriate 
knowledge, experience and ability to bear losses, who should be treated as and hence able 
to benefit from regulatory alleviations offered to professional investors. More concretely, 
this would involve reviewing the existing thresholds (i.e. 500 000 EUR in financial assets, 
10  transactions  per  quarter),  and  the  definition  of  what  is  considered  as  relevant 
professional  experience.  It  could  also  be  envisaged  to  introduce  an  additional  criterion 
capturing  the  knowledge  of  clients  (i.e.  those  having  passed  acknowledged  financial 

142 

 
 
 
 
 
 
certifications).  Furthermore,  it  would  be  envisaged  to  reduce  the  existing  thresholds  to 
make it easier for legal entities to qualify as professional investors upon request333. 

Option 
label 

Baseline 
(Option 1)  

Option description 

No changes to client categorisation – this is the baseline scenario 

Option 2 

Introduction of an additional client category - semi-professional investors 

Option 3 

Adjusting  the  current  criteria  to  qualify  as  a  professional  client  on 
request 

3.  What are the impacts of the options and how do they compare? 

1. 

Benefits 

Option 2 (introducing an additional category of semi-professional investors) would allow 
for  better  differentiation  between  the  diverging  needs  of  individuals  within  the  retail 
investor  category.  This  would  help  reduce  unnecessary  information  disclosure  to  those 
clients who do not need it for their investment decisions, leading to cost savings for those 
financial  operators  as  well  as  allow  broader  access  to  financial  instruments.  Semi-
professional  investors would get  better-tailored investor protection, fit for their specific 
profile and background. This would help avoid them getting overloaded with unnecessary 
disclosure from financial operators and gain access to some products which may not be 
suitable for all retail  clients, therefore allowing for improved portfolio composition and 
diversification.  Separate  safeguards  would  have  to  be  developed  for  each  segment  of 
investors  (retail,  semi-professional,  professional),  therefore  potentially  helping  to  better 
ensure more proportional safeguards for each category. 

Under option 3, the benefits identified under option 2 and accruing to various groups of 
stakeholders  would  be  similar.  It  is  possible  that  under  option  2  the  group  of  investors 
defined as semi-professional would get slightly more tailored and hence potentially better 
fitted  investor  protection  than  under  option  3  where  no  additional  stand-alone  category 
would  be  created  and  where  these  investors  would  rather  be  treated  as  professional 
investors. On the other hand, the increased complexity of the regulatory and supervisory 
framework due to the creation of an additional category and differentiated safeguards may 
also undermine consumer protection by increasing the probability that clients may end up 
inappropriately  categorised  (i.e.  the  risk  of  firms  being  able  to  manipulate  the 
categorisation  of  their  clients  according  to  their  interests  would  increase  given  the 

333 Currently only large undertaking meeting two of the following size requirements on a company basis 
can request to be treated as professional clients: 1) balance sheet total of EUR 20 000 000; 2) net 
turnover of EUR 40 000 000; 3) own funds of EUR 2 000 000.  

143 

 
 
 
 
 
 
 
                                                           
relatively low requirements for the semi-professional category), therefore it is uncertain 
whether the benefits of option 2 would overall be significantly higher.   

2. 

Costs of option 2 

Option  2  would  imply  high  costs  for  financial  service  providers  and  public 
administrations.  It  would  first  of  all  require  a  comprehensive  review  of  the  current 
framework  for  investor  protection,  determining  which  protections  would  remain 
appropriate  for  retail  investors  and  which  would  be  appropriate  for  the  newly  created 
category  of  semi-professional.  Definition  of  the  new  category  (including  setting  the 
requirements  at  an  appropriate  level  across  the  EU  Member  States),  delineation  of  all 
existing  investor  protection  measures  and  effective  supervision/enforcement  of  the  new 
framework would require significant administrative resources by public authorities at EU 
and national level. It would also be a politically challenging exercise, requiring extensive 
debates amongst co-legislators given that investor protection is considered a sensitive and 
important area and a specific threshold would be easier to reach in some Member States 
than in others (i.e. due to national differences in income thresholds). Furthermore, it would 
lead to significant costs for financial service providers as they would have to review the 
categorisation of all existing clients, update and adapt their information systems according 
to  the  new  categorisation  framework.  The  complexity  of  the  internal  procedures  and 
processes would also significantly increase as staff would have to be aware of and apply 
the requirements to different types of clients. Furthermore, given that a high proportion of 
investors  currently  classified  as  retail  investors  would  qualify  for  the  semi-professional 
category, the re-evaluation of these clients would present a significant cost, taking also into 
consideration the costs related to document verification and the liability to be undertaken 
by the firm for incorrect classification. These costs might subsequently be passed on to 
investors. 

Option 3 would imply marginal costs to financial service providers as it would not require 
a  comprehensive  review  to  possibly  re-categorise  a  very  substantive  number  of  clients 
currently falling under the retail  investor category: only  a relatively small  subset of the 
existing  retail  investors  would  qualify  under  the  new  criteria  and  would  only  be  re-
categorised  as  professional  investors  on  their  request.  The  existing  investor  protection 
framework  would  be  maintained,  implying  no  (substantial)  additional  costs  for  public 
authorities (unlike under option 2), the focus being to ensure that clients with sufficient 
knowledge,  experience  and  wealth  are  adequately  categorised  using  the  existing 
framework  (even  if  based  on  the  adapted  criteria).  Financial  service  providers  would 
nevertheless have to incur some cost (although much lower than under option 2) as they 
would have to update their client categorisation processes according to the adjusted criteria 
and would receive an increased number of re-classification requests.  

3. 

Overall assessment 

Option  2  would  possibly  generate  slightly  higher  potential  benefits,  than  option  3,  for 
investors  due  to  the  possibility  to  better  differentiate  and  apply  more  tailored  investor 

144 

 
 
 
 
 
 
protection safeguards to each of those groups (although also risking over-exposure to risk 
if the safeguards are not adequately balanced).   This  option is  however associated with 
significant costs for financial services providers (due to the need to assess and reclassify a 
very  substantial  number  of  clients  and  to  train  staff  and  apply  different  procedures  and 
safeguards to different categories of retail clients), These costs would likely be passed on 
to  end-customers.    Authorities  would  have  to  deal  with  additional  complexity  of  the 
financial  services  acquis,  which  could  in  turn  also  potentially  reduce  the  overall 
effectiveness of the framework. The introduction of an additional investor category would 
require  a  rather  comprehensive  review  of  the  existing  investor  protection  measures, 
creating additional burden for administrations and companies who would have update and 
apply  new  and  more  complex  procedures  and  processes.  The  overall  efficiency  of  this 
measure, would therefore likely be negative, given the very substantive costs. Furthermore, 
the substantive additional complexity of the legal framework due to the additional category 
and the distinct investor protection rules would not  be coherent  with  the  Commission’s 
objective to simplify EU laws and reduce red tape. 

In comparison, option 3 would have a smaller potential positive impact on investors as the 
fine-tuning of existing criteria would be of a more limited scope than in option 1, although 
still allowing for clients with sufficient knowledge, wealth and experience to access the 
professional  upon  request  category.  The  costs  associated  with  this  option  would  be 
significantly lower than under option 2 and therefore imply a higher overall efficiency for 
this policy option.  

The  policy  options  were  presented  in  the  public  consultation  on  the  retail  investment 
strategy. The majority of respondents were most favourable to the option of adjusting the 
existing definition of professional investors on request (63.5% were in favour with only 
18% against). The introduction of an additional client category received considerably less 
support  with  the  majority  of  respondents  not  being  in  favour  (35%  in  favour  and  45% 
against). The baseline scenario (no changes to status quo) received the least support (18% 
in favour, 54.5% against).  

Looking  at  the  individual  respondent  groups  (business  association/companies/public 
authorities/citizens/etc.),  the  sentiments  for  the  different  options  remained  largely 
consistent  (identical)  across  all  groups.  One  exception  being  for  the  category  of  EU 
citizens, who according to the results of this survey preferred the creation of an additional 
category  of  semi-professional  investors  (68%  in  favour  and  18%  against  out  of  26 
respondents)  over  the  adjustment  of  the  existing  categories  (43%  in  favour  and  32% 
against). One consumer organisation was in favour of adjusting the existing categories, one 
was in favour of introducing an additional category and two did not express a specific view. 

The  respondents  who  were  against  any  changes  to  the  existing  investor  categorisation 
argued that the additional benefit would be small compared to the costs and that overall 
access to products for retail investors should be improved. The proponents of adjusting the 
existing client categorisation, in contrast, argued that there is systematic overprotection of 

145 

 
 
 
 
 
 
retail  investors  and  that  this  needs  to  be  addressed.  The  opponents  of  the  additional 
category of investors highlighted the complexity  that identifying suitable  criteria would 
entail  and the legal  complications as well as the risk that the remaining  retail  investors 
would become further excluded from certain products/services.  

4. 

Preferred option 

Option  3  should  be  considered  as  the  preferred  option  based  on  the  overall  assessment 
described above. 

Summary 

Effectiveness 
Reduced  information 
for  more 
overload 
sophisticated 
investors 

tailored 

Better 
investor 
protection rules 

Baseline 
(Option 1) 
Option 2 
Option 3 

0 

++ 
+ 

0 

++ 
+ 

Reduced 
administrative 
burden 
for 
financial  services 
providers 
0 

--- 
+ 

Coherence 

Efficiency 
(cost-
effectivenes
s) 

0 

-- 
+ 

0 

-- 
+ 

Legend: +++ = Very positive; ++ = Positive; + = Slightly positive; +/- = Mixed effect; 0 = No effect; - 
= Slightly negative; -- = Negative; --- = Very negative 

146 

 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 7: INDUCEMENTS 

PART A – Experience with the ban on inducement in the Netherlands 

A  ban  on  inducements  for  advised  services  in  relation  to  certain  retail  products  (e.g. 
structured  investment  products  such  as  IBIPs  but  also  other  retail  products  such  as 
mortgages) was introduced in the Netherlands on 1 January 2013. In December 2013, the 
Dutch  legislator  also  extended  the  national  ban  beyond  the  MiFID  II  requirements, 
applicable as of 1 January 2014. Those two combined rules created a level playing field at 
national level between all types of investment products.  

Transitional period and supervisory actions 

The ban on inducements for investment services was accompanied by:  

1. 

a one-year transitional period for units in investments undertakings, provided that 
any inducements would be passed on to the client, and  
a grandfathering clause for certain existing contracts.  

2. 
Impacts on the retail clients 

Overall, the ban on inducements made the fees for Dutch retail clients more competitive, 
and  spurred  innovation  in  the  distribution  models.  The  popularity  of  index  trackers 
increased from 8% of retail investors owning an ETF in 2016 to 20% in 2021, while it was 
36% for starting (and likely younger) investors334.  At the same time, there was a decrease 
in sales of actively managed funds and a significant decline in insurance-based investment 
products (IBIPs).   

Figure 7.1 Source: Consumermonitor AFM 2021 

334 Consumermonitor AFM 2021, pages 7, 8, 14, 35, and 36 

147 

 – 

 
 
 
 
 
 
                                                           
The following table illustrates the decline in sales of Investment based insurance products 
(in thousands) 335. 

Figure 7.2, Source: DNB336  

Retail investor participation, on the other hand, slightly increased, as illustrated below337.  

Figure 7.3, Source:Consumermonitor AFM 2021 

335 At the same time, self-employed advisors, making up 85% of the Dutch market, indicated that more 
than 50% of their total turnover came from non-life insurance consultancy and intermediation. 
336 Graph created by DNB on request of the European Commission on October 12, 2022. 
337 It should be noted that this survey does not include investments large parts of the Dutch populations 
hold through their pension fund. Only direct retail investments are measured, while the total market 
exposure of the population is higher due to the pension system.  

148 

 
 
 
 
 
 
 
 
 
 
                                                           
At the same time, there was a shift from advice to portfolio management, including robo-
advice  and  semi-automated  portfolio  management,  while  the  levels  of  execution-only 
investing remained stable.338 Within the group of clients requesting the service of execution 
only,  10%  invested  making  use  of  a  “guided  execution  only”  in  2022.  Such  possibility 
allows  clients  to  invest  into  a  pre-determined,  cost-efficient  and  well-diversified  but 
limited range of products. The proportion of execution-only investors (66%) in the group 
of starting investors rose slightly in 2021.  

Figure 7.4 

A 2021 AFM study looking at finfluencers339 observed that 9% of execution-only investors 
use social media or influencers as sources of information. Finfluencers advertise or provide 
information on a wide range of products, from shares and ETFs to crypto-assets and CfDs, 
through  channels  such  as  YouTube,  Twitter,  Instagram,  Facebook,  Spotify  and  various 
websites.  Whilst  finfluencers  reflect  a  growing  trend,  the  AFM  observed  that  their 
followers are predominantly retail investors that choose to invest without traditional forms 
of advice.  

338 In this regard, the Retail investment study, page 292, points out that further to a mystery shopping, 
customers seeking traditional advice were encouraged towards execution only services instead. At the 
same time the report found that there was a shift from advice to portfolio management services instead, 
which means that any loss of access to traditional (often physical) advice services for particular client 
segments was largely compensated by their access to automated portfolio management services.  Said 
report also found in the mystery shopping that following the ban on inducements in the Netherlands, 
there was no longer availability of advice without charges directly to customers (contrary to other EU 
Member States). This finding shows that intermediaries complied with the inducement ban by requiring a 
service fee to cover their costs.   
339 AFM, The Pitfalls of Finfluencing, 2021. 

149 

 
 
 
 
 
 
 
 
 
                                                           
As  finfluencing,  depending  on  the  content  of  the  message  issued  online,  can  qualify  as 
financial advice or investment recommendations, the AFM has clarified that the activities 
of  finfluencers  active  in  the  Dutch  market  fall  under  licensed  activities.  Furthermore, 
finfluencers, as for any other intermediaries, are in breach of the ban on inducements if 
they receive referral payments or other forms of monetary benefits from the firms for whom 
they finfluence340.  

The number of investors investing small amounts annually has also increased over recent 
years in the Netherlands.  

Figure 7.5, Source:Consumermonitor AFM 2021 

The level of trust of retail clients in the advice received is high, with 81% at the time the 
advice is received and at 72% at hindsight341.  

Market consolidation 

340 AFM: The Pitfalls of Finfluencing, 2021 page 11:  In practice, this applies in any case if an investment 
firm pays a fee, e.g. to a finfluencer, when the clients referred to the firm: are in the onboarding process 
for opening an investment account; have opened an account; or have opened an account and have made 
an initial deposit. Consequently, providing referral fees to any third parties, not exclusively finfluencers, 
violates the ban on inducements in relation to investment services. If current clients of an investment firm 
receive a fee for referring friends, acquaintances or other people to the firm, this also qualifies as an 
inducement. This applies to both cash payments and other forms of remuneration, such as payments in 
shares. 

341 AFM consumer monitor on financial advice first half of 2022  
https://www.afm.nl/nl-nl/professionals/onderwerpen/consumentengedrag-consumentenonderzoek.  

150 

 
 
 
 
 
 
 
 
                                                           
A general market consolidation began in the Dutch market in 2008, triggered by the global 
financial  crisis.  The  number  of  self-employed  financial  advisors  with  an  AFM  license, 
making up 85% of the Dutch market, was already on the decline before the introduction of 
the ban on inducements342, it is therefore not possible to attribute this consolidation entirely 
to the ban on inducements.  

Since 2013, the average total turnover of independent financial advisors has risen by 5% 
per  year  and  now  represent  about  50%  of  the  advice  market  in  the  Netherlands343. The 
Netherlands  now  has  5960  licensed  independent  financial  advisors  with  7550  offices, 
compared to 726 bank branches. Advisors adjusted their business models after the ban on 
inducements was introduced. Different fee models emerged such as a service subscription, 
hourly fee, fixed rate per service, fixed rates per combined service, basic fee and negotiated 
fee. Companies able to make economies of scale could profit by the new regime, and the 
increase of return was higher for the firms with a larger amount of employees. Overall, the 
average size of employees of firms operating in the financial sector increased as did the 
investment in IT systems. After the introduction of the ban, advisors worked with different 
manufacturers,  the  largest  group  of  advisors  (40%)  offered  products  from  4-6  different 
manufacturers.  The  turnover  development  for  advisors  focussed  on  professional  clients 
(not concerned by the ban) compared to advisors focussed on retail (concerned by the ban 
on inducements) did not344 differ.  

The chart below illustrates the reduction in the number of license holders since 2011345.  

Figure 7.6 Source: Adfiz 

Fee structure 

As  mentioned,  new  fee  models  were  developed  in  the  Dutch  market  following  the 
introduction of the inducement ban. Examples include service subscriptions, hourly rates 

342 http://decisio.nl/wp-content/uploads/Decisio-Periscoop-Evaluatie-Provisieonderzoek-Definitief.pdf 
343 https://www.afm.nl/nl-nl/professionals/doelgroepen/adviseurs-bemiddelaars/thema/marktmonitor 
344 
https://www.researchgate.net/publication/328754959_Invoering_van_het_provisieverbod_in_de_financi
ele_dienstverlening Kloostermans/Wagensveld (Radboud Universiteit Nijmegen) in Maandblad voor 
Accountancy en Bedrijfseconomie 
345 Adfiz; Advies in Cijfers, 2022-2023. 

151 

 
 
 
 
 
 
 
 
                                                           
for advice on insurance and risk analysis, lump sum payments and percentages of the assets 
under management. The table below shows total costs and investment thresholds for both 
traditional/physical  and  online  advice,  for  (semi)automated  portfolio  management/robo-
advice and for execution-only services.346 

In  parallel,  the  inducement  ban  has  seen  the  emergence  of  online  asset  managers, 
competing  on  costs  by  including  portfolios  of  index  trackers.  The  total  costs  charged 
automated portfolio management, such as for online robo-advice, including product costs, 
are  between  0.7979  and  1.22%,  as  shown  in  the  below  table.  The  table  also  gives  an 
indication of the costs per type of service used and indicates the minimum thresholds of 
investments per type of advice, if any347.  

Cost 
overvi
ew 
Dutch 
invest
ment 
firms 
Firm 
A 

Firm 
B 

Firm 
C 

Firm 
D 
Firm 
E 

Traditional/
hybrid 
advice  

~Costs 

Automated 
portfolio  
management 

~Costs 
(incl. 
product 
costs) 

EUR 
50,000 

EUR 
20,000 

EUR 
50,000 

~1.5% 

N/A 

No 
minimum, 
advised 
minimum 
2,000 

is 

Depending 
on  amount 
invested:  at 
20,000  it  is 
0,79% 

EUR 10,000 

0.93-1.22% 

~Costs 
(incl. 
product 
costs) 

0.94-
1.07% 

N/A 

Guide
d 
Execu
tion 
only 

No 
mini
mum 
N/A 

No 
mini
mum 

N/A 

N/A 

No 
minimum. 

0.89-0.99% 

N/A 

N/A 

An example for the costs of investment advice in Wealth management in three different 
categories is provided hereunder. While the example shows the annual fix costs as well as 
the variable costs per transaction, as well as the VAT, product costs are excluded and come 
on top 348.  

346 European Commission desktop research, November 2022. 
347 The table does not include pure execution only. The costs for this service strongly depend on the 
trading behaviour of each client. Guided execution only a pre-determined, cost-efficient and well 
diversified range of products in offered to the client.   
348 European Commission desktop research, November 2022. 

152 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
The rising popularity of comparison websites, which in the Netherlands require a licence, 
was another notable development triggered by the ban on inducements.  

Investment Services 

Prior  to  the  ban  on  inducements,  banks  and  brokers  mainly  offered  actively  managed 
investment  funds  from  their  in-house  manufacturer  as  part  of  advisory  and  asset 
management portfolio services. Following the inducement ban, banks began to also advise 
on index trackers. Several large Dutch banks sold or divested their in-house asset managers 
(e.g. Robeco, previously owned by Rabobank349, as well as ING who sold their Investment 
Management  services  to  Nationale  Nederlanden  in  2013350,  who  sold  it  on to  Goldman 
Sachs in 2022). In some cases, those asset managers started their own direct distribution 
models.  

Economies of scale have become a more important factor in an increasingly competitive 
environment,  also  considering  the  high  cost  of  investing  in  digital  systems.  Market 
consolidation is ongoing, both through larger, international mergers and at national level 
for smaller firms.  

Evaluation  

In  an  evaluation  of  the  ban  on  inducement  carried  out  in  2018  the  Dutch  Ministry  of 
Finance found that a mitigation of the conflicts of interest had taken place. Other findings 
included: an increase of the quality of advice and a better focus on the objectives of the 
clients. There were no major constraints to access advice, while at the same time consumers 
tended  to  underestimate  the  costs  of  advice  prior  to  the  reform.  Once  advisors  get  the 
opportunity to explain the value added of their services, the acceptance to pay for such fee-
based services increases351.  

349 https://www.orix.co.jp/grp/en/newsrelease/pdf/130701_ORIXE1.pdf 
350 https://www.ing.com/Newsroom/News/Press-releases/PR/ING-announces-rebranding-of-ING-
Insurance-operations-to-NN-testarticle.htm https://www.goldmansachs.com/media-relations/press-
releases/2022/announcement-11-apr-2022.html 
351 
https://www.researchgate.net/publication/328754959_Invoering_van_het_provisieverbod_in_de_financi
ele_dienstverlening Wet- en regelgeving financiële markten | Tweede Kamer der Staten-Generaal 

153 

 
 
 
 
 
 
 
 
                                                           
Part B : third country jurisdictions 

There are also  a number of third country jurisdictions  that have banned the payment of 
inducements, either fully or for certain products and services (e.g.  India, Canada, South 
Korea, Taiwan, South Africa, Australia and the UK). This chapter looks at the effects of 
the bans on inducements in Australia and the UK, as their markets structures can be most 
easily compared to the EU.  

Australia 

Commissions and incentives for ‘product  pushing’, (i.e. selling products  that offer high 
commissions often aligned with a certain marketing campaign or product launches), were 
banned  by  Australia’s  Future  of  Financial  Advice  reforms  in  2012.  The  reform  also 
imposed a client’s best interest duty and mandated annual fee disclosures for investment 
services providers.  

Following the reform, a shift towards new charging models was observed such as pay-for-
advice,  percentage-based  fees  and  trailer  fees  (the  latter  which  can  no  longer  be  levied 
since  2013).  The  Australian  Securities  and  Investments  Commission  is  conducting  an 
extensive evaluation on the inducement ban and intends to publish its report in December 
2022. It will examine a number observed trends, notably that a large number of financial 
advice firms switched to platform fees following the ban, with a view to assessing whether 
they could be considered to circumvent the inducement ban. Such fees offer consumers 
access to a range of different products in one place, with the idea of portfolio simplification.  

United Kingdom  

In the United Kingdom, the ban on inducements was introduced to address a number of 
market  failures  on  the  market  for  retail  investment  products  identified  by  the  Retail 
Distribution Review (“RDR Review”) in 2006/2007 (complex charging structures and lack 
of clarity as to how benefits accrue for retail clients were identified as a driver for a low 
retail participation). Inducements combined with retail clients’ reliance on advisors were 
seen as a strong conflict of interest and source of consumer detriment. Low consumer trust 
was seen as an issue to be addressed352. 

The  UK’s  ban  on  inducements  was  implemented  in  two  main  stages  and  through  two 
distinguishable frameworks, as part of a comprehensive Retail Distribution Review: 

1. 

2. 

A  ban  on  inducements  for  advised  services  was  effective  as  of  1  January  2013. 
Grandfathering  for  trailing  commissions  and  existing  transactions  entered  into 
effect prior to 1 January 2013.  
The  ban  was  extended  to  non-advised  business  or  direct-to-consumer  platforms, 
effective as of 6 April 2014, with a 2-year transitional period. Legacy rebates were 
receivable by platforms during the transitional period.  

352 FSA DP 07/1: Retail Distribution Review, pages 16-17. 

154 

 
 
 
 
 
 
                                                           
Impacts 

The ban was evaluated primarily in the following reports:  

1. 

2. 

3. 

- 

the  RDR 

-  Phase  1,  2014 

FCA,  Post-implementation  Review  of 
https://www.fca.org.uk/publication/research/post-implementation-review-rdr-
phase-1.pdf (“FCA 2014”); 
Europe  Economics,  RDR 
2014 
https://www.fca.org.uk/publication/research/rdr-post-implementation-review-
europe-economics.pdf (“Europe Economics, 2014");  
FCA, Evaluation of the impact of the Retail Distribution Review and the Financial 
- 
Advice 
https://www.fca.org.uk/publication/corporate/evaluation-of-the-impact-of-the-rdr-
and-famr.pdf (“FCA 2020”). 

Implementation  Review, 

Review, 

Market 

2020 

Post 

- 

Impact on retail clients 

Reduced  product  bias,  and  shift  toward  low-cost  investment  products  and  self-directed 
investments  

Evidence from the reviews show that prices of financial products declined following the 
inducement ban, by at least the amount of commissions previously incurred. The ban on 
third-party  commissions  has  also  reduced  product  bias.  In  particular,  the  sales  of  high-
commission products fell, while the sales of products which had little or no commission 
pre-ban rose (no data available on overall cost reduction for all products). Although other 
factors, such as the trend towards increased platform-based sales (online execution only), 
also have contributed to the change of product mix, that trend does not fully explain the 
steep  changes  in  the  relative  size  of  sales  of  commission  vs.  sales  of  non-commission 
products  just  after the reform.  The Europe Economics  2014 report concluded that there 
was a strong correlation between high-commission products and advised sales353.  

The decline in the proportion of investment products sold in the highest  charging share 
classes is shown in the figure below. In January 2012, 60 per cent of all gross retail flows 
was through the highest charging share classes. As of May 2014, 80 per cent of flows were 
through shares classes other than the highest-charging classes354. 

353 Europe Economics 2014, pages 3 and 73 to 76. 
354 Europe Economics 2014, page 74.  

155 

 
 
 
 
 
 
 
 
                                                           
Figure 7.7  

A sharp spike in sales of typically low-cost tracker funds was also observed after the ban355  
from 4 percent in 2012 to 12 percent the following year:  

Figure 7.8 

Following  the  ban,  there  was  a  significant  increase  in  the  proportion  of  execution-only 
(non-advised) sales in comparison to advised sales across virtually all investment product 

355 Europe Economics 2014, page 75. 

156 

 
 
 
 
 
 
 
 
 
 
                                                           
segments, and as a consequence, non-advised sales have become the largest portion of total 
unit sales:  

Source: FCA Product Sales Data, https://www.fca.org.uk/data/product-sales-data/psd-archive 

When  assessing  possible  reasons  for  this  shift,  the  FCA  observed  that  consumers  “who 
would  previously  have  paid  for  full  regulated  advice  are  increasingly  turning  to 
alternatives such as investing on a non-advised basis, e.g. via platforms”. This is because 
“consumers have become more confident at directing their own financial affairs. [In fact] 
74  per  cent  thought  that  it  is  better  to  research  financial  products  before  considering 
financial advice, and 44 per cent thought that it is actually better to make the investment 
decisions without obtaining professional advice.”356. More recent FCA consumer surveys 
have  shown  that,  “Most  respondents  [...]  hadn’t  sought  out  advice  because  it  was  not 
needed, or that they felt they could make these decisions themselves (66%) and 22% had 
simply not thought about it.”357  

Constant investment volumes since the ban  

Retail sales (volumes) of units of investment products experienced a decline post-2008 and 
pre-ban, recovered to 2007 levels in 2013, and have since remained stable within the same 
bandwidth until 2020. Notably, sales volumes do not include transactions concluded via 
nominee  accounts,  such  as  those  used  in  platforms,  and  as  a  result  actual  sales  figures 
would be higher. These sales trends were clearly not only influenced by the ban, but also 
by other factors such as the global financial crisis.  

Year 
Total 
Sales 

2007 
3.145.
274 

2008 
2,963.
686 

2009 
2.641.
737 

2010 
2.802.
856 

2011 
2.609.
826 

2012 
2.345.
234 

2013 
3.122.
683 

356 Europe Economics 2014, page 42. 
357 FCA 2020, page 35. 

157 

 
 
 
 
 
 
 
                                                           
Year 
Total 
Sales 

2014 
3.418.
694 

2015 
2.881.
773 

2016 
2.967.
444 

2017 
3.478.
903 

2018 
3.310.
966 

2019 
3.194.
029 

2020 
2.914.
101 

Units  sold  including  Bonds,  Decumulation  Products,  Endowments,  Individual  Savings  Accounts  (ISA), 
Long-term  Care  Insurance,  Occupational  Pensions,  Personal  Pensions,  Structured  capital-at-risk  Products 
(SCARPs),  Trusts  and  Open-ended  Investment  Companies  (OEICs)  Source:  FCA  Product  Sales  Data, 
https://www.fca.org.uk/data/product-sales-data/psd-archive 

Developments in the advice market   

In  2016,  the  FCA358  underlined  that  the  RDR  review  (which,  among  other  things, 
introduced the ban on inducements) had resulted in a high-quality financial advice market 
in the UK and that the ban on inducements had improved transparency and ended conflicts 
of interest caused by a mainly commission-driven model. However, FCA also expressed 
concerns about the existence of an “advice gap” in the UK, as advice was not always cost-
effective for consumers, particularly those with smaller amounts of money to invest or with 
simpler needs. When examining the reasons for such a gap, the report identified different 
underlying  issues,  both  on  the  supply  and  demand  side  (including  high  costs,  limited 
confidence  of  consumers  to  engage  with  financial  issues,  a  lack  of  trust  following  past 
instances of mis-selling, etc.).  

Advice services in the UK were already decreasing before introduction of the ban (a decline 
from 25% of the adult population receiving advice in 2008 to 13 per cent in 2012 just prior 
to the ban).359 The more recent reports show a renewed upward trend in the percentage of 
the population receiving regulated advice. In 2019, 8% of UK adults received regulated 
advice on investments, a rise of 2% since 2017.360  

Post RDR research which examined the risk of clients being left without advice, showed 
that some firms  were segmenting clients,  and some were specialising in  high net-worth 
clients or introducing minimum investor thresholds.361 A very small number of investors 
appeared to have been impacted negatively. Client-uptake by advisors increased shortly 
after the ban, while the segmentation of customer bases appeared to be aimed at offering 
more tailored advice for different groups in the long-term.362 

As  regards  minimum  investment  amounts,  the  evidence  is  contradictory.  Some  sources 
examined in the 2014 Europe Economics report suggested minimum thresholds varied by 
firm, some firms had moved to accepting minimum wealth levels of between £50,000 and 
£100,000. However, much of this evidence relates to what firms were planning pre-ban but 

358 FCA, Financial Advice Market Review, Final report, March 2016. 
359 Europe Economics 2014, page 41. 
360 Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, 
page 34.   
361 Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, 
page 50. 
362 Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, 
page 51.   

158 

 
 
 
 
 
 
                                                           
not corresponding to actual minimum investment limits. In the evaluation that followed the 
ban, there was no clear conclusion about whether limits apply and if so, what they are.363   

Eight  years after the reform, the FCA observed that only 40% of firms  declared having 
formal  minimum  thresholds  for  pensions/investments,  but  there  was  no  indication  that 
firms  without  a  formal  minimum  investment  size  targeted  or  served  less  affluent 
customers.364  

Figure 7.9 

The  Europe  Economics  report365  also  analysed  a  potential  advice  gap  distinguishing 
between three groups of consumers who may have a need for investment advice but who 
may  not  be  receiving  it  for  different  reasons:  (a)  those  not  engaged  in  the  investment 
market; (b) those unwilling to pay for advice at true cost; and (c) those seeking advice but 
where firms are unable or unwilling to provide them advice. For each of these segments it 
was concluded that there was no evidence to suggest that the ban had created or enhanced 
the gap, for the following reasons 

363 Europe Economics, 2014, page 50 “The research is also varied in its conclusions as to what this level is: 
a report by Fundscape states that most financial advisers seemed to have settled on a minimum of 
£100,000 in investable assets, whilst other sources suggest a threshold of £50,000.  This contrasts with 
research from Schroders which shows that for the majority of firms the minimum levels are lower. In their 
survey 50 per cent of advisers reported that their cut-off level for investment, which was used to 
determine which clients were asked to leave, was below £25,000, and over 30 per cent saying it was 
below £50,000. Mintel contends that the availability of advice has declined post-RDR especially for 
customers with less than £20,000 to invest.”. 
364 Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review, 
(Europe Economics 2014, page 39).   
365 Europe Economics, 2014, page 3. 

159 

 
 
 
 
 
 
 
 
 
                                                           
1. 

2. 

3. 

“The first group (a), though important, does not constitute an ‘advice gap’ in that the 
affected  consumers  are  not  actively  looking  for  investment  advice  (they  might,  of 
course, benefit from unregulated, generic advice). [..] 

The second group (b) is driven by consumer choice about value for money and existed 
to a degree prior to the RDR. To the extent that this is a choice by consumers as to 
whether they are willing to pay for investment advice, whether this group is a ‘gap’ is 
arguable. By revealing the true cost of advice, the RDR is likely to have increased the 
size of this group, although the evidence suggests the size of this increase has been 
limited by the move by the majority of firms to adopt contingent charging structures 
rather than up-front fees. This group includes consumers who would pay for cheaper 
forms  than  the  full  advice  model  -  the  absence  of  these  cheaper  models  therefore 
creates  a  forced  choice  for  this  group. There  are  signs  that  in  time  the  market  will 
adjust to address at least part of this gap by developing cheaper advice offerings that 
these consumers may consider value for money.  

The third group (c) is firm-driven. This group of consumers is likely to have increased 
under  the  RDR  as  a  result  of  firms  moving  to  target  higher  wealth,  higher  margin 
consumers. Some firms are segmenting their client books and focusing on wealthier 
customers.  Where  this  is  the  case,  the  evidence  suggests  the  number  of  consumers 
affected is generally small and that these consumers are likely to have been picked up 
by other adviser firms. Advisers have capacity and have been taking on new clients. 
There is little evidence that consumers perceive themselves to have been abandoned by 
advisers. As this gap is likely to be small, to the extent there are firms willing to provide 
advice to lower wealth consumers, the market should be able to resolve this in time.” 

Finally, the reform (including the ban) appears to have contributed to a long-term trend of 
increased consumer trust. According to the FCA’s 2020 research report, the majority (72%) 
of consumers who had received advice in the past year reported being satisfied with the 
charges they paid. An increase in the trust in advisors amongst retail clients was observed. 
66% of adults in 2020 who had received regulated advice in the past 12 months trusted that 
advisors were acting in the best interest of their clients, compared to 58% in 2017.366  

Impacts on industry 

Various impacts on industry have been evaluated, in particular:  

The initial decline of advisory services following the ban was reversed with the re-entry 
into the market of retail banks, facilitated by technological developments (digitalisation)    

The number of advisors initially declined in the immediate aftermath of the ban. This was 
attributed to the exit of retail banks, something which was already occurring before the 

366 FCA 2020, page 31. 

160 

 
 
 
 
 
 
 
 
 
                                                           
ban.367 The number of retail advisors increased by 4% between 2012 and 2019368. Retail 
banks  re-entered  the  market  through  the  channel  of  technology-based  advice  and 
guidance.369 Since 2016, the FCA has also observed an increase in advice firms’ revenues, 
with a 21% growth in per adviser revenue and 37% increase in total revenue per firm.370.  

There  has  also  been  a  significant  shift  towards  execution-only  services  over  platforms 
offering execution only services. There has also been significant growth in the direct (i.e. 
non advised) sales, and specifically via platforms. In a 2017 study the FCA has observed 
that the investment platforms market has more than doubled between 2013 and 2017, from 
£250bn to £500bn AUM respectively. Platforms formed a large share of the retail equity 
market, and 20% of AUM on platforms was in directly owned equities. Crucially, the FCA 
also concluded that the number of consumers using platforms has increased, with about 2.2 
million more customer accounts created between 2013 and 2017.371   

A sustained decline in commission revenues followed by uptake of fee-based remuneration 
and an overall increase of retail investment business turnover 

Research into remuneration structures in the UK in the years shortly after the ban showed 
a sustained decline in the proportion of revenue stemming from commissions, coupled with 
an increase in advisor charges.372 In 2012, advisor charges accounted for less than 20% of 
revenue and they were around 35% in 2013.373 In contrast, in 2019 ongoing advice alone 
represented 70% of firms’ revenue.374 Although not analysed in relation specifically to the 
impacts of the ban in 2013, total reported annual revenue from retail investment business 
has  increased  by  approximately  71%  between  the  period  2013  to  2019,  with  average 
reported revenues for firms increasing by approximately 54% during the same period.375 

PART  C1  –  Cost  estimates  of  a  ban  on  inducements  for  administration  and 
compliance for firms 

This  section  presents  two  different  inducement  ban  related  cost  estimations  that  were 
performed in the UK and in the Netherlands between 2010 and 2014. The methodological 
approaches  for  assessing  compliance  costs  differ  in  these  two  jurisdictions,  making  it 
difficult to compare estimates. Furthermore, this section includes an extrapolation on the 
basis of the two cost estimates to illustrate the possible EU wide impact of an inducement 
ban.  

UK 

367 Europe Economics, 2014, page 54. 
368 FCA 2020, page 37. 
369 FCA 2020, page 41. 
370 FCA 2020, page 31. 
371 FCA, Investment Platforms Market Study 2019, pages. 4 and 46. 
372 Europe Economics 2014, page 46. 
373 Europe Economics 2014, page 47. 
374 FCA 2020, page 19. 
375 FCA 2020, page 53.  

161 

 
 
 
 
 
 
                                                           
FCA compliance cost estimates of 2010 for the inducement ban were informed by a multi-
stage process, involving surveys, interviews and industry consultations. Compliance cost 
estimates were separated into one-off and ongoing costs for each of the three firm groups 
–  intermediaries,  providers  and  platforms.  Intermediaries  included  Directly  Authorised 
(DA) and Appointed Representative (AR) firms, banks, stockbrokers, network providers, 
financial  services  conglomerates,  and  insurer  and  asset  manager  distribution  arms. 
Providers  included  conglomerates,  insurers  and  asset  managers  (excluding  their 
distribution arms).  

Additional  professional  qualification  costs  formed  a  significant  part  of  the  one-off  cost 
estimate for intermediaries (£115m–£165m), together with the introduction of the adviser-
charging  model  (£140m–£160m).  Disclosure  documents  and  marketing  (£20m–£45m), 
and costs for introducing independence requirements (£5m) were also included. Ongoing 
intermediary  costs  are  related  to  up-keeping  adviser  charging  (£40m–£60m),  satisfying 
disclosure requirement (£25m), and additional search costs incurred due to independence 
requirements (£35m).  

In relation to providers, one-off costs mainly consist of those for IT and systems, including 
the  introduction  of  multiple  share  classes,  product  redesign  and  additional  product 
disclosures (£330m–£385m). Ongoing costs include annual changes to IT systems and the 
costs  of  administering  additional  share  classes,  or  other  measures  to  facilitate  adviser 
charging (£70m–£85m). 

The  table  below  summarises  the  original  cost  categories  as  identified  by  the  FSA  for 
intermediaries and provider firms, broken down into one-off and ongoing costs. 

Type of firm  One-off incremental costs 

Ongoing incremental costs 

Clarity of service: cost of updating firm 
marketing material and updating service 
and cost disclosure materials. 

Adviser charging: cost of amending or 
tariff  for  services 
creating  a  price 
offered,  updating  systems  to  deal  with 
Adviser  Charging  and  training  advisers 
on new systems. 

Clarity of service: cost of explaining the firm’s 
status and charging structure to clients. 

Adviser  charging:  costs 
from 
updating price tariffs periodically as necessary, 
administering  Adviser  Charging  and  running 
new IT systems. 

resulting 

Qualifications: cost of training advisers 
from  their  current  qualification  level  to 
QCF  Level  4  (or  equivalent),  including 
study time. 

Independence:  ongoing  costs  associated  with 
the  revised  definition  of  independence,  e.g. 
market  search  costs,  product  due  diligence 
costs and adviser product training. 

Intermediaries 

Independence: one-off costs associated 
revised 
with  complying  with 
definition 
e.g. 
independence, 
redrafting investment procedures. 

the 

of 

Providers 

Systems:  systems  costs  associated  with 
moving to factory gate pricing, including 
the  costs  associated  with  offering  a 

Share  classes:  costs  associated  with 
ongoing administration of new share classes. 

the 

162 

 
 
 
 
 
 
 
service  for  collecting  and  passing  on 
adviser charges. 

Product redesign: costs associated with 
redesigning  existing  products  on  a 
factory  gate  priced  basis,  i.e.  without 
commission built in. 

facilitate  Adviser 
to 
Other  measures 
Charging: 
associated  with  other 
costs 
measures to support Adviser Charging, such as 
cancellation of units. 

share 

classes: 

cost 
Additional 
associated  with  creating  new  share 
classes  to  support  Adviser  Charging 
where this is felt to be necessary. 

Systems:  incremental  costs  associated  with 
maintaining new systems on an ongoing basis. 

Disclosure documents: cost of updating 
disclosure documents. 

Table 1 below provides a detailed breakdown of incremental costs faced by different types 
of intermediaries and providers according to the FSA estimate of incremental compliance 
costs for Retail Distribution Review proposals376: 

Table 1.1 Incremental compliance costs for intermediaries* 

Table 1.2 Incremental compliance costs for providers* 

*source: FSA 03/2010, page 9   

Further to the ex-ante estimation of 2010, Europe Economics performed an ex-post cost 
analysis of compliance cost in 2014. The following table shows how pre-RDR estimates 
compared to post-RDR estimated costs, per type of provider, with hindsight that the overall 
costs were lower than anticipated.  

The analysis of Europe Economics indicated an overestimation of compliance costs at the 
level of intermediaries of 60% and 31% with respect to expected one-off costs and ongoing 

376 FSA estimate of incremental compliance costs for Retail Distribution Review proposals, March 2010 

163 

 
 
 
 
 
 
 
 
 
 
  
 
 
                                                           
costs, whereas one-off costs compliance costs of provider firms fell short by 37%, while 
ongoing costs turned out 30% lower than initially estimates. 

Source: Europe Economics (2014), page 95 

Netherlands 

The introduction of the inducement ban in the Netherlands was complemented by a cost 
estimation in 2014.377 While the ban was presumed not to create any direct administrative 
costs,  the  industry  was  expected  to  face  considerable  one-off  compliance  costs  while 
transitioning to commission-free services and products. These one-off costs were estimated 
at  EUR  3.5  million  at  that  time.  At  investment  firm  level,  costs  associated  with 
communicating the ban towards clients were identified as key cost driver comprising one-
off cost of EUR 2.6 million, whereas the costs for the migration of clients’ positions to 
commission-free versions as well as ICT-related changes were estimated at EUR 720,000. 
Direct billing to customers had to be enabled and the business models of firms, including 
the fee schedule, had to be adjusted. UCIT management companies and managers of AIFs 
were expected to face compliance costs stemming from the setup of commission-free units, 
including the establishment of clean share classes and the migration of client portfolios 
into those share classes we expected to cost a total of EUR 115,000.  

A  separate  cost  estimation  was  initiated  in  2012378  to  support  the  inducements  ban  for 
insurance/complex products in the Dutch market. One-off compliance cost were estimated 
at EUR 18.7 million in the first seven years, while ongoing compliance costs of EUR 3.4 
million  per  year  had  been  identified.  One-off  costs  were  mainly  driven  by  the  one-off 
development of required procedures and the periodic review of new products relating in 
the  initial  establishment  phase  of  five  years.  It  was  further  estimated  that  the  costs 
associated with business model adaptations would result in EUR 14.9 million in the advisor 
community over a period of seven years. In terms of ongoing costs, it was observed that 
insurance  undertakings  would  likely  be  confronted  with  EUR  3.4  million  annually  in 
structural compliance costs from testing of new products against procedures.  

377 https://zoek.officielebekendmakingen.nl/stb-2013-537.pdf 
378 Staatsblad 2012, 695 | Overheid.nl > Officiële bekendmakingen (officielebekendmakingen.nl)  

164 

 
 
 
 
 
 
 
                                                           
Table 2 summarises the result of the cost estimations carried out in the Netherlands in 2012 
and 2014: 

Summary based on cost estimates of the Royal Dutch Decrees 2012 & 2014 

The  cost  estimates  in  the  Royal  Dutch  Decree  were  provided  on  an  ex-ante  basis.  The 
Commission  reached  out  to  different  financial  institutions  in  the  Netherlands  to  gather 
information on the actual (ex-post) level of costs incurred for the implementation of the 
ban on inducements, however most institutions could not provide such information, mainly 
due to the fact that the costs were absorbed by the institutions long time ago and factual 
information was not readily available. One institution was able to collect such information, 
which  is  presented  in  the  below  case  study.  The  case  study  is  presented  for  illustration 
purposes; while rich in details,  given the limited sample, it was not considered possible to 
use this as a reliable basis for extrapolations at the EU level. 

165 

 
 
 
 
 
 
  
  Case study  

The impact of the ban on inducements in the Netherlands can be showcased through an example of the 
impact on one Dutch bank which has a significant share of the retail market.  

The implementation of the ban on inducements carried certain implementation costs and costs savings for 
the bank and brought about key changes to the revenue model and the services used by clients.  

Costs for implementing the ban 

Type of Costs 

One-off 

Providing information to existing 
clients on the changes to the model 
(conversations with clients under 
advice, explanation of fees, 
information materials, calls to 
advised clients, etc.) 
Legal and marketing costs 

IT Costs – fee model 

Costs for coordination of transition 
project  
Costs savings 

Ongoing 

none 

ca. EUR 200 per client (costs for 
providing information per client, 
including 1h of conversation for 
clients who needed more 
information than just a letter).  

EUR 1.5-2 million 

EUR 1 million 

EUR 1-2 million (8 FTEs working 
on the project for 1,5 years) 

none 

none 

none 

Lower legal costs because of 
simplified relationship with product 
manufacturers (not quantified) 

Impact on the revenue model and services used by clients 

Prior to the ban, inducements made up 40% of the revenue of the investment arm of the bank, while 
overall the investment arm of the bank was not profitable. As the bank switched to a fee-based model, the 
revenues from commissions on investment products declined and needed to be compensated.  

The bank developed and focused on certain services and fee structures: for clients under advice, a (flat) fee 
of about 1% of assets under management (AUM) was introduced.  There was a significant reduction of 
commissions on investment products held by execution-only clients. The bank developed new services, 
such as online discretionary portfolio management which made this service also available for small 
investors. Existing discretionary portfolio management (DPM) clients did not see significant adjustments, as 
annual fees based on AUM were already a part of the service.  

On the client side, at the time of introduction of the ban as well as in subsequent years, the bank observed 
a large decline in the number of advised clients, with today only approximately 10% of the total number 
clients still being advice-clients compared to the pre-ban situation. A large number of clients previously 
receiving advice, switched to DPM and execution-only services. According to the bank, the ban allowed for 
a cultural shift within the institution to put the clients’ needs first as the conflicts of interests were 
removed.  

The new services developed by the bank with asset-based fees, which could be scaled-up easily, in 
combination with a stronger negotiating power by the bank towards product manufacturers (this was a 
result of the growth in DPM), resulted in higher levels of revenue, allowing the bank – over a period of 
several years after the introduction of the ban – to make its investment arm profitable.  

The choices that the bank made for its business model resulted also in an internal restructuring, where the 
bank had to let go 75% of its employed advisors. While this created an estimated one-off cost of, on 
average, one annual benefit per advisor, it also resulted in an overall structural cost savings of the same 
amount per year on an on-going basis.  

166 

 
 
 
 
 
 
 
 
 
Extrapolation of costs on the basis of Dutch and UK figures 

With a view to obtaining orders of magnitudes of the expected compliance costs incurred 
by the EU industry of investment products, this section provides extrapolations on the basis 
of the two cost estimations performed in the Netherlands and UK.  

The analysis is based on the information and methodological assumptions provided in the 
Royal Dutch Decree379 and the FSA estimate of incremental compliance costs for Retail 
Distribution Review proposals380. Original cost estimates have been adjusted to align the 
analysis  closer  to  the  planned  policy  proposal  subject  to  different  assumptions  that  are 
further described below. All results are expressed to EUR and reflect latest available price 
levels.  

1.  Netherlands 

Cost estimates in the Netherlands were calculated per investment firm and investment fund 
manager  based  on  the  estimated  workload  and  costs  required  to  complete  different 
compliance related tasks (a summary of the activities and calculations carried out in the 
context of the Dutch cost estimation is presented above). 

For the purpose of extrapolating, firm level estimates from the Netherlands were applied 
to firms in the EU-27, excluding the Netherlands (in the following defined as EU-26). The 
perimeter  of  relevant  EU  firms  is  based  on  the  ESMA’s  register  of  investment  firms, 
selecting  those  firms  that  are  active  in  the  EU-26  and  which  hold  a  MiFID  license  for 
providing investment advice. The scope of asset managers on the other hand is determined 
based on the number of UCITS management companies and Alternative Investment Fund 
Managers.  While  UCITS  typically  are  generally  retail  oriented,  Alternative  Investment 
Funds  are  offered  primarily  to  professional  clients.  To  account  for  this  segmentation,  a 
range of 15-25% is applied to determine the number of relevant AIF managers, instead of 
taking the full population of AIF managers.381 Concerning UCITS fund managers, the full 
sample i.e. 100% are taken into account. This is considered to be an overestimation, as not 
all UCITS fund managers are expected to be equally impacted.   

The result of this extrapolation is provided below: 

Juris
dictio
n 

Numbe
r 
of 
invest
ment 
firms 

Numbe
r 
of 
UCITS 
manag
ement 

Numbe
r 
of 
AIF 
manag
ers 
(100%) 

Costs faced by investment firms 
(1,000 EUR) 

Clien
t 

Transitional 
ICT 

Costs  faced 
asset 
by 
managers 
(1,000 EUR) 
Clean  share 
classes 

Sum 
(1,000 EUR) 

Min 

Max 

379 stb-2013-537.pdf (officielebekendmakingen.nl)  
380 FSA estimate of incremental compliance costs for Retail Distribution Review proposals, March 2010 
381 This assumption is based on the share of 14% of retail investors in AIFs. According to ESMA figures, EUR 
700bn of a total of EUR 5tn were held by retail investors in 2022 (cf. ESMA Cost and Performance Report 2022, 
page 28). 

167 

 
 
 
 
 
 
                                                           
compa
nies 

EU-
26 

4.597 

1.318 

2.627 

2.  United Kingdom 

Commu
nication 
costs 
47.869 
€ 

migr
ation 
costs 
5.166 
€ 

adjustment 
costs 
Min 
2.583 
€ 

Max  Min  Max 
2.74
2.37
12.91
2 € 
7 € 
5 € 

57.99
5 € 

68.692 € 

For  the  purposes  of  this  extrapolation,  the  UK  costs  estimates  (in  the  relevant  market 
segments  as  identified  by  the  FCA)  have  been  applied  to  licensed  investment  firms, 
insurance  undertakings  and  insurance  intermediaries  in  the  EU.  The  over-  and  under-
estimations  that  were  signalled  in  the  post-RDR  review  undertaken  in  2014  by  Europe 
Economics have been taken into account. These extrapolations are provided for illustration 
purposes  and  rely  on  a  series  of  assumptions  and  caveats  (further  explained  in  the 
paragraphs below). Information and data on the number of firms in the EU were in some 
cases limited to Euro area firms. In order to extrapolate cost estimates for the rest of the 
EU (i.e. the EU-26, excluding the Netherlands), results were multiplied by a scale factor 
of 1.25, which broadly reflects the size of the MiFID retail market in the missing countries.  

The ban on inducements in the UK was introduced as part of a broader set of measures 
prior to the implementation of MiFID II and IDD. The FSA’s cost estimates also include 
other  measures  which  are  irrelevant  in  the  context  of  a  ban  on  inducements  (e.g. 
professional qualifications requirements) or that have in part already been implemented in 
the EU through previous legislation (e.g. certain disclosure obligations). Considering the 
broader scope of the RDR and reflecting current conditions, several cost drivers included 
in the FCA estimates have been discarded or only partially taken into account:  

  Professional  qualifications:  the  RDR  reform  set  out  qualifications  requirements 
which  were  also  part  of  the  cost  estimates.  These  costs  are  excluded  from  the 
extrapolation.  

  ICT costs: ICT systems costs were estimated to be on the higher end in 2010, however, 
in  today’s  context  those  estimates  do  not  necessarily  reflect  market  realities  after  a 
decade of digital transformation by the industry. Against this background, a haircut of 
50% is applied with respect to all system costs.   

  Ongoing  costs:  A  fair  part  of  the  described  ongoing  costs  would  apply  equally  in 
environment where inducement would be allowed and can be considered to be part of 
a firm’s overheads  in  business  as usual  (e.g. product  diligence costs, ongoing client 
communication and the update of new documents and IT systems). Furthermore, most 
disclosure related compliance obligations already came into effect with MiFID II and 
IDD. In consequence, ongoing cost as per the FSA approach are disregarded from the 
analysis as they are deemed not to represent incremental costs.  

168 

 
 
 
 
 
 
 
 
 
The table below summarizes the main results of the extrapolation of cost estimates for the 
EU-26.  The details of the calculations across the various segments are presented in the 
following parts. 

Segmentation 
Banks 
Stockbrokers 
Financial advisors 
Insurance undertakings 
Asset managers 

EU-26 costs (million) 
372 € 
48 € 
3,231 € 
2,986 € 
7,273 € 

8,399 € 

13,910 € 

15,036 € 

Type 

Intermediaries  

Providers 

Total 

EU intermediaries 

1)  Banks 

The population  of banks comprises all directly  and indirectly supervised  entities by the 
SSM  that  hold  a  MiFID  license  for  investment  advice.  While  there  are  346  credit 
institutions offering advice that are deemed significant in terms of their size and risk, the 
vast  majority  of  credit  institutions  in  the  population  are  so-called  less-significant 
institutions (1,418 firms).  

The extrapolation is based on the UK cost estimates of an average bank (arithmetic mean), 
which is applied over 346 significant institutions in the EU-26. The average costs reflect 
the post RDR review (i.e. certain under- and over-estimations) and exclude professional 
qualifications costs as well as certain ICT charges as described further above. 

Below  table  summarizes  the  cost  extrapolation  for  the  euro  area  (significant  banks), 
excluding the NL, and an estimation of expected costs in the EU-26.  

Average 
bank 

cost  per 

Euro Area, excl. NL 

EU-26 

EUR 860.000 

EUR 298 million =  
0.86 million x 346 banks 

EUR 372 million = 
EUR 298 million x 1.25 (scale 
factor) 

2)  Financial advisors 

The segment of companies providing financial advice in the euro area (excl. NL) covers 
all MiFID firms (2,428 firms) with a license for offering investment advice that are neither 

169 

 
 
 
 
 
 
 
  
 
 
banks nor defined as brokers and beyond that includes smaller credit institutions382 that 
were  disregarded  from  the  analysis  under  point  1.  (1,418  LSIs).  In  addition,  815,000 
licensed insurance intermediaries in the Union are considered (which is overestimate as 
the number also would cover intermediaries in the NL).  

In terms of firm-level cost estimates, a simple average between the compliance costs of a 
commission-based  directly  authorised  (DA)  financial  advisory  firm  and  an  appointed 
representative (AR) financial advisory firm is taken. Firms are categorised into three size 
bands (small: 1 - 3 advisors, medium: 4 - 19 advisors and large: 20 and more advisors.  

DA financial advisors 
AR financial advisors 
Average 

Small 
EUR 4,194 
EUR 3,513 
EUR 3,853 

Medium 
EUR 10,543 
EUR 9,378 
EUR 9,961 

Large 
EUR 47,125 
EUR 47,125 
EUR 47,125 

For the purpose of extrapolating the cost estimates to EU-26 level, a scale factor of 1.25 is 
applied to the number of MiFID investment advisors and smaller credit institutions (LSIs) 
in the euro area, while selecting respectively the medium category and large category to 
quantify total costs. Concerning the insurance sector, the smallest cost category is used for 
reference, acknowledging the circumstance that more than 50% of the IDD universe are 
one-person businesses.  

Type of advisor 

Average cost per firm 

Firm 
investment advisory 

providing 

EUR 9,961 
(Medium advisory firm) 

Less significant credit 
institutions 

EUR 47,125 
(large advisory firm) 

EUR 3,853 
(small advisory firm) 

Insurance 
intermediary 

TOTAL 

3)  Stockbrokers 

Costs EU-26 
EUR 24 million 
= 
EUR 9,961 x 2,428 firms 
EUR 67 million 
= 
EUR 47,125 x 1,418 firms 
EUR 3,140 million 
= 
EUR 3,853 x 815,000 firms 
EUR 3,231 million 

Brokers  are  defined  as  MiFID  firms  with  a  license  for  the  receipt  and  transmission  of 
clients’ orders or the execution of orders, but who do not offer investment advice to clients. 
The population in the euro area (excluding NL) is estimated to be 427 firms. 

The extrapolation is based on the UK cost estimates of an average stockbroker (arithmetic 
mean), which is applied over 427 companies that offer brokerage services in the EU-26. 
The average costs take into account  the post RDR review (i.e. certain  under- and over-

382 They are taken into account in the category of financial advisors (rather than in the previous category of 
banks) because their compliance costs are expected to be closer to those of large financial advisors rather than 
significant banks 

170 

 
 
 
 
 
 
 
 
 
 
                                                           
estimations) and exclude professional qualifications costs as well as certain ICT charges 
as described further above. 

Below table summarizes  the cost  extrapolation  for the euro area, excluding the NL  and 
EU-26.  

Average 
brokerage firm 

cost  per 

EUR 89,600 

Euro Area, excl. NL 

EU-26 

EUR 38 million =  
89,600 x 427 firms 

EUR 48 million = 
EUR  38  million  x  1.25  (scale 
factor) 

EU provider firms 

4)  Insurance companies 

The segment of insurance companies consists of insurance undertakings that write  unit-
linked  products,  profit  participation  products  or  undertakings  that  sell  both  types  of 
products. The population of these insurers is comprised of approximately 552 firms in the 
EU-26. 

For the purpose of extrapolating, the median cost estimates for a medium size insurance 
company is selected, subject to deducting half of ICT related charges and accounting for 
the post RDR review.  

Below  table  summarizes  the  cost  extrapolation  for  the  EU-26  with  regard  to  insurance 
undertaking offering IBIPs.  

Number  of  insurance 
undertakings 
552 

5)  Asset managers 

cost 

Expected 
medium size insurer  
EUR 5.41 million 

for 

a 

Costs EU-26 

EUR 2,986 million 

The segment of asset managers is being defined as UCITS management companies and 
Alternative  Investment  Fund  Managers.  As  UCITS  typically  are  retail  oriented,  we  are 
taking  all  asset  managers  into  account,  therefore  overestimating  the  potential  effect. 
Alternative Investment Funds are offered mainly to professional clients and to account for 
this segmentation, not the full population but a range of 15-25% is applied to determine 
the relevant market of AIFs.  

In terms of firm level costs, the median cost estimates for a medium size asset manager is 
selected, subject to deducting half of ICT related charges and accounting for the findings 
of the post RDR review.  

Below table summarizes the cost extrapolation for EU-26 with regard to asset managers.  

171 

 
 
 
 
 
 
 
 
of 

Number 
management firm 
1,318 UCITS MC 
394 – 657 AIFs 
Total 

asset 

Expected 
a 
cost 
medium size asset manager  

for 

Costs EU-26 

EUR 4.25 million 

EUR 5,602 million 
EUR 1,671 million – 2,797 million 
EUR 7,273 million – 8,399 million 

PART C2 – Quantification of expected benefits of the ban on inducements 

This  section  illustrates  in  quantitative  terms  the  expected  benefits  of  the  ban  on 
inducements, by providing a summary of the benefits calculated by the UK at the time of 
introduction of the ban, as well as an illustration prepared by the Commission services for 
the possible benefits in the EU.  

UK 

The FSA carried out an evaluation of the benefits expected from the ban on inducement. 
Particular  attention  was  paid  to  benefits  stemming  from  the  potential  elimination  of 
consumer detriment  as a result of the ban, especially in relation to mis-selling resulting 
from commission bias. In 2010 the FSA provided an estimate of the detriment to consumers 
based on a number of mis-selling case examples.  

The following estimates were provided: 

Example  

Pension Switching  
Unit Trust Market  
Investment Bond Market  
Personal Pensions  
Total: 

(FSA 10/06, A1:10) 

Annual Detriment Estimates 
mm GBP (2010 prices) 
£43 
£70 
£92 
£18 
£223 

mm EUR (latest price levels) 
60 € 
98 € 
129 € 
25 € 
314 € 

Overall,  benefits  from  the  reforms  for  both  consumers  and  the  industry  appeared  to 
outweigh the costs incurred by the transition.  

Expected benefits at an EU level 

The expected benefits for consumer of a ban at an EU level can be illustrated by estimating 
the  total  value  of  inducements  charged  to  investors  on  an  annual  basis.  An  accurate 
estimation  of  the  amount  of  inducements  is  difficult  to  establish,  due  to  strong  data 
limitations regarding the share of inducements in total product costs and the exact number 
of products in the market that carry inducements.  

On the basis of a series  of assumptions, the value of inducements can be illustrated for 
certain  products  and  market  segments  (e.g.  actively  managed  UCITS  funds  which  are 
directly held by retail investors). 

172 

 
 
 
 
 
 
 
 
  
Data from Eurostat383 shows that the direct holdings of investment funds by retail investors 
equalled EUR 2,785 billion in 2019, EUR 2,834 billion in 2020 and EUR 3,357 billion in 
2021.  The likelihood that a fund will be induced is highest for actively managed UCITS 
funds. According to ESMA’s 2022 Cost and performance report, UCITS funds (at EUR 4 
trillion)  represent  approximately  85%  of  the  EU  retail  fund  holdings.  Active  UCITS 
accounted for around 67% of the overall market, from 71% in 2019 (rounded up to 70% 
for  the  purposes  of  this  calculation).  Applying  these  percentages  to  the  level  of  direct 
holdings of investment funds and taking (i) as an assumption an average of the total annual 
costs for UCITS fund (equity, bonds and mixed UCITS funds) with a 10-year investment 
horizon as reported by ESMA384 (e.g. 1.65% in 2019, 1.61% in 2020 and 1.58% in 2021) 
and (ii) as a conservative assumption that products carrying inducements are on average 
25% more expensive than non-induced products, the total annual costs of inducements at 
an EU level for these UCITS funds would represent EUR 5.13 billion (2019), EUR 5.25 
billion (2020) and EUR 6.1 billion (2021). For previous years the calculations would be 
in a similar order of magnitude. 

As  indicated  in  chapter  3,  the  conflicts  of  interest  that  arise  from  inducements  create 
product bias and lead to the sale of more expensive products to retail investors. The above 
estimates do not take into account the dynamic effects of a ban, which would imply that a 
certain percentage of retail investors would switch to cheaper products (as experiences in 
the NL and the UK have shown).  If these dynamic effects were taken into account, the 
actual  detriment  of  inducements  for  investors  would  be  even  higher.  For  example, 
assuming that 5% of investments in the EU would shift to low-cost investment products 
(such  as  ETFs),  this  could  generate  further  aggregated  cost  savings  of  EUR  0.5  billion 
(2019), EUR 0.6 billion (2020) and EUR 0.8 billion (2021)385. 

The above estimates of the value of inducements are limited to only one market segment 
and  should  therefore  be  seen  as  a  significant  underestimation  of  the  overall  impact. 
Insurance based investment products, which have a significant market share and carry high 
level of inducements, as well as other retail investment products, are not included in this 
calculation.  

As a consequence of a ban on inducements, retail investors would have to pay separately 
for  investment  services,  including  financial  advice,  as  these  costs  would  no  longer  be 
incorporated in the overall fees. The costs of such payments could not be quantified, but it 
is expected that they would be significantly lower than the cost of inducements. 

383 Financial balance sheets annual data extracted from Eurostat:  
https://ec.europa.eu/eurostat/databrowser/view/NASA_10_F_BS/default/table?lang=en . 
384 Based on average total costs for the UCITS market published by ESMA in its 2023 Market Report on Costs 
and Performance of EU Retail Investment Products. 
385 Based on total annual costs of ETF UCITS provided by ESMA: 0.7% in 2019 (2021 costs and performance 
report), 0.5% in 2020 (2022 costs and performance report) and 0.43% in 2021 (2023 costs and performance 
report). 

173 

 
 
 
 
 
 
                                                           
Finally, it should be noted that for the calculation, the same proportion of inducements was 
applied  across  all  Member  States,  whereas  in  reality,  the  average  level  of  inducements 
charged in each Member State varies. Nevertheless, it is evident that inducements amount 
to  sizeable  costs  for  retail  investors  in  the  EU,  in  the  order  of  billions  of  Euros.  They 
represent a wealth extraction which lowers market efficiencies. If these cost savings were 
made available to households, they could contribute to wealth creation for retail investors 
and be used for further investments in the economy. Furthermore, while these illustrations 
show the level of inducements charged, the main benefit to retail investors will relate to 
the removal of conflicts of interest and biased advice. This would make it less likely that 
retail  investors,  in  particular  those  that  are  less  financially  literate,  are  recommended 
products that are overly risky or expensive, considering their needs and objectives. 

Illustration of impact on individual investors  

The impact of inducements can be illustrated along the return a retail investor can earn on a 
typical EUR 10,000 investment with different combinations of the size and timing of fees paid 
to the provider of the financial instrument,  when using either a commission-based or a fee-
based investment product. This illustration is based on a series of assumptions relating to the 
gross return on the investment and the magnitude of the fees. The numbers in ESMA’s cost 
and  performance  reports  of  EU  retail  investments  provide  suitable  benchmarks  for  such 
assumptions.  

The calculations assume a gross annual return would be 5%, which is slightly lower than the 
average  gross  performance  of  EU  UCITS  funds  over  an  investment  horizon  of  10  years  in 
2017-2021386. The actual return was somewhat higher (at 9%) for equity UCITS. Second, we 
assumed a hypothetical level of 1.6% annual costs for the commission-based model. This is in 
line with the average fee charged on equity UCITS, which was 1.57% annual ongoing charge 
plus 0.16% subscription and redemption fee in 2021 according to the ESMA report. To remain 
consistent with the quantification of aggregate benefits, which assumed that ongoing costs of 
commission-based investment products include a 25% surcharge to pay for inducements, i.e. 
ongoing costs in the fee-based model are 80% of those in the commission based model (i.e. 
1.28%).  

Simulations  were  carried  out  for  two  different  types  of  fee-based  models.  The  first  model 
assumes that the investor does not need any advice, while the second assumes that the investor 
needs  an  hour  of  advice  and  is  charged  EUR 130.  This  amount  was  reported  by  industry 
stakeholders  as representative.  It  is  higher than the labour costs of 85 EUR that the  Kantar 
study used as benchmark and much higher than the average hourly salary in the financial sector. 
Hence it includes contributions to the fixed costs and profit margin of the provider. In these 
two models, the investor is charged 1.28% in annual costs. The advice fees are paid upfront 

386 The average gross performance for equity, bonds and mixed UCITS for a 10-year investment horizon over 
the period 2017-2021 was 4.92%, calculated based on data in ESMA’s 2023 Market Report on Costs and 
Performance of EU Retail Investment Products. 

174 

 
 
 
 
 
 
                                                           
and are deducted from the investment amount of EUR 10,000. The impact of other entry and 
exit costs has not been considered in any of the models. 

When applying an annual gross return of 5%, the fee-based model without advice immediately 
outperforms the commission-based model. The fee-based model with advice only does so after 
five  years.  In  the  longer  term,  however,  the  commission-based  model  is  evidently  lagging 
behind both of the fee-based models.  

After 10 years, the commission-based model is outperformed: 

  by EUR 438 (fee-based model without advice); 
  by EUR 251 (fee-based model with an upfront advice fee).  

These gaps become increasingly wider as time passes. After 25 years, the commission-based 
model is outperformed: 

  by EUR 1,853 (fee-based model without advice); 
  by EUR 1,529 (fee-based model with an upfront advice fee). 

Year  Commission-based  model 
(1.6% annual costs) 

Fee-based  model  without 
advice (1.28% annual costs) 

Fee-based  model 
(1.28% 
annual  costs,  130  EUR  advice 
fee upfront) 

10000.00 

10340.00 

10691.56 

11055.07 

11430.95 

11819.60 

12221.46 

12636.99 

13066.65 

13510.92 

13970.29 

14445.28 
14936.42 
15444.26 
15969.36 
16512.32 
17073.74 
17654.25 
18254.49 
18875.14 
19516.90 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 

10000.00 

10372.00 

10757.84 

11158.03 

11573.11 

12003.63 

12450.16 

12913.31 

13393.68 

13891.93 

14408.71 

14944.71 
15500.66 
16077.28 
16675.36 
17295.68 
17939.08 
18606.41 
19298.57 
20016.48 
20761.09 

175 

9870.00 

10237.16 

10617.99 

11012.98 

11422.66 

11847.58 

12288.31 

12745.44 

13219.57 

13711.33 

14221.40 

14750.43 
15299.15 
15868.28 
16458.58 
17070.84 
17705.87 
18364.53 
19047.69 
19756.26 
20491.20 

 
 
 
 
 
 
 
21 
22 
23 
24 

25 

20180.47 
20866.61 
21576.07 
22309.66 

23068.19 

21533.40 
22334.45 
23165.29 
24027.04 

24920.84 

21253.47 
22044.10 
22864.14 
23714.68 

24596.87 

In the example above, the commission-based model is consistently outperformed by the fee-
based models in the medium and long term. However, the example is focused on a single type 
of product, bearing relatively high costs. It is well possible that, if the commission-based model 
was no longer available consumers would (be advised to) switch to different types of products 
altogether. Exchange Traded Funds (ETFs) are a close substitute to actively managed UCITS.  

ETFs are significantly cheaper than other investment products. Based on data for retail share 
classes provided by ESMA for the period 2011-2020, ETF ongoing costs were 4 to 6 times 
lower  than  ongoing  costs  for  equity  UCITS.  The  calculations  below  use  the  historical 
performance and costs of equity UCITS and equity ETFs of the last 10 years387, demonstrating 
the return investors would  have  accomplished had they  invested EUR 10,000 into either of 
these instruments 10 years ago. The return and cost numbers are those that ESMA reported. 
Considering  the  performance  of  these  two  categories  of  products,  an  investor  with  a  EUR 
10,000 investment in 2011 would have earned almost EUR 2,000 more by investing in ETFs 
after 10 years, compared to equity UCITS (one-off costs have not been taken into consideration 
in any of the scenarios). This is not because ETFs achieved consistently higher performance 
over the 10 years, but because of the large differences in costs. As ESMA has concluded in its 
2023 Costs and performance report, 'Costs for active equity and bond UCITS were higher than 
for  passive  and  UCITS  exchange  traded  funds  (ETF),  leading  to  net  underperformance  of 
active funds compared to passive and UCITS ETFs'. 

Year 

Equity UCITS 
Net 
investment 
amount 
(EUR) 
10000.00 

Gross 
performan
ce (%) 

2011  8893.33 
2012  10270.01 
2013  11733.31 
2014  13135.19 
2015  14310.81 
2016  14946.92 
2017  16513.46 
2018  14882.31 

-9.33  
17.18  
15.93  
13.58  
10.57  
6.02  
12.01  
-8.38  

Ongoing 
costs (%) 

Equity UCITS (no inducements) 
Gross 
Net  investment 
performance 
amount (EUR) 
(%) 

Ongoing 
costs (%) 

1.74 
1.70 
1.68 
1.64 
1.62 
1.57 
1.53 
1.50 

10000.00 
8928.07 
10340.54 
11848.73 
13303.15 
14536.91 
15228.76 
16871.46 
15255.61 

-9.33  
17.18  
15.93  
13.58  
10.57  
6.02  
12.01  
-8.38  

1.39 
1.36 
1.35 
1.31 
1.30 
1.26 
1.22 
1.20 

ETF 
Net 
investment 
amount 
(EUR) 
10000.00 
9067.95 
10727.05 
12423.19 
13960.28 
15179.74 
16356.42 
17912.11 
16505.45 

Gross 
performa
nce (%) 

Ongoin
g  costs 
(%) 

-8.90  
18.67  
16.20  
12.73  
9.07  
8.04  
9.78  
-7.59  

0.43 
0.37 
0.39 
0.36 
0.34 
0.29 
0.27 
0.26 

387 Cost and performance figures from 2011-2020 used for this example were provided by ESMA. They are end-
of-year values computed as weighted averages from a sample of retail share classes based on Refinitiv Lipper 
data. 

176 

 
 
 
 
 
 
 
  
 
  
  
  
  
  
  
                                                           
2019  18715.97 
2020  19901.04 

27.22  
7.76  

1.46 
1.43 

19230.00 
20502.47 

27.22  
7.76  

1.17 
1.14 

21119.84 
21888.03 

28.21  
3.87  

0.26 
0.24 

This simplified analysis comes with some limitations. In particular, performance and cost rates 
are specific to the time period and might look very different in the future. However, the lower 
costs provide a useful buffer  for investors even  when performance is  lagging behind.  More 
expensive,  actively-managed  products  are  from  the  start  setting  the  bar  higher  for  their 
managers, who need to achieve higher returns just to offset the higher costs.  

Keeping  in  mind  that  equity  UCITS  share  classes  sold  to  retail  investors  often  carry 
inducements, a further scenario shows the outcome of the investment if the costs of the equity 
UCITS  would  have  been  25%  lower  (corresponding  to  an  absence  of  inducements).  This 
reduction in costs would have improved the investment outcome by around EUR 600 at the 
end  of  the  investment  period  relative  to  an  equity  UCITS  that  carried  inducements.  The 
investment return would still be almost 1400 EUR below those of the corresponding equity 
ETF. 

PART D – Market Structure Overview  

1. Overview Markets in financial instruments  

The Markets in Financial Instruments Directive11 (MiFID) governs securities markets, the 
provision of investment services in the EU and the authorization of investment firms.  

Investment firms  

Investment  firms  are  authorized  entities  that  perform  various  services  for  investors  in 
financial  instruments.  These  firms  operate  in  a  diverse  universe  in  which  there  are 
differences in terms of size, business model and complexity. The EU market for investment 
firms is large with 5,494 registered investment firms, some of them being banks.  The chart 
below provides an overview of the number investment firms in the EU per Member State.  

Figure 7.10 Source: ESMA Registers – list auf authorised investment firms 

177 

 
 
 
 
 
 
 
 
 
 
In  terms  of  geographical  distribution,  the  market  is  asymmetric,  with  most  investment 
firms  concentrated  in  only  a  few  countries.  While  over  2,000  firms  are  registered  in 
Germany, Austria is the second largest host with 514 investment firms, followed by Italy, 
Spain  and  France,  where  497,  352  and  294  companies  are  domiciled  respectively.  The 
smallest  number  of  authorized  investment  firms  is  in  Slovenia,  Estonia,  and  Lithuania 
which count altogether 37 registered companies.   

Figure 7.11 Source: ESMA Registers – list auf authorised investment firms 

The number of authorized investment firms grew on average by 170 companies per year 
(Figure 7.11). The highest number of registrations occurred in 2018 and 2019, when 282 
and 198 companies respectively applied for a MiFID license.   

Investments in MiFID products  

MiFID II covers investment services relating to many asset classes, ranging from stocks 
and  bonds  to  investment  funds  and  derivatives.  The  chart  below  shows  the  size  of  the 
MiFID market in the EU 27 by country, including its evolution between 2017-2021.388 In 
2021, investments in MiFID products were valued at EUR 54.453 billion in the EU. This 
number increased by 10% against the previous year, in line with the positive trends in 2020 
and 2019 when the stock grew 4% and 12% respectively.  

At national level, the largest market by some way is Italy, where EUR 14,734 billion in 
assets are held. Compared to the rest of the EU, the Italian market accounts for 27% of all 
MiFID assets. The other major markets are Germany, France, Spain and Sweden, which 
account  for  approximately  50%  of  the  EU  market.  The  value  of  MiFID  assets  in  those 
countries comprised respectively EUR 9,772 billion EUR 6,539 billion, EUR 6,505 billion 
and EUR 5,486 billion. The smallest markets in terms of absolute holdings in MiFID assets 
are Cyprus (EUR 30 billion) and the Malta (EUR 28 billion)389.   

EU - 27 

Financial assets: MiFID products (total economy) 
2021 
54.452.803 

2020 
49.264.054 

2019 
47.245.598 

2018 
41.981.968 

2017 
42.397.940 

388 X-axis: 1 = year 2016, 7 = year 2021 
389 Data sourced from Eurostat – financial balance sheets. 
178 

 
 
 
 
 
 
 
  
  
                                                           
IT 
DE 
FR 
ES 
SE 
BE 
DK 
NL 
AT 
FI 
PL 
PT 
CY 
EL 
HU 
IE 
BG 
RO 
LU 
EE 
LT 
SI 
SK 
HR 
LV 
CY 
MT 

14.734.409 
9.772.021 
6.539.223 
6.505.778 
5.486.992 
2.473.563 
1.529.268 
1.657.308 
1.259.408 
1.003.122 
605.417 
612.220 
352.826 
287.391 
187.554 
233.937 
189.323 
215.438 
86.551 
181.604 
211.175 
62.306 
31.548 
34.666 
32.176 
29.845 
27.582 

13.436.341 
8.730.257 
6.343.626 
5.327.009 
5.043.030 
2.267.220 
1.403.296 
1.511.078 
1.089.942 
926.434 
552.068 
549.219 
381.083 
257.395 
173.381 
223.164 
169.139 
165.152 
79.466 
150.063 
182.538 
53.924 
28.253 
32.033 
27.537 
24.997 
26.256 

12.330.496 
8.716.851 
6.439.875 
4.972.817 
4.860.483 
2.166.443 
1.369.534 
1.484.561 
1.012.199 
832.292 
550.534 
540.101 
422.890 
194.793 
166.983 
218.851 
147.418 
152.511 
80.130 
143.346 
158.768 
47.341 
24.854 
30.141 
21.969 
21.178 
28.089 

10.808.504 
8.107.777 
5.820.112 
3.999.807 
4.414.723 
1.961.724 
1.208.871 
1.366.437 
877.726 
688.163 
498.111 
510.407 
391.861 
136.572 
158.646 
196.324 
128.237 
139.216 
71.149 
134.652 
129.932 
41.377 
22.931 
27.051 
18.561 
19.845 
23.687 

10.628.464 
8.407.123 
5.991.771 
3.930.405 
4.491.499 
1.968.126 
1.323.225 
1.312.058 
945.246 
674.933 
459.431 
553.957 
398.053 
193.957 
153.054 
198.692 
115.767 
129.411 
67.540 
134.333 
128.952 
36.152 
20.175 
26.721 
17.378 
20.774 
21.360 

Source: Eurostat, Financial balance sheets – total economy, MiFID assets defined as F3, F5 and F7 

Retail investors   

Investments in MiFID products by EU households comprised EUR 11,728 billion in 2021. 
The value expanded steadily during in recent years (EUR 8,719bn in 2018, EUR 9,719bn 
in 2019, EUR 10,201bn in 2020). The share of retail investors in MiFID assets compared 
to professional MiFID investors is 21.5%.  

As regards the size of domestic markets, the retail sector is equally concentrated, however, 
the top three markets in Italy, Germany and France are more closely aligned. While Italian 
retail investors own EUR 2,233bn in MiFID assets, the German market is second largest 
with EUR 2,011bn. Retail clients in France on the other hand own EUR 1,922bn in MiFID 
assets.   

While  these  markets  are  large  in  absolute  terms,  they  are  small  in  comparison  to  the 
domestic  market  of  all  MiFID  assets.  Analysing  the  level  of  retail  participation13,  the 
highest retail participation rates are observed in Slovakia, Hungary and Luxembourg. In 
those  countries,  the  share  of  households  MiFID  assets  /  total  economy  MiFID  assets 
amounts to 73%, 63% and 53% of MiFID investment are held by the retail sector.   

Asset classes  

Stocks  and  shares  in  investment  funds  represent  the  largest  asset  class  among  MiFID 
investors,  with  a  value  of  EUR  36,656bn  or  67%  of  all  investments.  Debt  securities 
comprised EUR 15,348bn (26%), whereas financial derivatives, including stock options 
totalled EUR 2,449bn (5%). The preference for equity and investment funds is even more 
pronounced for retail investors. This asset classed comprised EUR 11,219bn, or 96% of all 
retail investments. 

179 

 
 
 
 
 
 
Figure 7.12 – Eurostat data 

Figure  7.13  gives  a  more  detailed  view  on  EU  retail  investors’  MiFID  holdings  and 
different asset classes, including a country-by-country overview. For the EU as a whole, 
shares  or  units  in  investment  funds  and  unlisted  shares  represent  the  two  largest  asset 
classes and are of comparable size - EUR 3,357bn and EUR 3,248bn, respectively (> 50%). 
Other forms of equity are valued at EUR 2,871bn and unlisted shares also take a substantial 
share (EUR 1,742bn). Long-term debt holdings are comparably low (EUR 479bn), whereas 
the position of financial derivatives are negligible. The distribution of these asset classes 
differs considerably across national markets.  

Figure 7.13 - Eurostat data  

Comparison of EU retail investors at global level   

As described above, the product offering to retail clients in the EU can be broken down in 
different categories, of which open-ended regulated funds form the largest product group 
sold to retail clients.  The EU is the second largest market globally in terms of open-ended 
regulated  funds,  following  the  United  States  (US),  with,  respectively,  30%  and  48%  of 
global net assets. At the end of 2021, the EU UCITS segment remained the largest fund 
investment sector in the EU, with more than EUR 12tn. of which EUR 6tn held by retail 
investors. At the end of 2021, US households held 88% of the total net assets of US mutual 
funds. In the EU, this share remains at 60%.  

EU UCITS and ETF market   

180 

 
 
 
 
 
 
  
 
The  EU  UCITS  market  is  highly  concentrated:  90%  of  retail  investment  assets  were 
managed by 15% of managers. More than 90% of retail investment centres on equity, bond 
and mixed assets. The distribution of retail investment across these assets is heterogeneous 
in the EU. For example, in 2021, the share of investment mainly focusing on equity was 
10% in Italy, while it was around 65% in the Netherlands and Sweden.  

The EU UCITS ETF segment grew to EUR 1.2tn in 4Q21 from 908bn in 4Q20, or 13% of 
the total EU UCITS market.  At the end of 2021, net annual inflows in equity ETFs were 
equal to EUR 92bn and to EUR 26bn in the case of ETFs mainly focused on bonds.   

Passive equity and bond UCITS non-ETFs accounted for, respectively, EUR 637bn and 
EUR 198bn, in ESMA’s sample, this also includes institutional clients.   

Structured retail products  

The total outstanding volume of SRPs held by EU retail investors at the end of 2021 was a 
little over EUR 300bn, making up around 2% of the financial net worth of EU households 
in 2021.  

There  has  been  a  continually  declining  trend  in  the  total  value  of  outstanding  SRPs. 
Recently,  the  total  number  of  outstanding  products  has  seen  a  major  increase,  reaching 
over 11million  at  the  end of 2021, up from  around 9 million  the previous  year. Across 
Member  States,  considerable  heterogeneity  in  terms  of  distribution  channels,  types  of 
products issued and the size of the market persisted. Sales volumes in 2021 were highest 
in France, followed by Germany and Italy.  

Digital distribution 

Digitalisation has changed the way financial products and services are accessed by retail 
clients. There is a strong trend of increased usage of online banking services across all age 
groups,  which  was  boosted  even  more  by  the  outbreak  of  the  COVID  19  pandemic. 
Financial  service  providers  adjusted  their  business  to  be  able  to  automate  historically 
personalized interactions with clients and/or introduced software update to enable online 
and hybrid meeting structures. The below charts illustrate in the case of Germany bank 
clients  how  the  total  usage  of  online  banking  has  increased  (first  chart)  and  for  all  age 
groups  (second  chart,  x-axis)  although  chart  two  was  surveyed  prior  to  outbreak  of  the 
COVID 19 pandemic390. 

390 BVI, Kantar  

181 

 
 
 
 
 
 
 
                                                           
This development goes in hand in hand with the decline of physical branches as the below 
ECB chart shows.  The number of physical bank branches in the EU has decreased from 
about  220,000  in  2008  down  to  140,000  in  2022391.    As  banks  and  other  financial 
intermediaries move more services online, online solutions, such as robo–advice or online 
portfolio  management  and  the  scalability  of  these  services  are  likely  to  influences  the 
profitability of the sector going forward compared to traditional face to face advice.  

182 

 
 
 
 
 
 
 
 
 
                                                           
 
 
Robo/automated advice  

Robo  advisors  are  on-demand  technology  solutions  based  on  complex  algorithms 
leveraging  client  data,  that  provide  customised  financial  plans  and  asset  management. 
Usually, they cover all parts of the client experience, from onboarding and investor risk 
profiling to investment allocation. Hybrid and fully automated models can be present, as 
well  as  different  types  of  services  such  as  discretionary  and  advisory-based  investment 
management. There are different levels of automation and complexity of the advice that 
can be provided by robo-advisors, ranging from questionnaire-based product and portfolio 
proposals to fully automated investments based on self-improving algorithms. 

Across Europe, robo-advisory services have a differing level of uptake by consumers and 
different offerings. Based on assets under management, the market appears most developed 
in Germany.   

In relation to fees, robo-advisory services usually include an annual portfolio management 
fee and a fee based on underlying investment funds. Annual management fees vary across 
countries, as demonstrated in the following graph, which shows the situation in 2017:   

183 

 
 
 
 
 
 
 
 
Variations of fees charged on the basis of the underlying ETFs or other funds can also be 
observed across Europe:  

It can be expected that robo advice or semi-automated portfolio management will continue 
to increase. Such automated services still only represent a minor portion of total investment 
services but is increasing and is likely to replace at least partially the traditional physical 
advice.  

As described in the section on the experience with the inducement ban in the Netherlands 
(7.A), portfolio management through robo-advice/ semi-automated portfolio management 
is a cost efficient alternative to advice and has strongly increased in the Netherlands and 
has compensated for the decrease in  advice.  It  will  support retail  clients  and thus  retail 
participation in the case of further reductions in the number of physical branches. In the 

184 

 
 
 
 
 
 
 
 
 
 
case of the Netherlands, the decline in advised services should be seen in the context of the 
increase of (online) portfolio management services through robo-advice.    

D.2 Overview Market for IBIPs  

Summary overview of markets  

IBIPs  are  exclusively  a  retail  product.  They  consist  of  an  insurance  wrapper  with 
underlying investment assets usually in funds and may also have biometric risk coverage 
(unit  linked,  profit  participation  or  hybrid).  Sales  of  IBIPs  vary  greatly  across  member 
states and represent a large portion of retail investments in FR, IT, ES and PT.        

In terms of market size, there is no IBIP-specific data, but a relevant proxy is life insurance 
data. In 2020, the life insurance Gross Written Premium (GWP) was 670.6 bn €, of which 
206.1 bn € represent unit-linked type of IBIPs (the rest is profit participation and hybrid 
products).  Within  the  total  financial  assets  of  EU  households,  insurance  and  pension 
products represent around 35%.  

Distribution structures also varies greatly among member states. The channels are direct 
distribution by insurers, banks as intermediaries, brokers and tied agents.  

There  are  about  815000  licensed  insurance  intermediaries  in  the  Union. Of  these  about 
467,000  are  physical  one-person  businesses,  meaning  that  the  split  between  one-person 
businesses  and  legal  persons  (of  varying  size)  is  80%/20%.  There  is  a  significant 
continuous trend towards consolidation (in 2016 there were about 1 million intermediaries 
in total 670,000 one-person intermediaries), partially due to ageing structures.   

At Union level, credit institutions constitute the largest channel and distribute about 44%, 
other  insurance  intermediaries  44%  and  insurers  themselves  through  direct  distribution 
16%.  As  noted,  the  relative  importance  of  distribution  channels  vary  greatly  across  the 
Union but one can distinguish between three categories: Member States with an important 
“bancassurance model” (i.e. France, Italy, Spain and Portugal) where credit institutions are 
the major distribution category, Member States with main distribution by intermediaries or 
tied agents other than banks (e.g. Germany, Poland, Bulgaria, Greece) and a few countries 
where direct distribution by insurers is the largest or available channel (Estonia, Hungary).   

There is no data available on digital direct sales of IBIPs specifically, but the proportion of 
online  sales  for  insurance  products  generally  in  terms  of  total  volume  of  GWP  is  still 
relatively low in many Member States, ranging mostly from 0.2% to 2%. At the same time, 
in  Denmark  and  Estonia,  it  is  estimated  that  online  sales  account  for  80%  of  the  total 
volume of GWP and the proportion of online sales in LV is relatively high as well (70% 
for life insurance).  

 Facts and Figures IBIPs EU  

This Section sets out the following data and information  

185 

 
 
 
 
 
 
 
- Number of  registered insurance intermediaries- Decreasing number of  intermediaries 
registered as natural persons  

- Market developments with regard to specific IBIPs  

- Costs and charges for the distribution of IBIPs, in particular commission rates  

- Growth in the market for online distribution of IBIPs  

 Number of registered insurance intermediaries  

Based on data from 25 NCAs392 there were 815,219 registered insurance intermediaries393 
in  those  markets  at  the  end  of  2020.  In  terms  of  the  level  of  change  in  the  number  of 
registered  intermediaries,  the  blue  trend  line  of  Figure  7.14  below  shows  that  the  total 
number of registered insurance intermediaries decreased significantly from 2016 to 2020, 
a trend which has been going on for several years394.  

Figure 7.14: Total number of registered insurance intermediaries over the period 2016-2020  

In order to have a better comparison across Member States of the data over the period from 
2016-2020, the amber columns of the figure exclude the number of CZ and LU insurance 
intermediaries. As illustrated in the chart, there was a significant decrease in the number 

392 GR, HU, IE and NL have provided information on the number of insurance intermediaries for 2019 and 2020 only. LT has provided only 
limited information for 2016-201 
393 This includes registered ancillary insurance intermediaries and excludes ancillary insurance intermediaries exempt from the IDD 
394  See EIOPA’s report on the Structure of Insurance Intermediaries Markets in Europe: 
https://www.eiopa.europa.eu/media/news/eiopa-evaluates-european-insurance-intermediaries-markets_en. It is important to note that, 
following the deletion of inactive insurance intermediaries from the national registers, the number of registered insurance intermediaries 
in CZ decreased sharply from 162,791 to 38,481 in 2018/2019 and in LU from 10,019 to 6,905 in 2019/2020. This has had a significant 
impact on the overall decrease in the number of insurance intermediaries. It is important that NCAs regularly identify and delete inactive 
intermediaries from their registers in order to have a correct overview of the number of intermediaries included in their registers 

186 

 
 
 
 
 
 
 
  
 
  
                                                           
of registered insurance intermediaries from 2016 to 2018, followed by an increase since 
2018395.  

Decreasing number of intermediaries registered as natural persons   

24  NCAs396  provided  information  on  the  number  of  registered  insurance  intermediaries 
split  between  natural  persons  and  legal  persons  for  2016  and  2020.  Figure  7.15  below 
shows  that,  in  2020,  insurance  intermediaries  registered  as  natural  person 
represented  79%  of  the  total  number  of  insurance  intermediaries,  hence  small 
intermediaries represent the majority of market participants. However, it should be 
noted  that  the  number  of  intermediaries  registered  as  natural  persons  decreased  from 
669,670 (2016) to  466,942 (2020). Over the same period, the number of  intermediaries 
registered as legal persons increased from 123,007 (2016) to 123,278 (2020).     

Figure 7.15: Intermediaries registered as natural and legal persons in 2016 and 2020  

Bancassurers remain dominant in the life sector   

For the purpose of developing its IDD application report397, EIOPA gathered information 
from  NCAs  and  some  industry  bodies  on  the  total  volume  of  gross  written  premiums 
(GWP) by the following distribution channels, split in life and non-life:  

1. 
2. 
3. 

Direct business  
Credit institutions acting as insurance intermediaries  
Insurance intermediaries other than credit institutions  

395 This can be explained by an increase in the number of insurance intermediaries registered in RO from 40,402 to 69,932 over the 
period from 2018 to 2020  

396 AT, BE, BG, CY, CZ, DK, ES, FI, FR, HR, IS, IT, LI, LT, LU, LV, MT, NO, PL, PT, RO, SE, SI, SK  

397 https://www.eiopa.europa.eu/media/news/eiopa-publishes-report-application-of-insurance-distribution-directive_en 

187 

 
 
 
 
 
 
 
  
                                                           
 
15 NCAs were able to provide data on the total volume of GWP (split in life and non-life) 
by the three distribution channels indicated above for 2020398.   

Based on the data provided by those 15 NCAs and some industry bodies, Figure 7.16 below 
indicates that credit institutions acting as insurance intermediaries played a significant role 
in the distribution of life insurance products in terms of GWP generated (in particular, in 
ES, FR, GR, HR, IT, LU, LV, MT, PT) during 2020.  

 Figure 7.16: GWP per distribution channel, Life (2019/2020)  

With regard to life insurance, Figure 7.17 below indicates that credit institutions acting as 
insurance intermediaries generate almost half of the premiums in the area of life insurance 
in  2020.  Direct  business  accounts  for  approximately  one  fifth  of  the  premiums  for  life 
insurance.  

Figure 7.17: Split of GWP for distribution of life insurance in 2020  

398 15 NCAs indicated that, for 2020, they are not able to provide data on the GWP by intermediaries other than credit institutions 
(AT, BE, DE, DK, FI, FR, IE,  NL, NO, RO, SE, SK), credit institutions acting as insurance intermediaries (AT, BE, DE, DK, FI, FR, IE, MT, NL, 
PT, SE) or direct business (AT, BE, DE, DK, FI, FR, IE, LI, NL, RO, SE), split by life and non-life (CZ).  

188 

 
 
 
 
 
 
 
 
 
                                                           
 
Market developments with regard to specific IBIPs  

The shift from insurance with profit participation towards unit-linked life insurance is more 
and  more  evidenced  throughout  the  years.  In  2017,  the  GWP  reported  on  profit 
participation business was around 265 € bn, whereas it was around 247 € bn by the end of 
2020. Even though, the GWP related to unit-linked business is around 206 € bn at the end 
of 2020, the continuous increase is remarkable, especially looking at the starting point in 
2017, around 199 € bn (see Figure 7.18 below).   

This  picture  is  enhanced  when  looking  at  the  reported  figures  throughout  the  crisis 
triggered  by  the  COVID-19  outbreak,  highlighting  the  prominence  of  the  unit-linked 
business  at  EEA  level.  The  analysis  of  2021  quarterly  data  also  reinforces  the 
aforementioned trends as unit-linked GWP registered in H1 2021 a 37.8% growth, being 
45.9% higher than pre-crisis level. With profit-participation GWP also recovered by 11.6% 
in H1 2021, but the aggregated level is 14.5% lower than the pre-crisis point (see Figure 
7.19 below).   

189 

 
 
 
 
 
 
  
 
  
 
Figure 7.18 – Annual GWP (€ bn) for unit-linked and profit-participation Lines of Business, 
2017-2020  

Source: EIOPA Solvency II database  

190 

 
 
 
 
 
 
 
 
Figure 7.19 - Quarterly GWP (€ bn) for unit-linked and profit-participation, Q1 2019 - Q2 
2021  

Source: EIOPA Solvency II database  

Costs and charges for the distribution of IBIPs, in particular commission rates  

At EEA level, commission rates exhibit a stable behaviour, being slightly higher for profit-
participation  products  (see  Figure  7.20  below).  Nevertheless,  differences  in  practices, 
remuneration schemes and regulatory terms impact the different level of commission rates 
across member states. Based on Solvency  II data, it is not possible to take into account 
distribution channels, therefore the aggregate figures must be interpreted with caution.   

Figure 7.20 - Commission Rate for UL and PP products, EEA, 2017-2020  

191 

 
 
 
 
 
 
 
 
   
Source: EIOPA Solvency II database   

In terms of costs composition, administrative costs continue being the most predominant 
driver  of  costs,  often  representing  more  than  half  of  the  total  costs  paid  by  consumers, 
followed by distribution costs  (see Figures 7.21 and 7.22 below). Distribution costs are 
continuously pointed as a problem across the industry, accounting for, in RIY terms, 0.3% 
of total unit-linked costs, and 0.5% of total profit participation products. Distribution costs 
have, on average, an impact between 10% and 30% of the total costs, in both unit-linked 
and profit-participation products (see Figure 7.23 below). Even though it does not seem to 
be a recurring practice, some undertakings might also not include these costs in the total 
costs reported, or disclose these costs jointly with administrative costs due to the lack of 
requirement to disclose such costs separately. This might be in particular the case of the 
data  collected  from  Austria,  Bulgaria,  Greece  and  Luxembourg.    Jurisdictions  where 
intermediaries  also  provide  either  financial  products  services  or  other  goods/services 
different from insurance/financial products tend to exhibit higher distribution costs399, in 
terms of RIY.   

Additionally, the reduction in the number of registered intermediaries might have triggered 
further  broker  mergers  and  acquisitions  and  higher  levels  of  concentration  among  the 
largest intermediaries, driving distribution costs higher. Interestingly, LV exhibits some of 
the lowest distribution costs, and simultaneously reported one of the strongest significance 
of online sales (around 15% for life insurance), reinforcing the hypothesis that technology 
will  potentially  decrease  those  costs  across  the  industry.  As  a  matter  of  fact,  online 
insurance  aggregators  and  direct  channels  are  reporting  greater  volumes,  especially 
following the COVID-19 crisis.   

Figure 7.21 - Breakdown of total costs for unit-linked products, across Member States, 2019  

399 See Figure 1.3 of the EIOPA Report on the application of the IDD on page 20 as an illustration of this  

192 

 
 
 
 
 
 
  
                                                           
 
 Source: EIOPA Cost and Past Performance Survey  

Figure  7.22  -  Breakdown  of  total  costs  for  profit-participation  products,  across  Member 
States, 2019  

Source: EIOPA Cost and Past Performance Survey  

Figure  7.23  -  Proportion  of  the  different  costs  driver  on  the  total  costs  for  unit-linked 
products (left) and for profit-participation products (right)  

193 

 
 
 
 
 
 
 
 
 
 
Source: EIOPA Cost and Past Performance Survey  

Despite observing a shrinkage in the overall cross-border activity, measured in terms of 
GWP written under FOS/FOE, the number of registered intermediaries’ cross-borders has 
been steadily increasing (see Figure 7.24 below). Cross-border activity seems to be more 
significant across the unit-linked market, where the proportion of premiums written abroad 
ranges from 20% to 15%.   

Stricter supervisory actions related to unit-linked products might have impacted the cross-
border expansion in the recent years. Nevertheless, the number of insurance intermediaries 
conducting cross border business has been increasing. Therefore, despite an expansion in 
the  distribution  network,  the  actual  amount  of  business  being  written  on  a  cross-border 
basis has decreased, particularly when it comes to unit-linked products.   

194 

 
 
 
 
 
 
 
 
 
Figure 7.24 - Proportion of GWP under FOS/FOE over total GWP, EEA, 2017-2020  

Source: EIOPA Solvency II database  

 Despite  the  different  size  of  each  line  of  business  and  structural  heterogeneity  across 
countries (Figure 7.25), the trend of a shift from insurance with profit participation towards 
unit-linked life insurance is verified across 21 Member States. For some of them, namely 
BE, EE, FR, HU and LV, the decrease in the overall significance of profit participation 
decrease by over 5%. In an extreme case, PT observed a decrease of 21% in the weight of 
the profit participation GWP compared to the total life GWP (Figure 7.27).  

Figure 7.25 - % GWP UL LoB across Member States, 2020  

195 

 
 
 
 
 
 
 
Source: EIOPA Solvency II database  

  Figure 7.26 - % GWP PP LoB across Member States, 2020  

Source: 

EIOPA 

Solvency 

II 

database  

196 

 
 
 
 
 
 
 
 
    
Figure 7.27 - GWP distribution between UL and PP lines of business per Member State, 2019-
2020  

Source: EIOPA Solvency II database    

Costs and charges for the distribution of IBIPs, in particular commission rates   

Considering the overall distribution strategies reported by each country (Figures 1.2, 1.3, 
1.4 from EIOPA’s IDD application report), it seems that markets where the majority of 
insurance intermediaries acted on behalf of one or more insurance undertakings, also tend 
to charge higher commission rates, especially for UL products (Figure 15).  

Figure 7.28 - Commission Rates for UL products, by Member State, 2019-2020  

Source: Solvency II database  

Figure 7.29 - Commission Rates for PP products, by Member State, 2019-2020  

197 

 
 
 
 
 
 
 
 
 Source: EIOPA Solvency II database  

Regarding cross-border activities, Italy, France and Germany emerge as the largest markets 
reporting  cross  border  activities,  even  though  there  are  interesting  dynamics  across  the 
Baltics  and  Nordics.  The  picture  at  country  level  reinforces  the  snapshot  at  EEA  level 
regarding the decrease in amount of cross border activity in the past years (Figures 7.30 
and 7.31).  

198 

 
 
 
 
 
 
 
 
 
Figure 7.30 - GWP exported on cross border by LOB for UL products, 2019-2020  

Source: EIOPA Solvency II database  

Figure 7.31- GWP exported on cross border by LOB for PP products, 2019-2020  

Source: EIOPA Solvency II database   

Growth in the market for online distribution of IBIPs  

Given the ongoing digital transformation occurring in the EU distribution market, EIOPA 
has also looked at whether there has been any specific growth in the online distribution of 
IBIPs. EIOPA is not in a position, based on limited data provided by NCAs, to provide a 
detailed  picture  of  the  growth  in  the  market  for  online  sales  of  IBIPs.  (As  noted  in  the 
section of this Call for Advice related to digital tools and channels, the existence of online 
platforms selling IBIPs seems to be particularly low at present).   

199 

 
 
 
 
 
 
 
 
Generally speaking, EIOPA has noted in its IDD application report400 that online sales for 
insurance products seem to be increasing on a yearly basis and it is likely that this trend 
will continue as this trend is being further enhanced by the COVID-19 pandemic and social 
distancing measures. Based on data for 13 Member States provided by NCAs and some 
trade associations, the proportion of online sales for insurance products in terms of total 
volume of GWP remains relatively low in many Member States, ranging mostly from 0.2% 
to 2%. It is interesting to note that for DK and EE, it is estimated that online sales account 
for 80% of the total volume of GWP and the proportion of online sales in LV is relatively 
high as well (70% for life insurance).   

The  aforementioned  Commission  Report  on  “Distribution  systems  of  retail  investment 
products across the European Union”401 indicates that “for life insurance products (both 
with guaranteed capital and without guaranteed capital), these make up for 4% of the total 
number of products identified on distributors’ websites in the Member States observed”.  

It is, however, emphasised in the report that “the sample of distributors did not include 
brokers”  and  “the  products  availability  depends  largely  on  the  market  analysed”.  The 
report goes on to indicate that “in France, Italy, Czech Republic, Belgium and Portugal, a 
relatively  wide  variety  of  life  insurance  policies  are  offered.  However,  in  Denmark, 
Estonia, Germany, Spain, Sweden, and the UK, no such products were identified with their 
associated costs disclosed. In the cases of Denmark and Germany, the lack of information 
on life insurance costs and charges, although well known, is all the more remarkable, since 
life insurance and annuity entitlements represent a very significant share of households’ 
financial  asset  portfolio.  It  must  be  noted  however  that  there  is  no  obligation  for 
distributors to disclose fees for life insurance products on their webpages”.  

400 https://www.eiopa.europa.eu/media/news/eiopa-publishes-report-application-of-insurance-distribution-directive_en  

401 https://ec.europa.eu/info/sites/default/files/180425-retail-investment-products-distribution-systems_en.pdf - see page 20    

200 

 
 
 
 
 
 
  
   
 
 
 
                                                           
ANNEX 8: ENHANCED SUITABILITY AND APPROPRIATENESS 
ASSESSMENTS 

1.  Problem definition   

The  suitability  and  appropriateness  assessment  regimes  are  designed  to  ensure  that 
financial  instruments  recommended  to  or  bought  by  investors  are  coherent  with, 
respectively,  i)  the  client’s  investment  objectives,  risk  tolerance,  knowledge  and 
experience  and  ability  to  financially  bear  any  investment  risks  related  to  such 
instruments402 and ii) the necessary experience and knowledge relating to the risks of a 
particular product403. Correspondingly, the retail investment study404 highlights that “the 
assessment  of  suitability  and  appropriateness  is  one  of  the  most  relevant  regulatory 
obligations for consumer protection. The suitability assessments are performed to ensure 
that retail investors who generally do not have the necessary financial knowledge to make 
investment decisions by themselves do not face mis-buying or mis-selling risks by being 
offered products that are not adequate to their profile”.405  

The purpose of the suitability assessment is to ensure that financial intermediaries know 
their clients and their needs and objectives prior to offering financial products to them. The 
purpose of the appropriateness assessment is to ensure that financial intermediaries know 
whether  the  products  that  their  clients  want  to  buy  fit  the  risk  they  can  bear.  The 
appropriateness  test  reduces  overconfidence,  confirmation  bias  and  familiarity  bias  in 
investment decisions, which have been identified as important behaviours that may lead to 
disappointing investment experiences.406  

Both instruments aim to frame retail investors’ decision-making processes without exerting 
paternalistic  constraints  on  them.  They  reduce  the  information  disadvantage  of  retail 
investors, increase transparency in the relationship with distributors of financial products 
and help prevent behavioural biases in investment decisions. The use of those assessments 
should minimise mis-selling of financial products to retail investors and ultimately the risk 
of  disappointing  investment  experiences  that  would  weigh  on  retail  investors’  trust  and 
participation.  

1.1. 

What are the problems? 

402 Article 54(2) of Commission Delegated Regulation (EU)2017/565. 
403 Idem, Article 56(1). 
404 Retail investment study. 
405 Idem, page 320. 
406 See Baisch, R. and R. Weber (2015), ‘Investment Suitability Requirements in the Light of Behavioural 
Findings’, in European Perspectives on Behavioural Law and Economics, Mathis, K. (editor), Springer, 
pages 159-192. 

201 

 
 
 
 
 
 
 
 
 
  
                                                           
Persistent  concerns  about  mis-selling407,  a  continuously  high  number  of  complaints  by 
retail  investors  to  financial  supervisors,  and  mixed  survey  responses  about  consumers’ 
perception  of  the  usefulness  of  these  instruments  suggest  the  two  instruments  are  not 
sufficiently fulfilling their purpose.  

The Retail  investment  study pointed to  challenges regarding inadequate  advice to  retail 
investors and listed a number of studies which evidenced the selling of investment products 
to  clients  that  were  not  suitable  for  their  profile408.  In  2018  the  European  Parliament 
commissioned a study which analysed cases of mis-selling of complex products to retail 
investors409 and EIOPA has also expressed concerns relating to the possible mis-selling of 
unit-linked  products  to  consumers  featuring  high  costs  and  commissions  as  well  as 
complex structures410. A consumer interest organisation compiled a list of 43 mis-selling 
scandals in EU Member States between 2005 and 2021411. While many of these cases cover 
instruments  that  banks  issued  during  the  financial  and  sovereign  debt  crisis,  especially 
consumer organisations cautioned that mis-selling practices still remain an issue.412 In a 
study413 elaborated by Deloitte for the Commission in 2018, more than half of the surveyed 
consumer protection bodies reported they received frequent complaints about unsuitable 
products  and  inappropriate  advice,  i.e.  complaints  that  should  not  occur  if  suitability 
assessments  are  done  properly.  The  considerable  number  of  complaints  that  national 
competent authorities still receive about investment advice and, in particular, about the sale 
of structured and complex financial products (see chart below) illustrates that the issue of 
mis-selling remains important, requiring urgent action.  

The Retail investment study underlined the fact that retail investors tend to trust advisors 
and follow their advice, although the behavioural experiment conducted as part of the study 
suggest that advice may be inadequate.414 Complaints about inappropriate advice and mis-
selling of products  negatively affect  retail  investors’ trust  in  financial markets  and may 
lead to their permanent  withdrawal. The latter goes contrary to the key objective of the 
CMU of increasing the scale of the EU capital markets through enhanced retail investors’ 
participation. The participation of retail investors in capital markets is, in turn, important 

407 See Retail investment study – pages 22, 26, 29” The overall intention of the policy framework (i.e. 
reducing mis-selling) remains highly relevant.”, also page 302 in section 7 suitability assessments and 
needs and demands test. 
408 Retail investment study, pages 242 and 243. 
409 Conac, P..H. (2018), ‘Mis-selling of Financial Products: Subordinated Debt and Self-placement’, Study 
for ECON, European Parliament, IP/A/ECON/2016-17IP/A/ECON/2016-17. 
410 EIOPA, consumer trend report 2021, page 6. 
411 https://www.thepriceofbadadvice.eu/ by BEUC. The website was created in 2018, but lists scandals 
prior to that year, recognising that mis-selling is often detected with a considerable delay. 
412 Today no statistics on mis-selling exist. As mentioned under footnote 9, this is partly due to the broad 
nature of the concept. It is also due to the fact that mis-selling typically take years to manifest itself - that 
is until the damage materialises or until the efforts to receive compensation come to fruition (or fail).   
413 Deloitte (2018), Distribution systems of retail investment products across the European Union, page 
106.  8 consumer protection agencies and 15 alternative dispute resolution agencies participated in the 
survey. 
414 Retail investment study, pages 278 to 291. 

202 

 
 
 
 
 
 
                                                           
to also allow retail investors to benefit from investment opportunities offered by capital 
markets – ever more important in a high-inflation environment.   

While on the one hand investors that do get advice tend to rely on such advice (see above), 
amongst  those  respondents  to  the  Eurobarometer  survey  (2022),  who  say  they  have 
sufficient money to invest, but do not do so, 12% and 21% indicated that they had no trust 
in financial advice and that they are concerned about the risks, respectively. These findings 
suggest that the client profiling process and the suitability or appropriateness assessments, 
as applied today by financial intermediaries to offer advice or execute the sale of a financial 
product, are not sufficient to foster trust in financial markets. 

Suitability assessment 

For  advised  services  (requiring  a  suitability  assessment),  the  retail  investment  study 
identifies deficiencies in the screening process related to the coverage, depth and timing of 
the suitability assessment. It also demonstrates a great variation in application across the 
Union. “The information obtained from the client  needs to be correctly interpreted and 
transformed into an investor profile that is indeed useful in selecting suitable investment 
products.  The  mystery  shopping  exercise  suggests  however  that  this  is  often  not  the 
case”.415 

These findings are consistent with issues identified by national competent authorities in 
Germany, Ireland and France with how suitability assessments are conducted.416 ESMA 
also  reported  that  national  competent  authorities  receive  about  a  dozen  of  consumer 
complaints  about  the  quality  of  investment  advice  and  a  similar  number  of  complaints 
specifically  about  suitability  assessments  each  year  (see  chart  below).  Whereas  it  is 
difficult to establish whether truly unsuitable products were sold, suitability assessments, 
if conducted properly, should have reduced the scope for financial advisors to misguide 
retail investors with incorrect information and hence should have limited the number of 
complaints about advice. 

415 Retail investment study, page 326: “We asked all those who had an investment product or who were 
exploring making an investment and had received advice whether they recalled being asked questions 
about their financial situation, past experience with investments, attitude towards risk, etc. While the 
majority of respondents said “yes”, 21% said “no” and another 14% did not know. The number of 
respondents who recall undergoing this process varies between countries. The country with the lowest 
share of respondents who recall undergoing this process is Poland. In the traditional distribution channels 
mystery shopping exercise this is also the country where many screening conversations were very short 
and superficial in terms of items covered. A similar situation can be observed in Romania, where a high 
number of mystery shoppers received product suggestions after a very short conversation covering few 
aspects of their profile”. See also page 339. 
416 Retail investment study, page 337. 

203 

 
 
 
 
 
 
                                                           
Figure 1: Complaints received by national competent 
investment  advice  and 
authorities 
appropriateness/suitability assessments 

related 

to 

Figure 2: Complaints received by national competent 
authorities  related  to  different  complex  financial 
instruments 

Note: Reporting may be incomplete and procedures, methodologies and categories different across Member 
States. Specific events distort the interpretation of time trends. For a detailed analysis of specific events and 
how they impact complaints data, see ESMA, ‘Monitoring retail markets via complaints data’ Trends, Risks 
and Vulnerabilities, 1/2017 pp. 37-43.  
Source: ESMA. 
The consumers’ appreciation of the usefulness of the suitability assessment and benefits 
hereof seem to differ across Member States. For example, surveys in Germany and Finland 
revealed  mixed  perceptions  of  retail  investors  about  the  usefulness  of  suitability 
assessments. The majority of customers of German banks surveyed in Paul et al (2019) 
found them disruptive and not providing net benefits.417 However, in Finland only a small 
minority of  consumers of financial  services  voiced a  critical  view about  the benefits  of 
suitability assessments in Cronstedt (2021).418Both surveys, however, have a small sample 
and seem to be biased towards views of sophisticated investors. The retail investment study 
asked  more  than  3000  customers  in  10  EU  Member  States  how  useful  they  find  the 
screening  progress  for  investment.  64%  found  it  useful,  18%  very  useful  while  16% 
responded it was not.419 The public consultation yielded views about the usefulness of the 
screening instruments similar to the retail investment study.420 The still significant share 
of consumers that expressed dissatisfaction together with about 20% of respondents who 

417 Paul, St., Schroeder, N. and Schumacher S. (2019), ’Auswirkungsstudie MiFIDII/MiFIR and PRIIPs-VO: 
Effektivitaet und Effizienz der Neuregelungen vor dem Hintergrund des Anleger- und 
Verbraucherschutzes’, Study on behalf of the Deutsche Kreditwirtschaft, University of Bochum. 
418 Cronsedt, C.-W. (2021), ’MiFID II and IDD and their effect on customer experience’, Hanken School of 
Economics, Helsinki. 
419 The sample consisted of those respondents that had purchased financial products in the last 3 years 
and remembered having been subject of an investment screening. 
420 10.3% (n=13) disagreed with the statement that current suitability assessments are effective in 
ensuring that retail investors are not offered unsuitable products, 6.3% (8) - strongly disagreed. The 
similarity of the distribution in the retail investment study and the public consultation is remarkable, 
given little overlap in the respective populations of respondents: while the study surveyed retail investors, 
the majority of respondents to the public consultation were business associations and companies (in 
addition to consumer associations, representing the views of retail investors). 

204 

 
 
 
 
 
 
 
 
 
                                                           
did not recall being subject to an investment screening suggest the suitability assessment 
is not as effective as intended.421 

Figure 3: Share of respondents that recalled having been subject to investment screening and their experience 

Source: Retail investment study, Annex 10, T.35 and T36 

Appropriateness assessment 

For  non-advised  services,  the  appropriateness  test,  focused  on  testing  the  clients’ 
knowledge and experience only, is viewed by many NCAs as largely insufficient to provide 
any useful assessment as to the capacity of investors to understand and bear the financial 
risks  of  certain  types  of  investments.  A  large  majority  of  respondents422  to  the  public 
consultation, however, said that appropriateness  assessment is effective in ensuring that 
clients do not purchase products they are not able to understand or that are too risky. The 
share  of  respondents  who  disagreed  was  slightly  smaller  than  that  for  the  comparable 
question on the suitability assessment.423 While the appropriateness test is not designed to 
prohibit the purchase of risky and complex products by clients, it aims to dissuade clients 
from  purchasing  products  when  they  do  not  understand  the  risk  they  are  taking.  More 

421 The exact share is 22.6% if the 47% of respondents who said they did not invest because they had no 
money to invest are excluded. 
422 To the question “ to what extent do you agree that the appropriateness test serves retail investor 
needs and is effective in ensuring that they do not purchase products they are not able to understand or 
that are too risky for their client profile?” 34% of respondents strongly agreed (34 answers), 37.1% agreed 
(46 answers), 8.9% disagreed (11 answers), 4.8% strongly disagreed (6 answers) and the rest did not know 
(6.5%)  (8 answers) or were neutral (15.3%) (19 answers). 
423 8.9% (n=11) disagreed and 4.8% (6) strongly disagreed. Some stakeholders stated that even when 
having passed an appropriateness test, (experienced) retail investors could repeatedly buy unsuitable or 
harmful products through a poorly designed (online) choice environment. Therefore, appropriateness 
tests should be viewed as one component of a wider framework for investor protection. 

205 

 
 
 
 
 
 
 
                                                           
recently, the adequacy of the appropriateness tests has been challenged in the context of 
the “GameStop case”.424  

In  non-advised  services,  retail  investors  decide  to  invest,  sometimes  without  a  proper 
evaluation of the instrument and the related risk, making them potentially vulnerable to 
questionable information and tips disseminated via social media and by influencers. ESMA 
consultation  on  the  appropriateness  test  and  execution-only  services  in  the  context  of 
MiFID  II425  revealed  that  there  is  insufficient  convergence  in  the  understanding  and 
application  of  several  areas  of  the  appropriateness  and  execution-only  requirements  by 
firms  in  different  Member States, and often within Member States themselves, creating 
problems for achieving a consistent level of investor protection in the EU. 

1.2 What are the problem drivers?   

1.2.1  Diverging and partly insufficient depth of client profiling 

The  retail  investment  study  shows  that  in  practice  the  method  used  for  performing  suitability 
assessments, the quality of investor screening, questionnaires and associated results vary greatly in 
the EU and do not always ensure that the advice is based on individual needs and circumstances of 
the clients nor it prioritises positive outcomes for them. Amongst others, the retail investment study 
identifies problems of “late phasing” where advice was given before carrying out the suitability 
assessment, only shortly before contract signature. Furthermore, in some mystery shopping cases, 
investment recommendations were even given without performing any or only very limited profile 
screening.426 It was also shown that the depth of information covered varies greatly and that an 
important  share  of conversations  which  resulted in product  recommendations  took  into  account 
only minimal or hardly any client information (see chart below). It is evident that practices differ 
considerably  regarding  whether  and  how  the  suitability  assessment  is  actually  linked  to  the 
provision of advice and investment recommendations.427 There were significant differences even 
in relation to essential parameters and in 28% of observations the profiling quality was judged as 
insufficient.428 Disparities were also found between Member States with regard to the length of the 
screening questionnaire before a product was recommended.429 Issues with the implementation of 
existing provisions about suitability assessments were also found in the research of several National 
Competent Authorities, albeit to varying degrees.430  

Figure 4: Results of the mystery shopping, number of items covered by human advisors during the screening (out of 16 
items identified as relevant) and experiences of the mystery shoppers in % (170 visits) 

424 ECON Committee (2021). GameStop and similar recent market events: Exchange of views with 
representatives of the European Commission and the European Securities and Markets Authority, 23 
February 23.  
425 https://www.esma.europa.eu/press-news/esma-news/esma-consults-appropriateness-and-execution-
only-under-mifid-ii 
426 Retail investment study, pages 325-326. 
427 Idem, page 325. 
428 Idem, pages 329-330 
429 Idem, page 331. 
430 Idem, page 337. 

206 

 
 
 
 
 
 
 
                                                           
Source: Retail Investment Study. 

1.2.2  Product-centric assessment and lack of portfolio approach in the 

provision of retail investment services   

Currently,  client-profile  assessments,  be  it  suitability  assessment  preceding  investment 
advice,  or  the  appropriateness  assessment  required  for  the  provision  of  non-advised 
investment  services,  focus  on  identifying  whether  a  specific  product  in  the  investment 
intermediary’s offering should be sold to the investor in view of a certain set of information 
gathered  about  the  investor.  That  information  is  more  (suitability  assessment)  or  less 
(appropriateness assessment) extensive, depending on the type of assessment carried out.   

The current  approach helps  ensure that the client is  offered products  that match certain 
personal  circumstances,  such  as  prior  investment  experience,  financial  situation  and 
investment objectives. However, it does not require the financial intermediary to consider, 
as part of the assessment, the client’s overall holding of investment products, and how the 
recommended product fits into its overall portfolio.  The retail investment study highlights 
that the portfolio composition is not sufficiently considered and clients are not invited to 
adopt  a  mixed  portfolio  approach  and  count  too  much  on  a  small  number  of  volatile 
assets.431. The retail investment study reports other findings from the literature that “the 
most important concerns involve underestimating risk and having suboptimal portfolios 
due to a lack of diversification”.432 Those findings evidence that the client profiling process 
that  leads  to  the  suitability  assessment  and  which  is  based  on  the  existing  legal 
requirements  under  MiFID  II  is  not  sufficient  to  prevent  disappointing  investment 
experience. Some algorithms automatically restrict the possible range of products. In other 
cases,  financial  intermediaries  advising  certain  model  portfolios,433 may  not  necessarily 
take into account the existing composition of the client’s portfolio, thus failing to diversify 
across  the  full  spectrum  of  clients’  assets,  running  the  risk  of  asset  concentration  or 
overexposure to some assets/asset classes. 

431 Idem, page 349. 
432 Idem, page 313. 
433 Idem, page 343. 

207 

 
 
 
 
 
 
 
 
 
  
 
                                                           
The same applies to the appropriateness assessment that only focuses on the knowledge 
and experience in the (relevant) investment field but does not consider whether the client 
has the capacity to bear losses or to face any urgent financial liquidity needs. 

The current product-centric approach to client assessment may therefore lead to suboptimal 
outcomes for the client. While the investment intermediary may be able to claim that the 
product  sold  can  individually  be  deemed  suitable,  it  may  fit  poorly  into  the  existing 
portfolio  of  products  or  assets  already  held  by  the  client,  exacerbating  certain  types  of 
exposure,  while  ignoring  other  forms  of  exposure  that  could  contribute  towards  a 
diversified portfolio with a superior risk-return profile.   

1.2.3  Investment 

influencing  techniques  and  gamification  of  the 

investment process  

Retail  investing has  experienced a shift  towards  greater reliance on digital  platforms to 
place investments on the market. While the increased use of digital platforms has certainly 
facilitated access to investing, it has not come without risks. The ease of access to non-
advised investments via digital means poses the risks that retail investors decide to invest, 
sometimes without a proper evaluation of the instrument and its related risk and that the 
current appropriateness assessment test may not be enough. A recent report by international 
financial supervisors on the impact of digitalisation on retail distribution identified benefits 
for financial consumers related to online marketing from (1) increased access to financial 
services and products; (2) reduction in search cost; and (3) flexibility, convenience, price 
and quality comparison.434 A survey among 90 financial firms revealed that the industry is 
relying increasingly on online marketing, especially on the use of social media influencer 
ads, social media stories and online video marketing.  

434  IOSCO report on retail distribution and digitalisation. 
208 

 
 
 
 
 
 
   
   
                                                           
Figure 5 Source: IOSCO (2022). 

Nevertheless, the report also identifies important risks stemming from online marketing 
related inter alia to: “(1) possibility for firms to track, experiment with and thus exploit 
investor biases; (2) unsolicited online offerings and/or offers targeting an inappropriate 
market segment [including rerouting to products or services]; (3) push towards unsuitable 
products  or  strategies  through  online  marketing  methods”.  The  report  also  lists  certain 
types of inappropriate behaviour observed by IOSCO members such as: 

impersonation (e.g. pretending to be a credible source to extract information);  

 
  sending junk e-mails that overpromise returns; 
  bulk targeting; 
  hacking and other cyber security violations;  
 

including fake success stories by using influencers. 

There is hence a risk that investing platforms may steer investors into making decisions 
that  benefit  intermediaries  but  can  be  detrimental  to  the  client.  As  more  investors  have 
moved  to  digital  platforms,  financial  intermediaries  have  increasingly  been  relying  on 
behavioural nudges or biases in order to steer clients towards certain actions. This includes 
phenomena such as ‘gamification’ of investing as well as designing the platform to ‘nudge’ 
clients to change their behaviour in predictable ways, resulting in inappropriate investment 
decisions.  Highlighting  the  phenomenon,  ESMA  notes  that  the  ‘use  of  gamification 
techniques that are intended to nudge (retail) clients to undue risk taking and that lead to 
addictive behaviour  are  never in  the best  interest  of the investor’. This  can divert  retail 
investors  from  making  investment  decisions  catering  for  their  needs  and  amplifies 
investment patterns, which do not focus on portfolio-wide considerations.  

209 

 
 
 
 
 
 
 
 
1.2.4  How likely are the problems to persist?   

If no amendment is introduced to the legislative framework governing the suitability and 
appropriateness assessments, the current framework would continue to produce inefficient 
results, unable to support investments that are in  the best interest of the client. Without 
more consideration for a correct client’s profiling focussed on key elements, a portfolio 
diversification  and  an  adequate  timeframe  to  perform  the  suitability  or  appropriateness 
assessments,  the  suitability  and  appropriateness  assessments  would  continue  to  be 
perceived by many retail clients as a pointless exercise.  The framework, therefore, would 
continue  to  present  inefficiencies  in  the  investment  process,  which  would  lead  to  sub-
optimal outcomes for retail investors, including in the balance of risks incurred and rewards 
that can be expected from an investment. Consequently, the overall attractiveness of capital 
market investments is reduced for retail investors and they may miss out on opportunities 
to cater for their long-term needs. This adverse effect on retail investors’ willingness to 
invest in capital markets also runs counter to the European Commission’s plan to create a 
single market for capital (the Capital Markets Union), in which investments and savings 
flow to all Member States, benefiting consumers, investors and businesses wherever they 
are based in the European Union.     

2.  What are the proposed options 

Option 
label 

Option description 

Baseline 

Do nothing to change the legal framework  

Option 1 

Enhancing  of  the  existing  framework  for  suitability  and  appropriateness 
assessment 

Option  2  - 
Discarded 
at 
earlier 
stage 

an 

Introducing in the current suitability and appropriateness assessment regime 
the requirement for firms to provide to each retail client, as a result of the 
assessment,  an  asset  allocation  strategy,  under  the  name  of  a  Personal 
Investment  Plan.  An  opt-out  option  for  retail  clients  using  non-advisory 
services for simple products would be maintained.    

Two possible options were considered at the outset of this assessment: (1) enhancing of the existing 
framework  for  suitability  and  appropriateness  assessment;  and  (2)  introducing  in  the  current 
suitability and appropriateness assessment regime the requirement for firms to provide to each retail 
client,  as  a  result  of  the  assessment,  an  asset  allocation  strategy,  under  the  name  of  a  Personal 
Investment  Plan.  An  opt-out  option  for  retail  clients  using  non-advisory  services  for  simple 
products would be maintained.  

210 

 
 
 
 
 
 
 
 
 
 
 
 
 
Multiple stakeholder consultations showed that the new requirement (under option 2) could result 
in substantial costs, in particular for the non–advisory segment of the industry that could be passed 
on  to  the  retail  investors,  with  potential  detrimental  impact  on  the  accessibility  and  costs  of 
investment  services.  Also,  it  is  anticipated  that  the  package  of  other  measures  (including  in 
particular the ban on inducement) set up to improve the investor protection and boost the investor’s 
trust in investing, would avoid the necessity to change more substantially the current set-up of the 
suitability and appropriateness assessments rules. This package should ensure (with the removal of 
a  material  source  of conflicts  of  interest) that  those assessments  are  performed  in  line  with  the 
existing  requirements  and  in  particular  in  the  best  interest  of  the  clients.  This  proportionate 
approach  would  avoid  unnecessary  changes  and  burden  for the investment  firm  while  ensuring 
nonetheless a material improvement in the investor protection. Option 2 was therefore discarded 
at this stage but could be reconsidered in the future if progress in  terms of retail investor 
protection does not appear sufficiently strong. 

In  the  public  consultation,  some  NCAs  supported  the  idea  of  reinforcing  the  quality  of  the 
suitability  and  appropriateness  questionnaires  to  achieve  better  assessments,  enabling  better 
investment decisions. Such qualitative improvements, in line with option 1, could also contribute 
to raising the understanding and financial literacy of retail investors. 

The modalities of option 1 would involve a combination of several measures:  

Measure  1):    an  enhanced  suitability  test  for  the  advised  services;  together  with  an 
enhanced suitability assessment report  
Measure 2):  an enhanced appropriateness test for the non-advised services; 

For  all  services.  clarification  as  to  the  relevant  timing  for  the  performance  of  those 
assessments, to ensure that the distributors reflect the results of the screening in either their 
product  recommendation or the warning they may  need to  deliver to  their clients  when 
receiving from them an order of execution.  

For advised services, it is proposed to strengthen the suitability assessment under MiFID 
II and IDD by enhancing the client profiling/screening test, that is necessary to produce a 
suitability assessment, with more precise and standardised elements.  This  would ensure 
that  all  firms  systematically  get  the  essential  facts  about  their  clients.  It  would  avoid 
situations identified in the retail investment study where the client profiling questionnaire 
is  so  limited  or  performed  in  such  a  limited  period  of  time  that  it  cannot  deliver  on  its 
primary objective of accurately identifying the client’s profile and needs. This would also 
avoid  that  certain  firms  keep  on  performing  this  assessment  as  a  ‘box-ticking’  exercise 
where no or insufficient relevant information for a proper suitability evaluation is collected. 
The  current  requirements  on  the  suitability  assessment  would  be  enhanced  through  the 
introduction of a mandatory list of key information, to be defined by the ESAs, that a firm 
would be required to obtain from all its retail clients. This information would need to be 
presented in a standardised way in order to facilitate its possible portability to other firms, 
with the client’s consent. Next to this key information to be collected in a standardised 
way, the firm would also have to collect any additional information that might be relevant 
to better capture the specific situation of their clients.  

211 

 
 
 
 
 
 
 
 
 
 
 
The introduction of this mandatory list of key information to be obtained from the retail 
client and to be collected in a standardised way aims at ensuring more alignment in the 
implementation of the screening processes by firms, better identification of clients’ profiles 
and ultimately better suitability assessments. 

In designing its suitability assessment, firms would have to obtain information on and take 
into  account  the  composition  of  its  clients’  overall  securities  portfolio  and  the  need  for 
diversification.  The  securities  making  up  the  portfolio  should  include  any  financial 
instruments as defined under MiFID II. Similarly, intermediaries of IBIPs would need to 
better take into account the overall portfolio when advising on particular IBIPs.435 Where 
the client’s securities portfolio is held in custody with the firm in charge of the suitability 
assessment,  the  firm  would  automatically  have  to  consider  such  portfolio  composition 
when  preparing  the  suitability  assessment.  Where  the  client  holds  a  securities  portfolio 
with another firm but declines to provides information on that portfolio, the firm preparing 
the  suitability  assessment  would  not  be  obliged  to  take  into  account  such  information, 
provided that it has warned the client that the absence of such information may impact the 
quality of the suitability assessment and of the investment recommendation based on it, 
and provided the client has acknowledged such warning. 

In case of advised services, it would also be clarified that the suitability assessment has to 
be performed before the advice is provided to the retail client436 (and not only, as required 
today, before the transaction). 

For  non-advised  services,  it  is  proposed  to  strengthen  the  appropriateness  assessment 
under MiFID II and IDD by enhancing the client profiling/screening test, that is necessary 
to produce an appropriateness assessment, with questions on the client financial capacity 
and  financial  ability  to  bear  losses.  Today  the  obligation  related  to  the  appropriateness 
assessment  only  requires  firms  to  determine  whether  the  retail  client  has  the  necessary 
knowledge and experience to understand the risks involved in the product or investment 
service offered or demanded. Such requirement does not apply to services relating to the 
execution of or reception and transmission of client orders for non-complex products. 

The  very  limited  scope  of  information  that  is  taken  into  account  during  the  current 
appropriateness test raises questions as to its effectiveness and was the subject of criticism 

435 Noting that an intermediary under IDD cannot advise on investment products other than IBIPs (and 
vice versa for MIFID firms). However, both distribution channels should take into account holdings/assets 
also outside the regulatory scope in a more holistic way to ensure a better investment outcome.  
436 The retail investment study mentioned that in France, advisors only performed the suitability 
assessment after having already provided advice in one third of the cases [see page 337) and also that 
“there is evidence both from the mystery shopping as well as from existing research that in a non-
negligible minority of cases full suitability assessments are only carried out at the end of the advice 
process (see 7.2.4), shortly before the contract signature. Therefore, the suitability assessment does not 
feed into the process of informing the advice and supporting the client’s choice (see page 340). 

212 

 
 
 
 
 
 
 
  
  
 
                                                           
in  the  public  consultation437.  The  need  for  an  adequate  appropriateness  assessment  has 
further  increased  over  the  years  due  to  a  rapid  growth  of  investment  products  accessed 
through digital platforms in an execution-only format, where the online environment may 
also influence the investor’s choice. As it could be expected that self-directed investments 
(execution-only sales) would increase following the introduction of a ban on inducements, 
the  need  for  adequate  safeguards  is  further  reinforced.    In  their  responses  to  the  public 
consultation  and  subsequent  bilateral  exchanges,  in  particular  NCAs  call  for  the 
enhancement of the appropriateness test to include more elements on the financial capacity 
of clients in case of unexpected events in their personal situation or their ability to bear 
losses. NCAs believe that this enhancement could also contribute to raising the financial 
literacy of retail investors. 

A  flanking  measure  to  the  enhanced  appropriateness  test  would  also  include  a  stronger 
standardised  warning  to  clients  when  the  investment  appears  not  appropriate.  The  firm 
would not be authorised to proceed without getting from the client an acknowledgment of 
receipt of the warning and a confirmation that the client still wishes to proceed with the 
order.     

For all services, it would be important that the suitability and appropriateness assessments 
were fully linked to the screening exercise, which should not be undertaken as a stand-
alone exercise. In the case of investment advice, firms would disclose in a standardised 
way how the recommendation matches the retail client profile, as determined following the 
screening process and the assessment made by firms. 

3.  Assessment of the proposed measures 

Effectiveness in meeting the specific objectives  

437 31.7% of the answers to the retail public consultation indicated problems with the appropriateness 
test:  some stakeholders stated that even when having passed an appropriateness test, (experienced) 
retail investors could repeatedly buy unsuitable or harmful products through a poorly designed (online) 
choice environment. Some stakeholders considers that the current appropriateness test has little added 
value, creates burdensome procedures for retail clients, and thus should be eliminated – in certain cases 
– or replaced by the suitability assessment. Additionally, some respondents noted that the 
appropriateness test only requires the client to disclose information about their knowledge and 
experience in the field relevant to the product in question. There is no explicit reference to environmental 
objectives (or similar concepts). Some respondents directly pointed that the appropriateness test 
(performed for “non-advised services”, except execution-only) which only requires the client to disclose 
information about their knowledge and experience should be changed to include sustainability 
preferences. 

When it comes to the insurance sector, some stakeholders stated that the appropriateness test reduced 
to experience and knowledge, while necessary, is not enough protective and could result in inappropriate 
selling. Life insurance has specific features that require certain precautions in its marketing. They are 
products offering multiple investment choices, some of which present a form of complexity or risk. In this 
sense, life insurance products are not comparable to simple financial instruments, which may be 
distributed by only execution of orders. 

213 

 
 
 
 
 
 
 
 
 
  
 
                                                           
 
Measure 1 under option 1 is considered to be effective in meeting the specific objective of 
addressing poor client-profiling leading to poor suitability assessment. Ensuring that key 
information about clients is systematically and in a standardised way tested by all firms 
would  improve  the  suitability  assessment  across  the  EU.  Furthermore,  when  combined 
with the requirement for firms to take into account the client’s existing securities portfolio 
in their suitability assessment, the measure would tackle the problem of a product-centric 
approach  in  advice,  avoiding  over-concentration  in  similar  financial  instruments  and 
supporting  portfolio  diversification.  A  more  solid  suitability  assessment,  following  a 
portfolio approach, would result in more suitable investment recommendations for clients, 
instilling  higher  retail  investors’  trust  in  investment  and  gradually  raising  the  level  of 
clients’ awareness and understanding of capital markets. 

The  standardisation  of  key  elements  of  the  client  profiling  would  favour  common 
assessment  practices  amongst  EU  firms,  eliminating  practices  of  poor/non-informative 
suitability assessments that carry a high risk of mis-selling.  

Measure 2 under option 1 would make the appropriateness assessment more informative 
and better tailored to the client’s needs, as financial capacity and ability to bear losses are 
fundamental  characteristics  of  an  investor’s  profile  Investors  would  be  pro-actively 
encouraged  to  reconsider  their  investment  decision  through  warnings,  in  case  of  an 
inappropriate investment. A well-performed and more complete assessment for execution-
only  services  would  act  as  a  counterweight  to  the  influence  that  other  sources  (family, 
peers, social media etc) or information asymmetry may have on the client’s choice, and 
consequently would avoid (or considerably limit) biased investment decision. Combined 
with the obligation to act in the best interest of the client together with the other measures 
put forward in the retail investment strategy, the measures contribute to limiting mis-selling 
by firms or mis-buying by retail clients. Taken, measure 2, however, would be unlikely to 
significantly improve the current situation.  

Costs-benefits438 

i.Costs and benefits for investors  

Retail investors would in general benefit from receiving a better quality of service and are 
likely to make a more appropriate investment decisions where firms (i) take sufficient time 
to  conduct  suitability and appropriateness  assessments,439 ensuring more  accurate  client 
profiling, (ii) consider in their screening and assessment for advised services, more client-
specific information, with certain key elements made mandatory and standardised, and (iii) 
include in their screening and assessment for non-advised services, the financial capacity 
and ability to bear losses of their retail clients. 
In  an  advice  setting,  making  mandatory  to  test  and  assess  certain  key  (standardised) 
elements  would  facilitate,  for  retail  clients,  comparability  between  assessments  and 

438 A detailed analysis of costs is included in the appendix to Annex 8 (see below). 
439  See Retail investment study– page 315:  Figure 7.10 - Duration of the screening questionnaire prior to 
product specific conversation for traditional distribution channels (n=170).  

214 

 
 
 
 
 
 
   
 
  
 
  
                                                           
recommendations,  when  approaching  different  firms.  Also,  the  considerations  of  the 
existing  client  portfolio  and  the  need  for  portfolio  diversification  would  improve  the 
overall diversification of the client’s investments and limit potential losses.  
In a non-advisory environment, clients, which are typically more prone to manipulation 
of investment choice and gamification, would benefit from stronger warnings440, allowing 
them to avoid potentially detrimental investment decisions that would have been taken in 
disregard of their financial capacity and ability to bear losses. 

It  cannot  be  excluded,  however,  that  investment  firms  may  increase  the  costs  of  their 
advised  and  non-advised  services  to  cover  the  costs  associated  with  the  preparation  of 
enhanced suitability and appropriateness assessments. These costs might then be passed on 
to investors. Nevertheless, these extra costs are likely to be of a one-off nature and hence 
would be limited.  

ii.Costs and benefits for investment firms  

With an enhanced suitability assessment, investment firms would be able to better know 
their clients and to further adjust their investment advice to the needs and objectives of 
those clients (including financial liquidity needs). Clients’ satisfaction in their investments 
and trust in their financial intermediaries would increase, triggering potentially more retail 
investments in the capital markets and more revenues for the firms. A similar outcome can 
be expected for the enhanced appropriateness assessment, where investment firms would 
also  be  able  to  offer  a  higher  quality  of  service  to  their  clients,  better  adapted  to  their 
financial situation, thus strengthening trust of these investors in capital markets, fostering 
investor participation and increasing future revenue potential for these firms. In both cases, 
firms are likely to see a decrease in the commercialisation of risky and/or complex products 
in  favour  of  simpler  and  less  risky  investments.  If  the  volume  of  simple  investments 
increases  sufficiently  (due  to  higher  trust  and  investor  participation),  it  could  however 
compensate for the loss of revenues from risky or complex products.  

While the compliance with an enhanced suitability assessment will lead to higher costs for 
firms, it is unlikely to represent a substantial additional cost for the firms already compliant 
with the ESMA MiFID II guidelines. Firms providing non-advised services would need to 
set up the necessary IT infrastructure and train staff to be able to conduct a more extensive 
appropriateness assessment. The incremental cost is, however, likely to be more important 
for firms offering only non-advised services and not used to collecting information on the 
financial situation of their clients and their ability to bear losses.    

The enhanced suitability assessment would include the coding of standard key information 
to enable its portability to, and use by, other distributors, as well as additional processing 
of  clients’  information  on  its  securities  portfolio.  The  main  cost  element  would  be 
identifiable in the additional time necessary to assess products not only against the personal 

440 Retail investment study indicates however that in a context of suitability advice, the potential gains 
from changing disclosure warnings are likely to be minimal (page 25). In a non-advised context, warnings 
may however be more effective.  

215 

 
 
 
 
 
 
  
    
  
     
 
                                                           
client’s  profile,  but  also  against  the  already  existing  client’s  portfolio.  This  also  means 
some distributors’ staff, used to perform very limited suitability assessment would need 
more time to obtain the necessary information and discuss with clients. Distributors that 
offer portfolio management services and other investment services, would potentially incur 
a lower cost, given that they already have the experience of acquiring such information 
from clients.  

Considering  that  most  of  the  process  for  the  client  profiling/screening  and  provision  of 
advice will remain unchanged, an increase of the duration by 10% might be considered as 
a conservative estimate for the impact of the integration of portfolio views in the suitability 
assessment. This aspect will come on top of the requirements to know the client, his/her 
objectives, time horizon and capacities, to match the client’s profile to risks, returns, fees 
and liquidity profile of financial products,  and to  explain the advice. The 10% increase 
would be applied to new clients, as well as the existing customers seeking advice.  

Similar to the enhancement of the suitability assessment, the change to the appropriateness 
test (i.e. its enhancement) is likely to lead to a longer duration of the process. Incorporating 
additional elements, such as the clients’ financial capacity and ability to bear losses into 
the screening process would increase the list of questions to be asked. The relative increase 
in  length  would  depend  on  how  many  questions  the  distributors  already  ask  about 
knowledge and experience. Since the MiFID II requirements for the appropriateness tests 
are much lighter than suitability tests, the additional elements may carry a larger relative 
weight  than  in  the  case  of  a  suitability  assessment.  Therefore,  under  a  conservative 
estimate, a 20-30 % increment to the duration of the appropriateness test (as conducted 
today) could be considered. 

For the enhanced suitability assessment, assuming that: (i) half of the existing customers 
of  investment  firms  would  transact  per  year  and  that  70%  to  80%  of  them  would  seek 
advice and 20% of them being subject to an enhanced suitability test each year, and that 
(ii) the average duration of the suitability test is 20-30 minutes and that this test would get 
by  10%  longer,  and  finally  that  (iii)  the  labour  cost  per  hour  of  EUR  50.7,  annual 
incremental  costs  due  to  the  enhancement  would  be  EUR  5.7  million  to  EUR  11.9 
million.441  

For the enhanced appropriateness assessment, under the assumption that: (i) between 
2%  and  5%  of  all  households  hold  complex  products,442  (ii)  that  half  of  the  existing 
customers would transact per year with 20% to 30% of them transacting without advice 
and  thus  undergoing  an  appropriateness  test,  (iii)  that  the  average  duration  of  the 

441 The share of 15% was chosen because 15% of the respondents to the survey conducted in the 
framework of the Retail investment survey indicated they had invested based on advice in the last 12 
months.  
442 Under MiFID II, a strict requirement to conduct an appropriateness assessment in an execution-only 
setting applies only to complex products (for non-complex products Member States can exempt 
investments firms from an obligation to conduct an appropriateness assessment). 

216 

 
 
 
 
 
 
                                                           
appropriateness test is 5-10 minutes and that this test would get by 20% to 30% longer, and 
finally that (iii) the labour cost per hour of EUR 50.7, the annual costs associated with 
the enhanced appropriateness tests could increase by about EUR  83 thousand and 
EUR 1.2 million. 443 

The large ranges of both estimates stem from the variation in underlying assumptions about 
the share of households and the time needed for the screening.  

Moreover,  onboarding  (for  advised  and  non-advised  services)  of  new  customers  would 
become  slightly  more  expensive.  If  the  11%  of  respondents  in  the  Retail  investment 
survey￼ that stated to look for investment is taken as a lower range for the rise in demand 
and the 14% that claimed to have an interest to invest added to this for a higher range of 
25%,  the  envisaged  measures  would  entail  additional  costs  related  to  the  enhanced 
suitability assessment between EUR 1.2 million and EUR 5.9 million per year and those 
related  to  enhanced  appropriateness  tests  between  EUR  41  thousand  and  EUR  124 
thousand per year. These costs were initially calculated as cumulative and were annualised 
using  an  assumption  that  such  clients  would  be  onboarded  over  5  years.  Such  an 
assumption is only illustrative and it is more likely closer to a higher bound. 

Distributors  would  also  need  to  amend  their  IT  infrastructure  to  conduct  the  required 
assessments or tests efficiently. IT tools contribute inter alia to accelerating the provision 
of targeted information and guidance to staff dealing with retail investors, to documenting 
the results of the tests and communicating the results to internal control and compliance 
departments.  Although  online  interfaces  with  customers  are  used  by  a  small  share  of 
clients, as confirmed in follow-up exchanges with distributors, all of them seem to have IT 
systems in place. Hence, none of the options would require the development of new IT 
systems  from  scratch.  Additional  costs  would  thus  relate  only  to  the  adaptation  of  the 
existing systems and potentially adding new modules to these existing systems. 

Amendments  to  IT  systems  would  result  from  the  enhancement  of  (1)  suitability 
assessments  modules  a)  to  codify  standardised  basic  (key)  information  about  clients 
suitable  for  portability  and  b)  to  process  additional  information  about  clients’  wealth 
portfolio; 
to  cover  additional  elements  of 
profiling/screening related to the client’s financial capacity and ability to bear losses. While 
all distributors would need to use such modules, many, although not all, distributors seem 

(2)  appropriateness 

tests  module 

443 See the appendix for more details about the calculations and motivation of the assumptions. 
Assumptions for the baseline are the following, with sources for the upper and lower range in brackets: 
25-30% of households hold financial securities (Retail investment study, Eurobarometer, ECB Household 
and Consumer Finance Survey); 2-3% hold complex financial instruments (Retail investment study, 
Eurobarometer); 70-80% invest using financial advice (Retail investment study, Eurobarometer, industry 
information) and 20-30% - without; 20-30 minutes duration of suitability assessment (rounded up from 
the Retail Investment study and rounded down from industry information); and 5-10 minutes for an 
appropriateness test (Retail investment study, supplemented by industry information), EUR 50.7 per hour  
as labour costs in the financial sector (Eurostat Structure of Earnings Survey). 

217 

 
 
 
 
 
 
                                                           
to already have IT systems in place that would allow to easily accommodate the required 
changes.  Reports  from  the  industry  suggest  that  many  firms  have  the  required  IT  tools 
already  in  place  to  consider  the  clients  portfolio  for  suitability  or  appropriateness 
assessments.444 Moreover, not every distributor would need to develop such modules. A 
possible  scenario  would  be  that  larger  banks  and  asset  managers  develop  their  own 
systems, while smaller distributors purchase them from IT specialist firms. Using certain 
realistic assumptions about the costs of the required modules,445 IT costs could amount to 
EUR  5.6  million  to  EUR  9  million.  These  numbers  are  considerably  lower  than  the 
estimates in the 2011 impact assessment that accompanied the MiFID II proposal.446 At 
that time, one-off costs were estimated at EUR 75 million – EUR 132 million, broken down 
into EUR 50 million – EUR 87 million for the development of risk profiles and EUR 25 
million – EUR 45 million for the production and printing of supporting documentation. 
The  costs  for  the  development  of  additional  modules  appear  to  be  lower,  albeit 
commensurate with the historical estimate. This could be due to learning costs and as such 
IT systems  have become part of business  as usual. More detail  on the assumptions and 
calculations is provided in the Appendix to this Annex. 

The need to train staff will lead to further one-off costs. These costs depend on the number 
of staff members that will need this training. Industry sources suggest that an advisor caters 
for  between  150  to  360  clients,  which  would  imply  135  to  390  thousand  staff447  with 
customer relationships and in need of training. Considering the compensation of financial 
advisors of 50.7 EUR per hour as opportunity costs448 to approximate the costs of 1 to 2 
hours training would lead to aggregate training costs in the range EUR 6.9 million to EUR 
39.5 million.449  

Table: Cost estimates in million EUR 

444 In a targeted survey of the industry, 38% of the respondents claimed to have already identified asset 
classes suitable for the client as part of the suitability assessment, 43% of the respondents even said they 
identify a suitable asset allocation. 
445 EUR 50,000-75,000 per module (source: industry information) plus profit margins for the 50% share 
not developed in-house. More detail on the assumptions and calculations is provided in the Appendix to 
this Annex. 
446 Commission staff working paper, ‘Impact assessment accompanying the document Proposal for a 
Directive on Markets in financial instruments [Recast] and the Proposal for a regulation on Markets in 
financial instruments, SEC(2011) 1226 final. 
447 This is derived from the range of 150-360 customers per advisor and 49-58.5 million households 
investing. 
448 It is assumed that the advisor could have earned EUR 50.7 for providing advice in the hour that he/she 
spends on following a training. While this is not a perfect estimate for the cost of training, this is used as a 
plausible proxy. This is further explained in the appendix to this annex.  
449 An alternative approach starts from a share of 10% of employees in the US financial sector providing 
financial advice to customers. More than 500,000 staff in the financial and insurance sector would be in 
the field of financial advice in the EU 27, if the 10% ratio observed in the US applied also to the EU27. 

218 

 
 
 
 
 
 
 
 
                                                           
for 

for 

time 

time 

suitability 

suitability 

Ongoing costs for existing clients (per annum)  
Additional 
assessment 
Additional time for appropriateness tests 
Ongoing costs for new clients (per annum) 
Additional 
assessment 
Additional time for appropriateness tests 
Total ongoing costs estimate 
One-off costs  
Additional  IT  modules  for  suitability 
assessment 
Additional 
appropriateness tests 
Training for advisors 

modules 

for 

IT 

Lower 
range 

Higher 
range 

5.7 
0.08 

1.3 
0.004 
7.1 

2.6 

3.0 
6.9 

11.9 
1.2 

5.9 
0.12 
19.1 

4.5 

4.5 
39.5 

Memo:  Estimates 
in 
retail 
investment study 

15*  (or  8.7  with 
labour 
costs 
recalculated) *** 

Max 1** 
45.2  (or  26.3  with 
labour 
costs 
recalculated) *** 

Total one-off cost estimate 

12.5 

48.5 

*) for  collecting statements,  once per  year  at  20  minutes per advisor and hourly labour 
costs of EUR 87. Includes also regular statements from advisors on conflicts of interests 
and  inducements  to  supervisors;  **)  for  keeping  robo-advisors  compliant;  ***) 
recalculated to 50.68 EUR per hour sourced from Eurostat due to possible geographical 
and seniority biases in the survey (detailed below), other assumptions held constant 

iii.Costs and benefits for NCAs  

NCAs do not check how distributors conduct suitability and appropriateness assessment 
on  a  regular  basis  but  may  do  so  sporadically  or  to  follow  on  a  complaint.  The 
standardisation of certain elements of the profiling/screening would reduce time dedicated 
by  NCAs  to  checking  compliance  with  the  suitability  requirements  as  with  the 
standardisation, it would be easier to spot missing key elements. Controlling whether the 
client  portfolio  and  the  need  for  diversification  have  been  sufficiently  considered  may, 
however, represent limited additional work and costs for the NCAs, as it would be also the 
case  with  the  new  requirements  under  the  appropriateness  assessment  (for  the  financial 
capacity  and  ability  to  bear  losses).  This  may  involve  costs  to  adapt  IT  systems  to 
process/verify digitalised information from distributors received in a standardised form and 
some,  albeit  limited,  training  for  staff  to  efficiently  monitor  the  new  regulatory 
environment. The adaptation costs for NCAs are likely to be minimal though and might 
even be overweighed by newly gained efficiencies from more standardised information. 
No  significant  impact  is  expected  on  the  resources  of  ESMA  and  EIOPA,  as  their 
involvement  and  roles  under  this  option  can  be  performed  as  part  of  their  existing 
regulatory and supervisory work.    

219 

 
 
 
 
 
 
  
 
 
 
 
  
  
4.  Overall assessment 

The measures on the enhancement of the suitability and appropriateness assessment would 
help the firms better know their clients and, when they provide advised services, to better 
tailor  their  recommendations  to  the  needs  and  objectives  of  their  clients,  or,  when  they 
provide  non-advised  services,  to  better  appreciate  when  to  warn  their  clients  if  the 
investment is not appropriate for the client. The measures should thus curtail the risk of 
mis-selling  to  clients  and  promote  trust  of  retail  investors  in  investment  and,  more 
generally, in capital markets. The measures would also contribute to the standardisation of 
the client profiling information in the EU, allowing potentially for easier portability of this 
information, more competition among distributors and wider choice of investment options 
for retail clients. Standardisation of clients’ key profiling information would also facilitate 
supervision and enforcement by NCAs who would find it easier to compare investment 
recommendations based on similar clients’ profiles across distributors. While the measures 
would lead to additional costs for distributors and NCAs, those are likely to be limited and, 
it can be reasonably assumed, that they would be outweighed by the benefits generated by 
the proposed measures. 

220 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix to Annex 8: Benchmark for the cost estimates and assumptions 

Baseline for ongoing costs 

The baseline puts costs in perspective and serves to discuss the assumptions behind some of the 
coefficients used to assess the costs of the preferred option. About 25-30% of the households hold 
capital  market  instruments,  which  given  195.4  million  households  in  the  EU  and  an  average 
household size 2.3 means an absolute number of 49-58.5 million clients. 

Distributors are obliged to conduct assessment tests for all clients that seek advice. While national 
competent authorities do not report numbers on the number of advices  and indications from the 
industry vary strongly and depend on their business model, a benchmark number would be that up 
to 70-80% of clients are likely to search for advice. This number is consistent with 23% that claimed 
not having received advice in the retail investment study. It is also consistent with a share of 18-
25% that a financial association and a bank reported as execution-only clients, i.e. not wanting to 
be  helped. The  number  of investors  covered  by  advice  would then  be  29-47  million.  About  10 
million households would invest without professional advice and therewith relying on execution 
only purchases. 

The retail investment study counts that a one-hour long suitability assessment would cost EUR 87. 
This seems like a high estimate based on numbers from rich Member States in the EU and assuming 
that  high-ranking  managers  are  providing  the  advice,  as  this  figure  is  considerably  higher  than 
labour cost for managers in the EU financial sector published in Eurostat’s Structure of Earnings 
Survey, that would imply hourly costs close to EUR 50.68. Given this likely bias, we have used 
the Eurostat figure, which is still significantly higher than the figures used for total compensation 
of professionals across the EU, including overheads. 

The duration of the assessments is a crucial determinant of their costs. A length of 1 hour for the 
suitability test is consistent with information from a national competent authority. One financial 
institution even considered this as the bottom of the range whereas  another one reported a time 
needed  for  first  time  clients  of  10-20  minutes.  The  results  of  the  mystery  shopping  exercise 
presented in the retail investment study points to an average time of 16 minutes. Only 3% of the 
visits lasted longer than 45  minutes.  The retail investment study suggested to calculate with an 
average timing of 20 minutes, which consists of 15 minutes for the interview with the client and 5 
minutes for the decoding. 

The broad range is unsatisfying and there is indeed reason to believe that both indications may be 
biased. Some of the mystery shop visits were to robo-advisors, which may be accounted for the 
50%  share  of  visits  that  lasted  5-10  minutes  and  reduced  the  average.  Moreover,  the  mystery 
shoppers cannot know the time it takes for the advisor to document the test. The short time is also 
consistent with evidence in the retail investment study and other studies that many distributors fail 
to provide good and comprehensive advice. On the other hand, distributors seem to report the total 
time needed, which underestimates that they would need to spend some time and information for a 
successful  advice.  This  means,  not  all  the  time  spent  on  a  suitability  assessment  is  due  to 
compliance costs. 

221 

 
 
 
 
 
 
 
  
  
  
  
 
For the benchmark scenario, the average duration of a suitability assessment is assumed to last 20 
to 30 minutes. If 70-80% investors that seek advice were subject to a 20-30 minutes suitability test, 
aggregate costs would be EUR 574 million to EUR 1186 million. This compares to EUR 350 billion 
gross value added per annum in the financial sector in the EU-27450 and EUR 4,800 billion held by 
EU-27 households in financial securities451. 

Among the investors that do not seek advice, those that aim to invest into a complex product need 
to be subject to an appropriateness test, which asks for their knowledge and experience (i.e. ability 
to  understand  the  risks)  regarding  the  specific  type  of  investment  product  or  service.  Since  the 
appropriateness tests covers a subset of the suitability assessment, it is much shorter. An online 
broker  reported  an  average  duration  of  6-8  minutes,  a  traditional  bank  indicated  5-10  minutes, 
depending on whether the test is done in person or online. 

Eurostat  numbers  show  that  EU  households  hold  less  than  0.015%  of  their  financial  assets  in 
financial derivatives and employee stock options452. The ECB’s Household and consumer finance 
survey does not provide information about the share of households that hold derivatives or other 
complex products. In the absence of statistics about the number of retail investors that hold complex 
financial products, the surveys by the retail investment study and Eurobarometer (2022) provide 
the  best  basis  for  estimates.  According  to  the  survey  in  the  retail  investment  study,  1.1%  hold 
structured products453. 

Under the assumption that between 2 and 5% of all households hold complex products, that 20 to 
30% of them transact without advice and would undergo an appropriateness test, which lasts 5-10 
minutes  at  hourly  labour  costs  50.7  EUR  as  above,  the  baseline  for  appropriateness  test  yields 
aggregated costs of EUR 828 thousand to 7.4 million.  

These costs for suitability assessments and appropriateness tests accrue when relationships with 
new  clients  are  formed,  the  “on-boarding”.  The  numbers  above  can  therefore  be  understood  as 
cumulative of historical costs. Distributors update these tools regularly, but the frequency seems to 
vary across distributors and the costs of an update are a small part of the initial costs. 

Higher costs during the on-boarding phase should be balanced against the possibility of distributors 
to attract more clients and expand the business with them. The cost calculations below assume that 
the upgrade of support does not create higher revenue per client, which would need to be balanced 
against  the  additional  costs.  Provided  the  consumers  consent,  they  would  not  need  to  redo  the 
suitability test if they see a different distributor since the portability of the tests would allow that 
parts would need to be done once for each new client when they onboard, followed by periodic 
updates.  

Impact on ongoing costs 

450 Most recent data for 2019 and sector K64, i.e. excluding insurance and pension and auxiliary activities 
to financial intermediation. 
451 Data for 2021. Sum of debt securities, listed shares, investment funds and financial derivatives. 
452 Eurostat, financial accounts. 
453 To read the number from the report, note that only those 28% that said they hold financial assets were 
asked, i.e. the 4% of those holding assets that said they held structural products translated into 1.1%. 

222 

 
 
 
 
 
 
 
 
  
 
 
 
                                                           
The suitability assessment would be enhanced by coding standard information so that it can be used 
by other distributors and by processing additional information about clients’ wealth portfolio. The 
main cost element would be additional time to assess products not only against the personal profile 
of the client, but also against the existing portfolio. This also means the distributors’ staff would 
need  more  time  to  explain  and  discuss  with  the  retail  clients.  Distributors  that  offer  portfolio 
management services would already have done so. Sophisticated financial advisors will consider 
knowledge about their client’s portfolio an essential ingredient of their client’s profile.454 

Considering that the bulk of the financial advice will remain unchanged, an increase of the duration 
of suitability assessments by 10% might be a conservative estimate for the impact of the integration 
of portfolio views. They come on top of tasks to know the customer, his objectives, time horizons 
and capacities, to match the client’s profile to risks, returns, fees and liquidity profile of financial 
products, and to explain the advice to him. The 10% increase would be applied to new customers 
and to those existing customers that turn up for advice at the distributor. Appropriateness tests are 
much lighter than suitability tests and the additional elements carry a larger relative weight.  

The  retail  investment  study  documents  that  50%  of  the  survey  respondents  that  had  financial 
investment said they had invested in the last 12 months. The share of existing customers that seeks 
advice is likely to be lower than that of new customers and only a part would ask to repeat the 
suitability test. If their wish to seek advice is the same as for the historical customer base and 20% 
of  those  would  be  subject  to  a  suitability  test,  annual  costs  could  increase  by  EUR  5.7  to  11.9 
million.  If the new elements in the appropriateness test increase the costs by 20 to 33%, annual 
costs could increase between EUR 82 thousand and 1.2 million. 

A further critical cost component common to all options is that onboarding of new customers will 
become slightly more expensive. The market potential is sizeable. 11% of the respondents to Kantar 
(2022) said they are looking for investments and a further 14% replies it had the savings and the 
interest to invest. 53% of the non-invested households or 38% of all households form a potential 
retail investor base.455  
If the 11% of respondents in Kantar (2022) that stated to look for investment is taken as lower 
range and the 14% that claimed to have an interest to invest added to this for a higher range of 25%, 
costs for the additional enhanced suitability assessments could amount to between EUR 1.3 million 
and 5.9 million per year and that for enhanced appropriateness tests between EUR 4 thousand and 
112 thousand per year. These costs were derived as the total cost that would materialise over time 
as  the  new  customers  request  advice  or  buy  those  complex  financial  securities  that  require  an 
appropriateness test. It was assumed that these costs would hence be spread out across at least 5 
years  as  a  conservative  assumption  (this  could  be  even  more  gradual,  which  suggests  that  the 
overall cost impact of this policy initiative through onboarding of new customers is low).  

Impact on one-off costs 

454 Distributors that are already providing portfolio views to their clients did not disclose how much more 
costly and time consuming such expansion is for them. 
455 This is derived from a share of 47% of those that 72% of the total respondents who responded to 
Eurobarometer (2022) that they did not invest said they had not the means to do so.  

223 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Distributors will need to amend their IT infrastructure to conduct the required assessments or tests 
efficiently.  IT  tools  contribute inter alia to  accelerate the  provision  of  targeted  information  and 
guidance  to  staff  dealing  with  retail  investors,  to  document  the  results  of  the  tests  and 
communication  of  the  results  to  internal  control  and  compliance  departments.  Changing 
requirements lead to one-off costs for amending the IT systems. Although online interfaces with 
customers are used by a small share of clients, all distributors seem to have IT systems in place. 
Hence, none of the options will require the development of new IT systems, costs will be caused 
by adapting the systems and adding new modules to existing systems. 

Relevant amendments to IT systems will result from the enhancement of (1) suitability assessments 
towards modules to a) decode standardised basic information about clients suitable for passporting 
and b) the processing of additional information about clients’ wealth portfolio, (2) appropriateness 
tests towards additional  elements  covering  profiling screening,  the client  financial  capacity  and 
ability to bear losses.  

While all distributors will need to use such modules, many distributors seem to already have IT 
systems  in  place  that  would  accommodate  the  required  changes,  but  not  all.  Reports  from  the 
industry suggest that a many firms have the required IT tools already in place to consider the clients 
portfolio  for  suitability  or  appropriateness  assessments.  The  market  sounding  for  this  impact 
assessment may not be representative. Yet, 38% of the respondents have already identified asset 
classes suitable for the client as part of the suitability assessment, 43% of the respondents even said 
they identify a suitable asset allocation. Since the number of respondents is only half of that that 
replied to the question on the suitability assessment, it appears conservatively realistic to assume 
that the share of firms that need to set in place such a module would be around 80%, with a lower 
bound at 62% and an upper bound at 100%. The lower bound is motivated by the observation that 
38% of the firms FISMA consulted said they had a system in place that offers portfolio views. 

Not every distributor will need to develop such modules. A possible scenario would be that the 10 
largest banks and asset managers develop their own systems and  all other distributors purchase 
them from a range of 10 products in both sectors that are developed from IT specialist firms. This 
scenario would mean that 40 IT modules are developed for enhanced suitability assessments (ESA) 
and  enhanced  appropriateness  tests  (EAT).  While  the  presence  of  competing  products  from  IT 
specialist firms will reduce average costs, it seems not plausible to assume that the price will decline 
to the average development costs. For simplicity, it is assumed that the IT specialist firms charge a 
price that will secure them profits equal to the development costs. 

Adaptation costs to the IT systems would be proportional to the complexity of the new IT modules. 
The cost of developing the required modules is difficult to estimate and is likely to be very different 
across  entities  depending  on  their  existing  IT  infrastructure,  strategic  orientation,  business  and 
needs  and  client  base.  The  cost  of  development  of  apps  depends  very  much  on  the  degree  of 
complexity, ranging from EUR 50,000 - 75,000 for simple apps up to EUR 140,000 – 250,000 for 
developing  sophisticated  robo-advice  tools.  This  impact  assessment  connects  the  development 
costs for modules need for ESA and EAT to those of a simple app. 

224 

 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Table: Parameters to estimate one-off IT and training costs for financial advisors in banks and asset 
managers, in million EUR. 
Estimate 

Assumptions 
Banks 
Own 
developm
ent 

purchase 

Asset managers 
Own 
developm
ent 

purchase 

Lo
wer 
ran
ge 

2.6 

3.0 
6.9 

Hi
ghe
r 
ran
ge 

4.5 

4.5 
39.
5 

Suitability 
assessment 

Appropriate
ness test 
Training for 
advisors 

10*[50k, 
75k]*2 

[6.2, 
10]*[50k, 
75k] 
10*[50k, 
75k] 
[135k,390k] staff trained for [1,2] hours at labour costs EUR 
[50.68] 

[6.2, 
10]*[50k, 
75k] 
10*[50k, 
75k] 

10*[50k, 
75k]*2 

10*[50k, 
75k]*2 

10*[50k, 
75k]*2 

6.2 := minimum number of big entities that will need to develop such module, 10 = maximum 
number of modules to be developed, k:= thousands, 2 to account for profit margin of IT specialist 
firms. 

The table below combines the parameters into a lower and higher range for the estimate adding 
banks and asset managers. These numbers compare favourably to the estimates in the 2011 impact 
assessment that accompanied the initial MiFID II. At that time, one-off costs were estimated at 
EUR 75-132 million, broken down into EUR 50-87 million the development of risk profiles and 
25-45m accounted to the production and printing of supporting documentation. The costs for the 
development of additional modules appear to be proportionate to the historical estimate. 

The need to train staff will lead to further one-off costs. These costs depend on the number of staff 
members that will need this training. While 1 to 2 hours of training per advisor could be sufficient, 
there is no good estimate of the number of employees in financial services entrusted with doing 
these assessments and therefore requiring additional training. One estimate is that advisors cater 
for between 150 to 360 clients. Hence, the number can be derived from the total of retail investors 
served. With 195 million households in the EU-27 of which 25-30% are holding financial assets, 
there could be demand for 135 to 390 thousand staff with customer relationships and in need of 
training. An alternative approach starts from a share of 10% of employees in the US financial sector 
providing financial advice to customers.456 More than 500,000 staff in the financial and insurance 
sector would be in the field of financial advice in the EU 27, if the 10% ratio observed in the US 
applied also to the EU27. Since the financial sector is larger in the US than in the EU, the numbers 
above look reasonable. Taking the pay in the financial sector of 50.68 per hour as opportunity costs 
to approximate the costs of 1 to 2 hours training times 135,000-390,000 persons being involved in 
such assessment work would lead to aggregate training costs in the range EUR 6.9 to 39.5 million. 

456 Egan, M. et al. (2017), ‘The Market for Financial Adviser Misconduct’, NBER Working Paper No 22050, 
September 2017. The study reported that 650,000 financial advisors are active in the US. Employment in 
finance and industry was 6.2 million in 2021 according to US Bureau of Labour Statistics. 

225 

 
 
 
 
 
 
  
  
  
  
  
 
 
                                                           
226 

 
 
 
 
 
 
 
 
 
 
ANNEX 9: SUPERVISORY ENFORCEMENT 

1.  Background and problem definition 

The  retail  investor  protection  framework,  in  particular  in  MiFID  and  IDD,  set  out  the  main 
requirements regarding supervisory powers for the application of the EU rules. An effective and 
efficient supervision over the EU financial system and enforcement of existing consumer protection 
rules is crucial to ensure that retail investors are protected and that financial markets in the EU 
function properly.  

This  annex  aims  to  address  specific  problems  hindering  supervisory  enforcement  of  EU  retail 
investor  protection  rules,  both  within  Member  States  (1.1),  and  with  respect  to  cross-border 
provision of services (1.2).  

1.1 Supervisory enforcement issues related to consumer protection  

Incoherent or indeed absence of enforcement in different Member States is a problem in many parts 
of the EU framework. A number of workstreams have been addressing such issues457 and efforts 
have also been made to improve the European supervisory enforcement framework, recently in the 
context of the review of the European Supervisory Authorities (ESAs)458 founding regulations.  

However, as evidenced in the Evaluation459 and in the Retail investment study, problems persist 
and rules are not always applied correctly nor in similar ways. There are particular difficulties with 
respect to the application of the rules on disclosure of key information460 and conflicts of interest461. 
Reporting  to  the  ESAs  by  NCAs  about  their  enforcement  actions  concerning  sanctions  and 

457 See e.g. the work on sanctions, ESMA’s Report Sanctions and measures imposed under MiFID II in 2021 
point 8 page 6 ‘The adoption of the Inventory of Enforcement Measures and Sanctions by the ESMA Board 
of Supervisors in September 2021 assisted in developing a common understanding of enforcement and 
sanctioning powers amongst the NCAs. This common understanding forms the basis of the sanctions 
reported in this 2021 annual MiFID II sanction report. Terms covered by the inventory include sanctions 
such as administrative fines, public statements, temporary or permanent bans, suspensions or 
withdrawals of an authorisation, disgorgements of profits gained or losses avoided, gain-based pecuniary 
sanctions and orders to cease and desist. This common understanding allows better comparison of the 
sanctions reported by different NCAs in the EU and EEA.’ 
458  The Regulations founding the European Supervisory Authorities (ESAs), were amended and the new 
regulations became applicable as of 1 January 2020. The review introduced additional mandates for the 
ESAs regarding investor protection, including the co-ordination of mystery shopping, the development of 
retail risk indicators, and the collection, analysis and reporting on consumer trends.   
459  See Annex 11. 
460 Page 350 of the Retail investment study.  
461 Point 6 page 350 of the Retail investment study. 
The study found that, even though the rules under MiFID II only allow inducements if a quality 
enhancement test is passed and hence aim to make inducements the exception, an important share of 
investment funds analysed clearly applied inducements while for many other products the information 
was not clearly disclosed so it possible that the use of inducements is even higher than mentioned in the 
study. 

227 

 
 
 
 
 
 
                                                           
penalties has shown462 that the sanctioning powers are not equally used among NCAs and that a 
number issue either few or no sanctions at all, despite supervising a large number of firms. In its 
the report on Administrative sanctions on IDD463, EIOPA arrived at similar conclusions regarding 
the difficulty to compare data across Member States and stressed that the use of sanctions is just 
one element out of a broader toolbox available to NCAs carrying out supervisory activities.  

With increased digitalisation, investment fraud through digital means is becoming more common 
across the EU464. Examples include fake websites offering bogus investment opportunities, seeking 
out  victims  via  social  media  platforms  and  inviting  potential  investors  (through  online 
advertisements) to invest online and enticing them with initial benefits. Based on data from the 
Europol’s 2021 Serious and Organised Crime Threat Assessment (SOCTA)465, investment fraud 
schemes can result in substantial financial damage to private individuals and companies466. While 
the prosecution of fraud is an issue under the responsibility of the criminal authorities and national 
courts,467 NCAs have an important role in ensuring that any investment fraud is detected quickly 
and  stopped,  in  dealing  with  fake  websites,  helping  consumers  recognise  potential  scams468, 
facilitating access to information and, when necessary, restricting access to these websites. While 
many NCAs provide information on their websites to consumers about fraudulent or unauthorised 
activities, the situation differs across Member States469.  

Furthermore, the existing powers of NCAs to tackle aggressive online marketing practices 
may not be sufficient to allow them to intervene in a timely manner470. As digital marketing 
content  may  only  be  accessible  for  a  brief  period  of  time,  NCAs  need  to  be  able  to 

462 See for instance the 2021 ESMA Report Penalties and measures imposed under the UCITS Directive in 
2021 and 
 ESMA Report Sanctions and measures imposed under MiFID II in 2021. 
463 EIOPA 2nd Annual Report on administrative sanctions and other measures under the Insurance 
Distribution Directive (IDD) (2020) (europa.eu). 
464 Investment Fraud on Page 60 of  Europol (2021), European Union serious and organised crime threat 
assessment, A corrupting influence: the infiltration and undermining of Europe's economy and society by 
organised crime, Publications Office of the European Union, Luxembourg. 
465 Ibid.  
466 Europol sources refer to individual cases of millions of euros: 
 -  Fake investors busted in Belgium and France | Europol (europa.eu) - EUR 6 million scam  
-  report_socta2017_1.pdf (europa.eu) - “one investigation revealed estimated profits of up to EUR 3 
billon generated”  
467 The European Union Agency for Criminal Justice Cooperation (EUROJUST) has issued Guidelines on 
How to Prosecute Investment Fraud  
July 2021 (europa.eu) The guidelines provide an overview of the legal and operational issues that 
prosecutors may come across and explain how Eurojust and the European Union Agency for Law 
Enforcement Cooperation (Europol) can help to bring investment fraud prosecutions to a successful end. 
468  Fraudulent schemes that attempt to take money from people. 
469 Other sources of information on scams include for example the IOSCO. The IOSCO publishes a list of 
alerts and warnings sent by its members on a voluntary basis, with firms’ names that are not authorised 
to provide investment services in the jurisdiction which issued the alert or warning. Some unauthorised 
firms use names similar to those of authorised firms or about unauthorised firms falsely claiming to be 
associated with authorised firms. Investor Alerts Portal (iosco.org). However, such sources of information 
are not coordinated, and investors need to look at different places to find what they need. 
470 ESMA advice, page 12, point 27. 

Eurojust Guidelines on How to Prosecute Investment Fraud - 

228 

 
 
 
 
 
 
                                                           
effectively and rapidly intervene on “temporary” content, which may play on behavioural 
biases  of  retail  investors  (such  as  the  “fear  of  missing  out”).  Under  existing  powers471, 
NCAs can suspend the marketing or sale of certain investment products, provided that the 
specific  conditions472  for  the  use  of  product  intervention  powers  have  been  fulfilled. 
However,  in  practice,  the  procedure  is  too  lengthy  to  allow  effective  and  timely 
intervention.     

NCAs and ESMA473 have also observed (aggressive) online marketing and advertising 
campaigns for financial instruments or services that reach many people, but which contain 
no specific risk warnings about the risky nature of some financial products. The interaction 
with (potential) clients is often done via online tools (i.e. videos, or even targeted messages 
or chats), increasing the risk that clients are not adequately informed of the risks and costs 
of the advertised products. Under the current legal framework, the process for NCAs to 
impose risk warnings for particular risky financial instruments is lengthy and subject to 
heavy legal requirements, which undermines the effectiveness of the regime.  

While the three European Supervisory Authorities have the power to coordinate mystery 
shopping activities of competent authorities on the basis of Article 9(1f), not all Member 
States have such powers. NCA’s powers vary significantly across Member States474. In the 
exercises coordinated by the ESAs475, those NCAs that have undertaken mystery shopping 
activities confirm that they are effective in allowing NCAs to obtain better insight into the 
conduct of financial institutions and may encourage them to take enforcement action to 
strengthen the protection of consumers. Coordination of mystery shopping exercises at EU 
level  allows  participating  Member  States  to  obtain  faster  results,  improve  the  level  of 
compliance and profit from the exchange of good practices with other NCAs.  

In the area of complaints handling, the majority of citizens do not resort to complaints to help 
them  resolve  issues  they  face in financial  services476. Citizens  do  not receive the  same  level  of 
protection across the EU and across sectors due to differences in the rules and procedures, which 
may in some cases be more detailed and consumer-oriented477.  Retail investors also face challenges 
to understand with which provider they are contracting or to whom they should address complaints 
or seek redress, especially in the increasingly digital environment478 of financial services.   

471 Article 69(2)(k) MiFID, for IBIPs: Articles 16 to 18 PRIIPs Regulation. 
472 The conditions are described under MIFIR Articles 42(2) to 42(7). 
473  ESMA advice, page 37, point 120. 
474 EBA Report on the mystery shopping activities of NCAs (europa.eu). 
475 EBA Report on the mystery shopping activities of NCAs (europa.eu) 
Mystery shopping as a tool for conduct supervision | Eiopa (europa.eu) 
Mystery shopping: Compliance, culture and consumer outcomes | Eiopa (europa.eu) 
Inclusion of mystery shopping review as part of the ESMA 2022 work programme:  esma71-99-
1735_esma_work_programme_2022.pdf 
476 According to the Eurobarometer476 (no. 509) on retail financial services and products published in 
October 2022 retail clients often (42% on EU average) do not complain if they feel that their rights were 
breached. 
477 Point 219 page 64 Joint ESAs Report on digital finance.pdf - EN (1).pdf. 
478 Ibid. Joint ESAs Report on digital finance 

229 

 
 
 
 
 
 
 
                                                           
1.2 Cross border supervision 

The development of the single market and the digitalisation of the financial services has led to an 
increase in the cross-border provision of services. This has benefits for consumers, as it fosters 
competition,  however  it  also  poses  challenges  to  the  supervision  of  cross-border  activities  and 
financial institutions.  

The respective responsibilities of the home and host NCAs for enforcement in cross-border cases 
are shared according to the home-host principle. The main responsibility remains with the home 
NCA, even if the supervised entity provides services in other Member States via passporting. In 
case of non-compliance with relevant rules, procedures ensuring cooperation between the home 
and the host NCA are in place to ensure proper supervision and avoid consumer detriment.  

Nevertheless, as set out in several reports from the ESAs479, a number of difficulties relating to 
cross-border enforcement exist which in particular relate to institutional and organisational issues 
of supervision:  

-  NCAs  responsible  for  the  supervision  of  the  firms  authorised  in  their  jurisdiction 
(home), may face difficulties480 when supervising their cross-border activities, which 
may  be  more  easily  handled  by  host  NCAs  that  monitor  their  own  market.  The 
efficiency  of  the  cooperation  mechanisms  to  address  such  situations  is  therefore 
instrumental  to  ensure  proper  functioning  of  the  single  market.  Cooperation 
procedures have sometimes been perceived as too burdensome and lengthy and 
not  effective  in  protecting  consumers  quickly  and  efficiently.  This  is  the  case  in 
particular for MiFID firms, where a high burden of proof is needed for the host NCAs 
to demonstrate they have “clear and demonstrable grounds” to request the application 
of Article 86 and take precautionary measures481.  National authorities that have used 
(partly or in full) the provisions under Article 86 of MiFID believe that the stringent 
nature of the current rules causes delays in the finalisation of the procedure. 

-  MiFID  and  IDD  currently  include  legal  provisions  to  ensure  efficient  cooperation 
between  home  and  host  NCAs  for  cross-border  activities.  However,  unlike 
Solvency II, the ESAs do not have a clear legal mandate where there is a significant 
risk  of  consumer  detriment,  to  make  use  of  collaboration  platforms  in  cross-border 
cases to resolve such issues482.    

-  Furthermore,  under  MiFID  and  IDD  there  is  currently  no  streamlined  yearly 
requirement for entities operating via a passport to report on their cross-border 
activities.  Lack  of  such  data  makes  it  difficult  for  ESMA  and  NCAs  to  gain  an 
overview  of  the  activity  of  firms  passporting  into  the  market:  that  restricts  the 
efficiency and  effectiveness  of their supervisory  activities and their ability  to  detect 
problems.   

479 ESAs Joint Committee report on cross-border supervision of retail financial services, July 2019 

ESMA Technical Advice to the Commission on the application of administrative and criminal sanctions 
under MiFID II/MiFIR, March 2021 
ESMA peer review on supervision of cross-border activities of investment firms 

480  Points 113, 114 of Final Report on cross-border supervision for retail financial services. 
481 ESMA’s 2021 Technical Advice on sanctions under MiFID/MiFIR indicates that there is a high burden of 
proof for the host NCAs to demonstrate they have “clear and demonstrable grounds.  
482 See Article 152b Solvency II. 

230 

 
 
 
 
 
 
                                                           
-  There is evidence that some firms have chosen to obtain authorisation in a Member 
State even though they are not planning to carry out any, or at least not a considerable 
part,  of  their  activities  in  that  Member  State.  This  could  be  related  to  jurisdiction 
shopping,  and  the  intention  to  benefit  from  the  passport  without  being  subject  to  a 
stricter application of supervision rules. 

These difficulties indicate that improvements are needed in the way investor protection rules are 
applied  in  practice,  and  that  they  are  potentially  affecting  clients’  trust  in  the  single  market. 
Maintaining the current situation is therefore likely to pose a threat to consumer welfare and the 
further development of the CMU.  

In order to tackle the above problems, options to strengthen supervision and improve consumer 
protection in the areas of a) general enforcement (including strengthening the framework for the 
fight against fraud and scams) and b) cross-border supervision have been assessed.  

What are the available policy options? 

5. 

2.1 Aspects of general supervisory enforcement related to consumer protection  

Option label 

Option description 

Option  1  - 
Baseline 

Option 2 

Targeted 
measures  to 
strengthen 
of 
aspects 
supervisory 
enforcement 
related 
to 
consumer 
protection   

Do  nothing  to  change  the  legal  framework  –  rely  on  existing 
enforcement mechanisms to ensure that the existing rules are correctly 
applied 

Measure  1  -  Provide  an  obligation  for  Member  States  to  give  powers  to 
NCAs to perform mystery shopping activities. 

Measure 2 - Address scams in the context of new digital channels  

Measure  3  –  Empower  NCAs,  ESMA  and  EIOPA  to  take  timely  and 
effective actions against misleading marketing practices 
Measure 4 - Empower ESMA, EIOPA and NCAs to impose on firms the 
systematic use of risk warnings for specific financial instruments  
Measure 5 - Impose specific requirements to facilitate access to complaints 
handling for consumers  

2.1.1 What are the impacts of the options? 

Option 2 – Targeted measures to strengthen aspects of supervisory enforcement related to 
consumer protection   

The modalities of option 2 would involve a combination of several measures. 

Measure  1:  Provide  an  obligation  for  Member  States  to  give  powers  to  NCAs  to  perform 
mystery shopping activities.  

Not all NCAs have explicit competence or a legal mandate to carry out mystery shopping in their 
jurisdiction and they consequently do not perform any such activities. Introducing such a power 
would mean that all NCAs could use this additional tool to help them identify problems, understand 

231 

 
 
 
 
 
 
 
how markets operate in practice, whether firms are complying with conduct of business obligations 
and whether they are delivering customer service in compliance with the applicable rules. Mystery 
shopping  is  an  additional  tool  to  gather  information  and  detect  problems  in  the  market.  It 
complements  other  supervisory  tools  and  can  be  used,  for  example,  to  follow  up  complaints 
received or investigate infringements and unfair commercial practices. Mystery shopping would 
allow NCAs to obtain faster results and encourage financial institutions to take corrective actions 
where regulatory shortcomings have been identified and to improve their level of compliance with 
the applicable regulatory standards, to the benefit of consumers’ protection.  
The mere possibility that NCAs may undertake mystery shopping may create an incentive for firms 
to  comply  with  the  application  of  requirements  under  EU  and  national  law,  thus  enhancing 
consumer protection.  

In addition, when ESAs are coordinating mystery shopping exercises, ensuring that all NCAs have 
similar powers will provide a more complete picture of the situation in the whole EU market.  

Benefits and costs 

As the measures would enable NCAs to detect problems better and quicker, it should help enhance 
protection, thus benefitting consumers. The measure would not create any costs for the industry.  

In  order  to  be  able  to  carry  out  mystery  shopping  exercises  alongside  other  supervisory  work, 
national authorities would need to contribute sufficient human and/or financial resources, e.g. for 
training staff or outsourcing the exercise to external providers.  

Overall assessment 

The option would strengthen NCAs’ supervisory toolbox and better protect retail investors, while 
the costs would likely remain reasonable in view of the expected benefits.   

Measure 2:  Address scams in the context of new digital channels 

While retail investors may not always be in a position to challenge false claims, NCAs are well 
placed to understand whether an offer is inappropriately made to retail investors, or whether an 
offer  might  in  fact  be  a  potential  scam,  which  may  include  inter  alia  offers  based  on 
false/inappropriate/unrealistic  claims,  products  that  simply  do  not  exist  and  are  made  up,  false 
claims about whether a provider is regulated, etc.  Websites and social media have accelerated the 
dissemination of such fraudulent offers.   

Under  this  measure,  NCAs  would  first  be  tasked  to  set  up  the  necessary  tools for  citizens to 
report  potential  scams.  NCAs  should  collect  alerts  from  retail  investors  or  stakeholders  (in 
particular consumer associations) via a standardised reporting procedure via the NCAs’ websites. 
NCAs should then be required to promptly analyse (including by engaging with) the website/seller 
to better understand whether the offer is in fact a scam. If the products/services are not discontinued, 
and if the NCA investigation concludes that they should be considered scams, NCAs should warn 
consumers by entering such cases into a dedicated section/blacklist.  

In order to clarify the powers of NCAs that are already provided in MiFID, and to reinforce their 
role  in  tackling  scams  from  non-supervised  entities,  Member  States  should  empower  NCAs, 
directly  or  via  other  national  authorities  (or  legal  channels),  to  limit  access  to  the  websites  or 
engage in legal procedures to this end, and, where appropriate, undertake other actions (request a 

232 

 
 
 
 
 
 
 
cease-and-desist  order,  request  that  the  assets  be  frozen  etc.)483.  To  the  extent  possible,  NCAs 
should be granted the following powers: 

o  To directly remove content or to restrict access to an online interface or to order 
the explicit display of a warning to retail investors when they access an online 
interface;   

o  To order a hosting service provider to remove, disable or restrict access to an 

online interface;  

o  Where  appropriate,  to  order  domain  registries  or  registrars  to  delete  a  fully 
qualified  domain  name  and  to  allow  the  competent  authority  concerned  to 
record such deletion.   

To  ensure  that  retail  investors  have  access  to  clear  and  easily  understandable  information  on 
investment fraud, information provided by NCAs, including the above-mentioned blacklists, would 
be  centralised  on  an  EU-wide  website.  The  EU-wide  website,  operated  jointly  by  the  ESAs, 
would include information regarding warnings and information on scams, as well as relevant links 
to  national  websites  where  consumers  may  turn  in  case  of  problems.  Responsibility  for  the 
information provided would remain with the NCAs that issue the warnings. 

Benefits and costs 

By preventing or quickly tackling investment frauds, this measure would benefit retail investors as 
well as the overall economy. Investment fraud schemes result in substantial financial damage to 
private individuals and companies. Even though no consolidated data is available on investment 
fraud, Europol has dealt with cases amounting to millions of Euros484. These amounts represent not 
only a loss for consumers and entities, but also cannot be invested in regulated financial markets 
and support the CMU. Tackling scams and ensuring easier access to information for retail investors 
would increase confidence in the financial system as a whole. 

This measure would not entail costs for the financial services industry, as no further requirements 
would be imposed on undertakings. Industry would in fact benefit from investments being directed 
towards  legitimate  channels.  For  NCAs,  the  costs  incurred  would  not  be  expected  to  be 
disproportionate,  given  that  they  already  address  such  issues  and  inform/warn  consumers. 
Centralising the information on an EU website would imply an initial set up cost for the ESAs for 
the development of the website and certain fixed maintenance costs, which could however build 

483  According to IOSCO ” The power to shut down or otherwise block illegal websites promptly, either 
directly or via petition to a court, may prove to be an effective means of halting ongoing misconduct.” 
See also FCA 2017 Consumer investments data review 2020 | FCA “We decide whether to take 
enforcement action based on whether we believe there has been serious misconduct. We consider 
factors such as the severity of the harm arising from the suspected misconduct, whether the 
suspected misconduct has wider implications, the extent to which it may have involved lack of fitness 
and the public interest in investigating the matter. This action includes issuing warning notices, 
publishing consumer alerts, taking down websites, taking civil court action to stop activity and freeze 
assets, insolvency proceedings and, for the most serious cases, criminal prosecution.” 

484 Europol sources refer to individual cases of millions of euros: 

-  Fake investors busted in Belgium and France | Europol (europa.eu) - EUR 6 million scam  
-  report_socta2017_1.pdf (europa.eu) - “one investigation revealed estimated profits of up to 
EUR 3 billon generated”  

233 

 
 
 
 
 
 
 
 
                                                           
  
on  similar  tasks  already  performed  by  the  ESAs.  The  cost  would  also  be  proportionate  to  the 
benefits to the retail investors at EU level and would rely on information that is already known by 
NCAs.  

Overall assessment 

Overall,  the  measure  can  be  expected  to  improve  efficiency  and  effectiveness  in  addressing 
fraudulent schemes and scams and preventing investment fraud by enabling NCAs to take swift 
action. Consumers, industry, and capital markets in general will benefit, as NCA’s enforcement 
actions will help increase trust in the financial system.  

Measure 3: Empower NCAs, ESMA and EIOPA to take timely and effective actions against 
misleading marketing practices 

In order to be able to fight potential misleading marketing practices, NCAs were empowered by 
MIFD II to suspend the marketing or sale of financial instruments or structured deposits485, in or 
from their Member State, when certain conditions are met486. NCAs were also granted the power 
to take similar action on a precautionary basis before a financial instrument or structured deposit 
has been marketed, distributed or sold to clients487.  The exercise of such power was, however, 
subject to strict conditions488. In addition, the current MIFIR regime allows ESMA, under certain 
conditions489 to exercise temporary intervention powers, in situations where one or several NCAs 
fail to appropriately address a given investor protection issue (for instance in case of cross-border 
marketing communication). 

The tight  current legal  framework  is  not  sufficiently  effective  to  allow  NCAs  to  promptly  take 
action  to  prevent  detrimental  impacts  for  retail  investors,  in  light  of  the  rapid  and  continued 
development  and  propagation  of  digital  marketing  communication  and  the  significantly  rising 
phenomenon  of  aggressive  marketing  of  complex/risky  financial  instruments  and  investment 
services to retail clients490. The current complicated and time-consuming process does not allow, 
for  instance,  to  catch  ephemeral  (or  short-lived)  digital  marketing  content,  accessible  for  an 
extremely brief period (sometimes less than 24 hours) and designed to attract an immediate answer 
from  the  user491.    The  current  rules under  MIFIR  are  also  rather  constraining  and do  not allow 
ESMA to intervene promptly when one or more NCAs fail to appropriately address492 consumer 
protection issues. 

485 See Article 69(2)(s) of MIFID II. 
486 See Article 42(2) of MIFIR and Article 21 of delegated regulation (EU) 2017/567. 
487 See Article 42(2), penultimate paragraph - MIFIR.  
488 See Article 42(3) MIFIR. 
489 See Articles 40(2) to 40(5) of MIFIR. 
490 See ESMA advice to European Commission – point 27, page 12. 
491 See ESMA advice to European Commission – point 27, page 12 “Ephemeral (or short-lived) digital 
marketing content is only accessible for an extremely brief period (sometimes less than 24 hours). 
Supervisors need, especially in these types of cases, to be able to effectively and rapidly intervene on 
“temporary” content that, for example, takes advantage of the fear of missing out (FOMO) and is 
designed to elicit an immediate response from the user.” 
492 See ESMA advice to European Commission – points 27 and 28, page 12. 

234 

 
 
 
 
 
 
 
                                                           
In  order  to  facilitate  coordinated  and  consistent  actions  against  aggressive  marketing  practices 
across  the  EU,  and  especially  to  tackle  aggressive  marketing  practices  in  a  timely  manner,  the 
proposed measure would:  

- 

- 

amend the conditions for intervention by NCAs493 to ensure that they can take timely 
and  effective  action  against  misleading  marketing  practices  (more  swiftly  than  is 
currently possible under the product intervention measures). 
implement a clear notification system among NCAs that enables sharing of information 
when one individual NCA has taken action in connection with misleading or aggressive 
marketing  communication  or  practices.  This  would  include  publishing  all  adopted 
measures on a single page on ESMA’s website dedicated to NCAs, with links to the 
individual  NCA’s  website.  A  simplified  version  of  the  information  could  be  shared 
with consumers on the EU-wide website, as mentioned in measure 2 above.   

-  mandate ESMA to  coordinate actions related to  misleading or aggressive marketing 

- 

communications and practices across Member States, where needed.  
amend  the  existing  ESMA  intervention  power  under  MIFIR494  to  allow  for  a  more 
streamlined  and  faster  procedure  for  ESMA/EIOPA  to  intervene  in  cases  of 
problematic  cross-border  marketing,  in  particular  where  an  NCA  fails  to  take 
appropriate  actions.  This  would  require  the  review  of  the  conditions  under  which 
ESMA may use such powers, especially to ensure a more rapid intervention495.  

Benefits and costs 

This  measure  would  benefit  relevant  competent  authorities  in  their  supervision  activities  and 
ultimately investors, as they would be better protected by the strengthened capacity of the relevant 
competent authorities to react in a timely manner in case of a misleading or an aggressive marketing 
communication  or  practices  in  circumstances  when  timing  is  of  the  essence.  Both  NCAs  and 
investors  would  become  better  aware  of  such  actions,  also  in  cross-border  situations.  The 
coordination and intervention of ESMA would ultimately also be beneficial by helping harmonise 
actions on marketing communications and practices across Member States and thus ensuring that 
bad practices can be better and more rapidly tackled by NCAs or ESMA.   

The measure would not create any costs for the industry but might negatively impact profits for 
some financial intermediaries that rely on this form of communication with potential investors. 

The obligation for NCAs to intervene in cases of aggressive marketing practices already exists in 
the current rules, however, with the proposed amendments, NCAs are allowed to act in a more 
timely and efficient manner. As a result, the requirement itself does not impose additional burden 
to the NCAs per se, and NCAs can decide how they will apply their powers to intervene against 
misleading marketing practices. In order to ensure more efficiency, technology-based detection, 
investigatory techniques and qualified staff may be considered.  NCAs may have to incur one-off 
and further ongoing costs depending on the volume of identified issues and the level of intensity 

493 Under MiFIR (Article.42).  
494 See Article 40 of MIFIR 
495 As currently provided to NCAs under Article 69(2)(k) of MiFID II. 

235 

 
 
 
 
 
 
                                                           
of supervision496.   In particular, access to social media posts is currently challenging, due to their 
high number and constant change, but also because they are not always accessible by regulators497, 
as they are targeted to specific audiences and not visible publicly. 

The coordination powers for the ESAs would imply a potential reallocation of priorities to perform 
the  relevant  tasks.  Depending  on  the  volume  and  frequency  of  the  coordinated  actions,  some 
additional costs related to additional resources may be required. The intervention power granted to 
ESMA would be limited to extraordinary cross-border cases, when coordination among NCAs is 
deemed not effective; this should not require more tools and human resources, given the resources 
already dedicated to NCA cooperation. Some potential re-allocation of resources may be needed 
in extraordinary cases.  

Overall assessment 

This  measure  would  help  retail  investors  to  access  more  reliable  marketing  communication 
throughout the EU by avoiding, or at least limiting, the spread of misleading marketing information 
which might result in them taking inappropriate investment decisions, in particular for investors 
investing  on  their  own.  This  measure  should  also  help  to  address  regulatory  and  supervisory 
arbitrage and facilitate enforcement cooperation amongst EU competent authorities and ESMA and 
should  enhance  overall  investor  protection  across  the  EU.  The  efficiency  of  this  measure  may 
however  depend  on  the  technology-based  detection  and  investigatory  techniques  used  by 
competent authorities and on the expertise of their staff. There may be one-off costs for NCAs and 
extra costs, depending on the volume of identified issues and the intensity of supervision decided 
by the national competent authorities.    

Measure 4: Empower ESMA, EIOPA and NCAs to impose on firms the systematic use of risk 
warnings for specific financial instruments 

496 According to IOSCO report on retail distribution and digitalisation, this is a problem that most 
regulators currently face: while over 60% of firms active in online distribution and marketing plan to 
increase they activities, less than 25% of the regulators worldwide planned to increase headcount for the 
supervision in this area based on end 2019/early 2020 survey numbers. 
497 IOSCO Report on Retail Distribution and Digitalisation highlights on pages 22 and 23 that it is 
particularly difficult to catch misleading or at times illegal recommendations or promotions through 
digital means, especially via closed channel in social media …. Detecting the existence of the activity in an 
online environment is the greatest regulatory challenge. Many online marketing initiatives are targeted 
towards specific audiences and therefore, not visible to every user and regulator, making it possible for 
misleading information to spread out of regulatory sight. There is an overload of information and 
information is continuously changing Members surveyed mostly rely on consumer complaints for 
investigation and enforcement purposes for misleading and illegal promotions [which according to some 
IOSCO members are relatively low]. In addition, when an individual has signed up to a particular firm or 
platform, the ability for direct communication can include unsolicited messaging beyond what the 
individual has signed up to receive. This may be difficult for IOSCO members to monitor as the platforms 
often have embedded social media aspects such as chat functions. IOSCO also points on the cross-border 
challenges as online marketing enables unlicensed firms to enter the market relatively easily with minimal 
or no physical presence. 

236 

 
 
 
 
 
 
 
 
                                                           
Digital  marketing  of  investment  products  and  services  is  growing  throughout  the  EU.  Such 
techniques  can  reach  many  potential  investors,  especially  via  social  media498.  The  use  of  such 
techniques may help provide information about investment opportunities across a wide range of 
financial  products499,  however  it  may  also  expose  inexperienced  and  vulnerable  investors  to 
products that are not aligned to their risk profile and personal circumstances500. In its advice to the 
Commission, ESMA observed that social media campaigns very often promote riskier products. 
ESMA also highlighted that, in the case of the product intervention measures addressing contracts 
for difference (CFDs), there is an obligation to include a risk warning (also on social media). Under 
the current rules, however, no such risk warning is imposed for other risky financial services or 
instruments  at  EU  level.  As  not  all  NCAs  have  a  mandate  to  impose  a  risk  warning  for  risky 
financial products, there is a patchwork of different approaches across the EU.  

In  order  to  raise  retail  investors’  awareness  about  risky  products  that  may  be  referred  to  or 
recommended in marketing communications, and to help them make better and informed choices, 
this measure proposes to:  

-  mandate NCAs to impose on firms, on the basis of ESMA’s guidelines, the systematic 
use of risk warnings for specific risky financial products in their social media messages 
and  other  marketing  communications  and  disclosure  documents  related  to  such 
financial instruments.  

-  mandate  ESMA  and  EIOPA  to  issue  guidelines  on  risk  warnings  to  be  used  in  the 
context of marketing of risky financial products, to further harmonise the content and 
format of the risk warnings; 
empower  ESMA and EIOPA to  ensure  risk warnings  are implemented  consistently, 
especially in cases of cross-border marketing communications. ESMA/EIOPA should 
be able to intervene if NCAs fail to implement those risk warnings consistently; 

- 

-  mandate ESMA and EIOPA to provide guidelines on risky financial products. 

Benefits and costs 

This measure would benefit investors as it would raise retail investors’ risk awareness in relation 
to  risky  products,  in  all  disclosure  documents,  including  in  marketing  communications  and 
practices which are often the first information to reach investors. A harmonised approach, via ESA 
involvement, would ensure this measure is applied consistently, and would ease the compliance 
burden for firms, thus improving overall efficiency. This measure would also serve as a further 
deterrent against inappropriately offering excessively risky products to retail clients with the wrong 
profile. 

498 ESMA advice on retail investor protection page 37. 
499 See IOSCO report on retail distribution and digitalisation, page 1.  
500 This is further evidenced in a study by the Dutch AFM and further supported by a study conducted on 
behalf of the UK’s FCA suggesting that newer investors might not be matching their investments’ risk level 
to their risk appetite. Extract from the AFM study: 
(AFM 2021 Annual Report: a strong year with a market record, rapid increase in number of retail investors 
and shift of trading to Amsterdam | April | AFM: pg. 64) “one in three independent investors are taking 
unnecessary risks. Their trading behaviour is suboptimal. Some of the investors have a tendency to trade 
often, incurring unnecessary costs. In addition, a lack of diversification across instruments and regions 
results in portfolios with a poor risk-return ratio, as does trading in high-risk products. Around 12% could 
find themselves in financial difficulties”. 

237 

 
 
 
 
 
 
                                                           
This  measure  would  not  generate  any  material  costs  for  the  industry,  as  it  would  only  require 
financial intermediaries to adjust their disclosures, including in marketing communications, to the 
new risk warnings imposed by the NCAs or ESMA/EIOPA.  

Costs for NCAs are expected to be limited, especially if risk warnings are further standardised. 
No significant impact is expected on the resources of ESMA and EIOPA, as their involvement and 
roles under this option can be performed as part of their existing regulatory and supervisory work.     

Overall assessment 

This measure would increase the effectiveness of retail investor protection by ensuring warnings 
are visible and accessible for risky products across all types of communication material. In addition, 
the exchange of information between Member States through EU-wide coordination would ensure 
the same level of retail investor protection where services are provided cross-border.  

Measure  5:  Impose  specific  requirements  to  facilitate  access  to  complaints  handling  for 
consumers  

Eurobarometer no. 509 501 on retail financial services and products indicated that retail clients (42% 
on  EU  average)  often  do  not  complain  if  they  feel  that  their  rights  were  breached;  the  survey 
findings indicate that complaint possibilities may not be sufficiently known or easily accessible to 
clients. 

As set out in the Joint ESAs report on digital finance502, only some EU directives include specific 
requirements  for  complaints  handling  and  redress503  mechanisms,  leaving  scope  for  different 
approaches  at  national  level. There  is thus  a  risk  that  retail  investors  will  not  receive  the  same 
protection across sectors and across different Member States.  

The Joint ESAs report on cross-border supervision504 also alerted the Commission to the risks of 
confusion,  depending  on  whether  cross-border  services  are  offered  directly  by  a  firm  (free 
provision of services – FPS) or via a branch (freedom of establishment – FOE).  This may confuse 
end-investors as to whom they should address their complaints in case of problems.   

This measure proposes to:  

- 

require firms wishing to contract with retail clients in another Member State to establish 
appropriate procedures and arrangements, including digital communication channels, 
to ensure that they deal properly with clients’ complaints. Those measures should allow 

501 Retail Financial Services and Products - October 2022 - - Eurobarometer survey (europa.eu) 
502  Joint ESAs Report on digital finance.pdf - EN (1).pdf 
503 Considerations relating to redress mechanisms and facilitation of access to alternative dispute 
resolution mechanisms by consumers, were not addressed in this strategy. The issue of improving redress 
procedures will be subject to the review of the Alternative Dispute Resolution Directive to be carried out 
in the course of 2023.   
504 Final Report on cross-border supervision for retail financial services 

238 

 
 
 
 
 
 
 
 
 
 
                                                           
- 

investors to file complaints in the same language in which the communication material 
and services were provided505.  
require  firms  to  specify  and  clearly  disclose  to  the  customer  the  relevant  contact 
information of the firm or branch responsible for providing the services, as well as the 
relevant competent authority.  

Benefits and Costs 

The proposed measures would benefit retail investors by ensuring they have clear information and 
instructions  and  adequate  access  to  communication  channels  and  complaints  mechanisms. 
Establishing appropriate procedures and arrangements, including digital communication channels, 
to ensure that they deal properly with clients’ complaints, will help retail investors access firms 
and allow them to communicate in their own language, both during the provision of services and 
also in case they encounter issues. 

In terms of costs, it is expected that firms will incur costs to put the necessary resources in place. 
However, the costs of the specific requirements would not be significant compared to the costs that 
firms  already  have  incurred  to  set-up  mechanisms  for  complaints  handling  and  those  they 
anticipated  as  part  of  their  strategic  plans  when  considering  whether  to  provide  cross-border 
services. 

Overall assessment  

The proposed measure would seek to ensure easy access of retail investors to complaints handling 
mechanisms and strengthen consumer protection. It should increase confidence in the EU market 
for retail investment services and consequently strengthen the CMU. 

Summary 

All the measures under Option 2 are complementary and together would contribute to strengthening 
supervisory  enforcement  in  the  EU.  Stronger  supervision  addressing  scams  and  aggressive 
marketing practices would ensure that informed investors can better make decisions that should 
benefit  them.  At  the  same  time,  strengthening  the  supervisory  toolbox  of  NCAs  and  better 
informing consumers in ways that enable them to act when they encounter issues would help align 
the interests of consumers and firms, ensuring high quality services and products.  
The measures proposed would be in line with the Commission's overarching goal of promoting an 
economy that works for people.  

505  A similar provision exists under UCITS Article 15, which requires measures to be in place that allow 
investors to file complaints in the official language or one of the official languages of their Member State. 
Article 15: ‘Management companies or, where relevant, investment companies shall take measures in 
accordance with Article 92 and establish appropriate procedures and arrangements to ensure that they 
deal properly with investor complaints and that there are no restrictions on investors exercising their 
rights in the event that the management company is authorised in a Member State other than the UCITS 
home Member State. Those measures shall allow investors to file complaints in the official language or 
one of the official languages of their Member State. Management companies shall also establish 
appropriate procedures and arrangements to make information available at the request of the public or 
the competent authorities of the UCITS home Member State.’. 

239 

 
 
 
 
 
 
                                                           
  
Effectiveness 

S01 
Increased 
of 
ability 
investors  to  take 
well-informed 
investment 
decisions 

SO2  Alignment  of 
between 
interests 
retail  investor  and 
firms 

SO3   Offer of 
cost-effective 
products 

Efficiency 

Coherence 

Baseline 
(Option 1)  

Option 2 

0 

++ 

0 

+ 

0 

+ 

0 

+- 

0 

++ 

6. 

2.2 Cross-border supervision  

Option 
label 

Option 1 - 
Baseline 

Option 2 

Option description 

Do  nothing  to  change  the  legal  framework  –  rely  on  existing  enforcement 
mechanisms to ensure that the existing rules are correctly applied 

Improve home/host relationships and protect consumers in situations of 
cross-border provision of services 
Measure 1 – Enhance and accelerate the process of cooperation of home and 
host NCAs to ensure effective supervision of cross-border service providers 
Measure  2  –  Improve  safeguards  in  cross-border  supervision  of  services  to 
avoid jurisdiction shopping 

2.1.1 What are the impacts of the options? 

Option  2:  Improve  home/host  relationships  and  protect  consumers  in  situations  of  cross-
border provision of services 

The modalities of option 2 would involve a combination of several measures. 

Measure 1:  Enhance and accelerate the process of cooperation of home and host NCA to 
ensure effective supervision of cross border service providers 

Under this measure, the Commission would propose a series of actions to ease cooperation between 
NCAs in cases of cross-border provision of investment services, notably to enhance supervision. 
Ultimately, those actions would seek to foster confidence in the single market and strengthen the 
Capital Markets Union. 

Article 86 MiFID provides a key tool for coordination of action in cases of alleged cross-border 
breaches of Union law. However, evidence collected from ESMA’s 2021 Technical Advice on 

240 

 
 
 
 
 
 
 
 
  
 
 
 
sanctions  under  MiFID/MiFIR506,  as  well  as  supervisory  experience  have  shown  that  a  high 
burden  of  proof  is  needed  for  host  NCAs  to  demonstrate  they  have  “clear  and  demonstrable 
grounds” for believing there is an infringement of MiFID II, before they can take the measures. 
There are often lengthy interactions between host and home NCAs and the process is made more 
complex  by  the  fact  that  host  NCAs  have  no  supervisory  powers  nor  access  to  records  and 
information to allow them to assess firms’ compliance with the relevant requirements. 

According to a survey507 conducted among national authorities that have used (partly or in full) the 
provisions under Article 86 of MiFID, the strict rules lengthen the time necessary to finalise the 
procedure;  softening  the  conditions  to  trigger  an  Article  86  procedure  would  help  shorten  the 
process and significantly reduce the harm to end-investors caused by potentially unlawful activities. 
All  NCAs  refer  to  ESMA’s  March  2021  technical  advice  on  sanctions  under  MiFID  II/MiFIR, 
which proposes to facilitate the conditions for host NCAs to trigger Article 86 of MiFID given that 
the current procedure is considered too burdensome and ineffective508.    

The  following  amendments  to  MiFID  Article  86  should  allow  to  accelerate  and  facilitate 
cooperation between NCAs, if a host NCA suspects a firm active on its territory via passporting 
may be breaching Union Law: 
1.  Easing the conditions under which the mechanism can be triggered, by shifting away 
from  ‘clear  and  demonstrable  grounds’  to  ‘reasonable  grounds’509,  e.g.  linked  to 
complaints, or detrimental behaviour, and streamlining the procedure by setting firm 
and tight deadlines for the NCAs to react. 

2.  Requiring  that  the  triggering  of  Article  86  is  transmitted  to  the  NCAs  of  all  host 
Member States where the firm operates, so that they are informed in time where the 
relevant firm is passporting into their jurisdiction. This would allow NCAs to monitor 
and anticipate the existence in their market of breaches found by other host NCAs. 
3.  Introducing an opt-in mechanism through which host NCAs that observe similar issues 
from  the  same  firm  can  refer  to  an  already  launched  Article  86  procedure,  without 

506 ESMA Advice on sanctions under MiFID/MiFIR 
507 Snap survey conducted with the 5 national authorities that have started or completed an Article 86 
procedure.  
508 Resources: 3 respondents replied that significant resources are required without specifying the 
number of working days required (they estimated the involvement between 2 to 5 FTEs per proceeding), 
2 respondents replied respectively 43 and 150 man-days per proceeding,  

Timing: 4 of the 5 respondents stated that the process takes from six months to over one year not 
taking into account the time required for accumulating findings and to qualify clear and demonstrable 
reasons. Taking into consideration this time can increase significantly the duration of the process. 
Finally, 1 respondent could not estimate a duration for the process as it had not gone through a 
complete article 86 procedure but stater that part of the reason for this is the prohibitive investment 
in time and resources that was anticipated.  

509 A similar amendment was introduced in the AIFMD review proposal from the Commission, in Article 
50(5): 5.  Where the competent authorities of one Member State have reasonable grounds to suspect that 
acts contrary to this Directive are being or have been carried out by an AIFM not subject to supervision of 
those competent authorities, they shall notify ESMA and the competent authorities of the home and host 
Member States of the AIFM concerned thereof in as specific a manner as possible (…) 

241 

 
 
 
 
 
 
 
 
                                                           
having to go through the whole process, and leverage on demonstrations made by the 
first NCA to take action.  

4.  Clarify that, beyond transmitting information about potential wrongdoings of a firm to 
home NCAs, host NCAs can request  home NCAs to  formally look  into a firm  they 
suspect, based on reasonable grounds, to be acting in breach of Union law. 

5.  Linking Article 86 to the setting up of an ESMA collaboration platform. 

Considering  that  the  IDD  provides  for  less  strict  and  more  flexible  cooperation  mechanisms 
compared  to  those  of  MIFID,  alleviating  the  grounds  for  intervention  by  the  host  authority 
(proposal 1 above) would effectively mean an alignment of MiFID to IDD’s less restrictive test. 
The remaining measures (immediate circulation to EIOPA and other MS, deadlines for reaction, 
coordination group and opt-in mechanisms, inspections) might also be included in IDD to facilitate 
the cooperation and ensure regulatory alignment.  

In  order  to  further  strengthen  the  cooperation  between  home  and  host  NCAs,  and  building  on 
proposals already made by the Commission in the context of MiCA with regard to the authorisation 
of crypto-asset service providers(CASPs)510, host NCAs and the ESAs, in situations when more 
host Member States are involved, would have  the possibility to require the home NCA to review 
whether the conditions under which a firm has been authorised are still met (e.g. adequate level of 
resources, consistency of the operations with the initially declared target market, ability to handle 
complaints from countries where the firm’s products are distributed, etc.). The home NCA would 
then be required to provide evidence of the checks performed and of potential action taken in light 
of the assessment. 

Where cooperation between home and host NCAs remains difficult and does not allow resolution 
of  particular  cross-border cases  affecting  retail  investors,  NCAs  should  be  able  to count  on  the 
ESAs to provide for adequate mediation and solution. Article 152b of Solvency II provides for a 
collaboration platform between NCAs and EIOPA. Under Solvency II, a platform is set up when 
EIOPA and relevant national supervisory authorities see merit in strengthening cooperation in view 
of  issues  with  a  specific  undertaking.  Once  a  cooperation  platform  has  been  established  and is 
organised by EIOPA, the home supervisor and the relevant host supervisory authorities in which 
the  insurance  undertaking  concerned  offers  insurance  products  under  FPS  and  FOE,  would 
cooperate in order to resolve potential issues. The Commission proposal amending the Solvency II 
Directive (Solvency II Review) gives EIOPA additional powers to settle disagreements between 
the  supervisory  authorities  involved  in  a  collaboration  platform  via  binding  mediation,  in 
accordance with Article 19 of Regulation (EU) No 1094/2010 (EIOPA-Regulation), and to initiate 
and coordinate on-site inspections. The concept of a collaboration platform does not yet exist under 
IDD or MiFID.  

It is proposed that collaboration platforms would be introduced into MiFID and IDD to better steer 
cooperation  between  national  supervisors  and  support  the  national  assessment  of  cross-border 
impacts. This would fit within the coordination function of ESMA and EIOPA, as defined under 

510  Article 56(6) of MiCA proposal:  
‘The EBA, ESMA and any competent authority of a host Member State may at any time request that the 
competent authority of the home Member State examines whether the crypto-asset service provider still 
complies with the conditions under which the authorisation was granted.’ 

242 

 
 
 
 
 
 
 
                                                           
Article 31 of the ESMA and EIOPA Regulations. Setting up such collaboration platforms should 
be facilitated in particular where NCAs do not swiftly abide by their obligations under Article 86 
MiFID511. The platform would be able to issue proposals for further supervisory actions (opinions, 
recommendations etc.), and ESMA and EIOPA, at the request of any of the authorities involved, 
would assist in settling the disagreements through binding mediation, in accordance with Article 
19 of the ESAs founding Regulation512 . It would also be able to initiate joint on-site inspections 
with the supervisory authorities concerned, similar to the proposed amendment for collaboration 
platforms  under  Solvency  II.  Subject to the  appropriate assessment of  confidential information, 
publicity of the outcomes of the platform for specific undertakings would also ensure that the wider 
public  is  informed  of  the  state  of  play  around  certain  firms  or  products  and  help  improve 
accountability  and  investor  protection.    The  collaboration  platform  should  facilitate  the  prompt 
monitoring of the follow-up action by the NCAs concerned.  

Finally,  ESMA  and  the  NCAs  have  been  performing  fact-finding  exercises  on  cross-border 
activities in recent years513 showing the need to roll out this type of light data collection exercise 
on an annual basis going forward.   Based on evidence from the ESMA peer review report on 
cross-border  activities  of  investment  firms514,  NCAs  concurred  that  the  exercise  significantly 
helped  them  understand  better  the  situation  in  their  own  markets  and  whether  firms  holding  a 
passport  were  actually  active  and  to  what  extent,  as  some  NCAs  only  started  collecting  this 
information in the context of the ESMA exercise. It is proposed to require the mandatory reporting 
of  firms’  cross-border  activity  to  NCAs,  which  would  then  report  consolidated  data  to  ESMA. 
ESMA  would  be  mandated  to  develop  guidance  for  a  limited  but  insightful  and  harmonised 
reporting of cross border activities, which could help NCAs and ESMA to gain an aggregated view 
of cross-border services, products, activities or firms which would then enable it to carry out its 
role more effectively. 

Costs and Benefits   

By removing the administrative burden of proof needed for host NCAs to trigger Article 86, the 
process and cooperation between home and host NCAs will speed up. Enabling host Member States 
to notify issues to the home Member State and request that the firm’s authorisation is assessed will 
strengthen  cross-border  supervision  and  may  prove  especially  beneficial  where  the  size  of  the 
activities in the home Member State may not be significant enough trigger the detection of issues, 
but where the firm does have significant operations in the host Member State.  

The establishment of cooperation platforms to address cross-border issues would benefit investors 
and  strengthen  investor  protection  in  the  Union  while  fostering  confidence  in  cross-border 
investment services. The measure would enhance supervision of cross-border activities by enabling 
NCAs to work together and benefit from sharing of supervisory expertise. 

A  requirement  for  light  yearly  reporting  to  NCAs  and  onto  ESMA  by  entities  operating  via  a 
passport would increase the quality, consistency and efficiency of supervision. It would provide 

511  See also ‘Measure 1 - Allow host NCAs to act swiftly and efficiently when firms operating on their 
territory are doing so in breach of law and posing a serious threat to local investors.’ 
512 (EU) No 1094/2010 (EIOPA-Regulation) and (EU) No 1095/2010 (ESMA-Regulation) 
513 ESMA has coordinated a data collection exercise that took place in 2020 and 2021, with voluntary 

participation by NCAs. 

514  Peer review on cross border activities of investment firms 

243 

 
 
 
 
 
 
                                                           
supervisors  with  more  regular  and  comparable  data  which  could  be  assessed  and  analysed  to 
identify trends in the EU market and allow supervisors to potentially re-allocate supervisory efforts 
towards identified areas of risk.  

The majority of the proposed actions under this measure would not incur additional costs for firms 
nor for NCAs, beyond the work that is already required to perform their supervisory role. On the 
contrary,  the  reduction  of  the  burden  of  proof,  as  well  as  the  exchange  of  practices  envisaged 
through strengthened cooperation, may even facilitate and streamline the work performed and bring 
efficiency gains.  

The  requirement  for  a  light  yearly  reporting  by  entities  operating  via  a  passport  is  expected  to 
follow the established workflows and reporting lines of the undertakings to their NCAs and ESMA.  
ESMA would be expected to further assess the costs relating to new reporting obligations as part 
of their mandate to develop relevant guidance/standards. In order to manage the data and make best 
use of it among the NCAs, there could be a need for the development of an associated IT system 
by ESMA to receive, analyse and disseminate the data. That would require a one-off cost in addition 
to resources to develop and maintain the tool.  

Overall assessment 

Measures that facilitate the cooperation between national authorities are essential. As an internal 
market measure, it would ensure that retail investors are equally protected across the EU. 

This measure would reinforce confidence in the provision of cross-border investment services in 
the EU and contribute to a more integrated Capital Markets Union.  

Measure 2: Improve safeguards in cross-border supervision of services to avoid jurisdiction 
shopping 

The recent peer review exercise on the supervision of cross-border activities by investment firms 
indicated  that  supervision  of  cross-border  activities  has  not  reached  satisfactory  levels  in  all 
Member States515, and evidenced the increased risk associated with allowing firms to choose to 
establish in  a  Member  State  for the  sole  purpose  of  exploiting  relaxed  supervisory  practices or 
regulatory standards.  

While Article 9(2) IDD contains a clear safeguard provision against the abuse of the freedom to 
provide services or the freedom of establishment, Article 5(4) MiFID reflects this safeguard less 
explicitly. Recital 46 MiFID516 nonetheless already clearly mentions the need to prevent cases of 

515 ESMA peer review report on cross-border activities of investment firms 
516 “The principles of mutual recognition and of home Member State supervision require that the Member 
States’ competent authorities should not grant or should withdraw authorisation where factors such as 
the content of programmes of operations, the geographical distribution or the activities actually carried on 
indicate clearly that an investment firm has opted for the legal system of one Member State for the 
purpose of evading the stricter standards in force in another Member State within the territory of which 
it intends to carry out or does carry out the greater part of its activities. An investment firm which is a 
legal person should be authorised in the Member State in which it has its registered office. An investment 
firm which is not a legal person should be authorised in the Member State in which it has its head office. In 

244 

 
 
 
 
 
 
                                                           
circumvention  of  the  rules  and  jurisdiction  shopping,  where  investment  firms  choose  to  obtain 
authorisation/registration  in  one  Member  State  with  the  purpose  of  avoiding  stricter  standards 
enforced in the Member State where the firm intends to carry out the greater part of their activities. 
For the purpose of ensuring maximum legal certainty, the principle mentioned under Recital 46 
should be more explicitly clarified and included in an Article. 

The report on cross-border supervision of retail financial services of the Joint Committee of the 
ESAs517  called  for  alignment  across  sectoral  legislation  in  order  to  address  situations  in  which 
providers leverage on the freedom to provide services (FPS) to ask for authorisation/registration in 
a home Member State where they intend to carry very little, in any, activity. To implement this 
alignment,  the report  suggested to  align to the  wording  included in  Article  5(4)(a)  with  Article 
11(3)  PSD2518,  which  requires  that  a  legal  person  carry  out  at  least  part  of  its  business  in  the 
Member State where it is registered. Such amendments would empower supervisors to refuse (and, 
by consequence, if necessary, withdraw) authorisation on the basis of potential abuses of the FPS, 
and work as a deterrent against such practices.  

As a complement to the above, NCAs should be able to provide information in case they have 
refused  to  grant  a  licence.  During  the  application  process,  NCAs  collect  important  information 
which may provide evidence of potential mis-selling or risk of scams. This information may be 
very  valuable  for  other  NCAs  that  may  also  receive  an  application,  thus  fostering  regulatory 
convergence and reducing risks of jurisdiction shopping. A confidential, non-public database/list 
of denial of licenses, managed by the ESAs, facilitate the exchange of confidential supervisory 
information between NCAs.  The measure would require NCAs to report to ESMA and EIOPA 
whenever a license application was not granted. Should another NCA receive a licence application 
from  the  same  firm,  ESMA/EIOPA  should  put  the  two  NCAs  in  touch  so  they  can  exchange 
knowledge acquired in the license application process.  

Benefits and costs 

The  proposed  measure  would  prevent  jurisdiction  shopping,  while  preserving  the  home-host 
principle. In addition, the exchange of information between NCAs on licences not granted and the 
reasons for not granting them could foster convergence and potentially alleviate the workload for 
NCAs in the evidence-gathering process. As the ESAs would manage a confidential non-public 
database and steer the exchange of information, the measure would lead to improved cooperation 
between  NCAs  while respecting  confidentiality  of information. This  would  also  result in better 
protection for retail investors at EU level.  

In terms of costs, no significant impact is expected on the resources of ESMA and EIOPA, as their 
involvement and roles under this option can be performed as part of their existing regulatory and 
supervisory work.     

addition, Member States should require that an investment firm’s head office is always situated in its 
home Member State and that it actually operates there.” 
517 Final Report on cross-border supervision for retail financial services. 
518  Article 11(3) of PSD2: ‘A payment institution which, under the national law of its home Member State 
is required to have a registered office, shall have its head office in the same Member State as its registered 
office and shall carry out at least part of its payment service business there’. 

245 

 
 
 
 
 
 
 
                                                           
For firms, considering that this measure would be introduced as part of the authorisation procedure, 
it could be expected to have little impact on costs related to authorisation of the firms. However, 
for the companies that need to adapt to the new requirements, it may imply adjusting their business 
model  either  by  increasing  their  presence  in  the  Member  State  where  they  are  registered  or  by 
moving their activities to another Member State where they carry out part of their business.   

Overall assessment 

The measure would be expected to protect consumers by helping avoid cases of abuse by firms of 
the  freedom  to  provide  services  through  jurisdiction  shopping.  It  would  address  the  risk  that 
investment firms opt for the legal system of one Member State in order to evade stricter standards 
in force in another Member State which they intend to carry out or actually carry out the greater 
part of their activities. In addition, the measure would improve the effectiveness of supervision by 
facilitating supervisory convergence and exchange of knowledge and experience among NCAs in 
their efforts to ensure retail investor protection.  

Summary 

As  part  of  the  retail  investment  strategy,  the  aim  is  to  address  specific  issues  in  cross-border 
supervision  that  have  been  identified  by  various  sources.  Option  2  on  cross  border  supervision 
would ensure that retail investors are better protected by making it easier for NCAs to monitor and 
supervise the cross-border provision of services and thus aligning the interests of firms to those of 
EU citizens.  

All the options presented are complementary and would together contribute to the achievement of 
the  objectives  set  for  EU  action.  The  proposed  measures  are  in  line  with  the  Commission's 
overarching goal of promoting an economy that works for people. 

Effectiveness 

Investors 
take 

S01 
are  able 
well-informed 
investment 
decisions 

SO2 
Alignment  of 
interests 
between  retail 
investor 
and 
industry 

SO3 
Offer  of  cost-
effective 
products 

Efficiency 

Coherence 

Baseline  (Option 
1)  

Option 2 

0 

+ 

0 

++ 

0 

+ 

0 

+- 

0 

++ 

246 

 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 10: PROFESSIONAL QUALIFICATION OF FINANCIAL 
ADVISORS 

1.1 Background and problem definition 

Financial advisors play a key role as gatekeepers to the financial system. Stronger participation of 
retail investors is likely to increase demand for financial planning and advice. While new investors 
may fuel demand for financial advice given their need for support in their financial planning and 
investment,  surveys  suggest  that  also  incumbent  investors  value  the  role  of  advisors.519  Better 
access to financial advice can therefore be instrumental in triggering retail participation by helping 
overcome the distrust, which households frequently quote as one of the main reasons why they 
abstain  from  investing  on  capital  markets  and  keep  their  financial  wealth  in  the  form  of  bank 
deposits. Access to financial advice is thereby not a substitute for financial literacy.520 While the 
empirical  evidence  whether  more  literate  investors  seek  more  advice  is  mixed,  more  literate 
investors appear to be less trustful to advisors521, but receive higher quality of advice.522  

Actual statistics about the number and activity of financial advisors are scarce. Official statistics 
are not sufficiently granular, many financial advisors are employed by financial intermediaries or 
are closely linked to them523, and not all financial advisors or consultants specialise in advice to 
retail clients. This leads to a lack of data about the number of advisors at EU level and statistics 
about  firms  in  this  area  in  Member  States.524  Regarding  advice  to  retail  investors,  the  retail 
investment study found that advice from distributors is dominant and independent advice is close 
to insignificant in the EU. While the study does not report statistics on the number of advisors, it 

519 For example, in an international survey of young investors, 16% considered information from 
independent financial advisors as most important source (49% internet, 47% banks, 43% family). Among 
those that had invested, the share was higher at 20% (compared to parents (21%), banks (18), internet 
(14)). See Calstone (2019), ‘Millenials and investing: a detailed look at approaches and attitudes across 
the globe’, Research Report. 
520 The relationship between financial advice and financial literacy has been debated in the literature. For 
an overview, see Kramer, M. (2016), Financial literacy, confidence and financial advice seeking, Journal of 
Economic Behavior & Organization, Volume 131, Part A, November 2016, Pages 198-217. 
521 Retail investment study; Paul, St. et al. (2019)‚ Auswirkungsstudie MiFID II/MiFIR und PRIIPs-VO: 
Effektivität und Effizienz der Neuregelungen vor dem Hintergrund des Anleger- und Verbraucherschutzes 
- Eine qualitativ-empirische Analyse, Study commissioned by the German credit industry, final report; Fazli 
Sabi, M. and Aw, E. (2019), ‘financial literacy and related outcomes: the role of financial information 
sources, International Journal of Business and Society, Vol. 20, No. 1, pp. 286-298. 
522 For an overview of the empirical research, see Kramer, (2016). See also Kim, H. (2021), ‘How financial 
literacy shapes the demand for financial advice at older ages’, Journal of the Economics of Ageing, Volume 
20, October 2021. 
523 For example, EIOPA reported about 800,000 insurance intermediaries in the EU, but only a minority 
acts on behalf of a customer, while a large majority on behalf of insurance undertakings or intermediaries. 
See EIOPA (2022), Report on the application of the Insurance Distribution Directive (IDD), EIOPA-BoS-
21/581. 
524 A German newspaper reported a ratio of 6 financial advisor and intermediaries per 1000 inhabitants in 
Germany in 2010, 2.0 in the Netherlands, 2.7 in the UK and 2.5 in the USA. 

247 

 
 
 
 
 
 
                                                           
notes  that  117  independent  brokers  compare  to  7,000  dependent  agents  in  Luxembourg.525  The 
German register covers 17 firms that offer independent investment advice.  

Detailed information about financial advisors exist for the US and the UK, i.e. markets with high 
retail participation and regulation of financial advisors: More than 5,500 advisors are registered in 
the UK.526 The US SEC register includes more than 14,000 registered advisors and above 5,000 
exempted advisors at federal level.527 Adding advisors at state level, a study reported that 650,000 
financial advisors are active in the US, representing 10% of employment in the US financial and 
insurance industry.528 Independent advisors in the central registers amount to 0.44% of financial 
sector employment in the UK and 0.29% in the US. Applying these ratios on the EU27 financial 
sector  employment  suggests  a  market  potential  for  independent  financial  advisors  of  19,000  to 
24,000  if  retail  investment  participation  and  therefore  demand  for  their  services  were  also 
comparable. More than 500,000 staff in the financial and insurance sector would carry out activities 
in the field of financial advice in the EU 27, if the 10% ratio observed in the US applied also to the 
EU27. 

Most available data stem from surveys about the use of financial advice, which rely on respondents’ 
own assessment. Since national surveys use different questions and panels, they tend to be non-
comparable. The 2012 Eurobarometer and the consumer survey undertaken in 10 Member States 
as  part  of  the  2022  retail  investment  study529  are  therefore  particularly  valuable.  The  2012 
Eurobarometer asked how consumers bought selected financial products and whether they received 
recommendations. While it asks for the role of intermediaries and advisors, it did not distinguish 
between intermediary and advisor nor whether they are linked to the product producer. It portrayed 
a central role for the product producer and a more limited one for advisors in the recommendation 
than in the sales process (Table 1).  

Table 1: share of respondents in % that used an intermediary or advisor to purchase a financial product, 
EU aggregate 

Purchased from 
Product 
provider 
65 
78 

67 

Received recommendation 

Intermediary or advisor 

none* 

35 
22 

33 

26 
16 

28 

34 
32 

13 

Life insurance 
Other 
insurance 
Investment 
funds 

525 Similarly, a 2015 market study bases its analysis of the European Union and on numbers about the use 
of financial advice from a Eurobarometer survey and does neither report the number of advisors in the EU 
nor Germany. See retail investment study (2022); Burke, Jeremy and Hung, Angela, (2015), ‘Financial 
Advice markets’ a cross-country comparison, Rand paper 2015. The study covers the US, UK, Germany, 
Singapore, and the European Union. 
526 Broken down into 4723 independent advisors, 733 restricted advisors, and 87 restricted independent 
advisors in 2021. See Financial Conduct Authority (2022), Retail Mediation Activities Return. 
527 Further financial advisors are registers at state level. 
528 Egan, M. et al. (2017), ‘The Market for Financial Adviser Misconduct’, NBER Working Paper No 22050, 
September 2017. Employment in finance and industry was 6.2 million in 2021 according to US Bureau of 
Labour Statistics. 
529 Retail investment study. 

248 

 
 
 
 
 
 
 
 
                                                           
Shares 
bonds 

or 

68 

32 

18 

39 

* neither from product provider, intermediary, advisor, consumer organisation, friends or family. 
Source: Eurobarometer (2012). 

A  more  recent  survey  done  for  the  retail  investment  study  yielded  comparable  numbers:  28% 
reported  the  use  of  independent  advisors  (Table  2),  45%  the  advice  from  the  distributor  of  the 
financial product. 23% of consumers  invested  without  advice.  Although  the  share  of those  that 
claim having received advice from an independent advisor is far from negligible, it is not higher in 
those  Member  States  where  more  respondents  said  they  received  professional  advice,  which 
confirms the importance of advice from producers of financial products.530 This compares to 56% 
of households that used business professionals in US surveys531 and 70% that leave their investment 
entirely to an expert or seek their advice in the UK.532 

Table 2: Share of respondents that received advice in % 

Total 

DE 

ES 

FI 

FR 

EL 

IT 

NL 

PL 

RO 

SE 

I 

I  have 

No, 
never 
received  any 
of 
kind 
advice 
Yes, 
received 
professional 
advice 
from 
independent 
advisor* 
robo-advisor, 
web 
comparator** 

an 

30 

28 

33 

27 

29 

30 

23 

44 

37 

27 

26 

38 

28 

12 

41 

26 

12 

43 

42 

39 

36 

53 

29 

27 

33 

25 

21 

25 

36 

31 

29 

34 

32 

11 

10 

11 

9 

7 

11 

22 

19 

38 

27 

12 

*a broker that sells a range of financial products but does not assemble/  manufacture any of them,  ** or 
equivalent. 
Source: Retail investment study (2022). 

Issues around the quality of financial advice debated in the economic literature relate to frequent 
reports of misconduct of advisors and the underlying problem that many consumers follow their 
recommendations  blindly.533  The  consumer  survey  performed  for  the  retail  investment  study 
showed that 24% indicated they follow the recommendation of financial advisors (Table 3); 23% 
said that banks’ or brokers’ recommendations triggered their investment decision. About a third of 
the respondents indicated problems finding a financial advisor and a quarter expressed mistrust in 

530 The correlation is even negative, though not significant at 10% level given the low number of 10 
observations. 
531 US Federal Reserve Board (2020), ‘Changes in U.S. Family Finances from 2016 to 2019: Evidence from 
the Survey of Consumer Finances’, Federal Reserve Bulletin, Vol. 106, No. 5, September 2020. 
532 Europe Economics, Retail Distribution Review, Post Implementation Review, December 2014. 33% left 
their investment to experts, 37% said to ask for advice and help. 
533 See the overview in Kramer, M. (2016), Financial literacy, confidence and financial advice seeking, 
Journal of Economic Behavior & Organization, Volume 131, Part A, November 2016, Pages 198-217.  

249 

 
 
 
 
 
 
 
                                                           
financial advisors. A German survey indicated that 73% of the respondents had full trust in their 
advisor, a French study reported 20%.534  

Table 3: Reaction to and assessment of financial advice, share of respondents in % 

9 

24 

67 

F
I 

R
O 

2
1 

3
0 

2
6 

2
9 

2
7 

1
8 

2
9 

1
9 

1
9 

6
2 

6
4 

6
6 

6
4 

5
9 

7
1 

7
4 

E
S 

P
L 

N
L 

I
T 

E
L 

F
R 

To
tal 

D
E 
Did you follow the advice? 
Yes, 
in  all 
cases 
Yes, 
in 
some 
cases 
1
No, 
never 
3 
When it comes to advice on financial products, I don't know where to start to look for an adviser 
2
I 
7 
agree
* 
I trust financial advisers to act in the best interests of their clients 
I 
agree
*, ** 
I 
disagr
ee* 

6
8 

6
9 

2
6 

2
2 

2
2 

2
1 

4
2 

3
2 

4
0 

4
3 

3
4 

2
1 

5
1 

2
3 

3
6 

3
4 

4
3 

2
7 

2
5 

2
5 

1
0 

1
1 

3
6 

2
6 

3
2 

3
3 

2
9 

2
8 

3
4 

3
1 

1
0 

1
0 

36 

26 

32 

7 

8 

5 

8 

S
E 

2
6 

6
9 

5 

3
3 

3
3 

3
5 

* sum of slightly and strongly agree/disagree, ** residual of agree and disagree are those that are neutral or 
did not reply. Source: Retail investment study (2022). 

A US study provides numbers on advisors’ behaviour: 7% of advisors have a misconduct record, 
one  third  of  them  are  repeated  offenders;  about  half  of  the  advisors  lose  their  job  after 
misconduct.535  They  tend  to  find  new  jobs  in  firms  that  have  a  reputation  for  conducting 
misconduct. Another US study identified that a crucial determinant of the incentive to misconduct 
is whether the ownership of the customer relationship is with the advisors or the firm they work 
for.  Advisors’  ownership  of  the  relationship,  measured  in  this  study  as  the  right  to  keep  the 
relationship when changing the employer, led to fewer complaints.536 

534 See for Germany, respectively France: Paul, St. et al. (2019), ‚Auswirkungsstudie MiFID II/MiFIR und 
PRIIPs-VO: Effektivität und Effizienz der Neuregelungen vor dem Hintergrund des Anleger- und 
Verbraucherschutzes - Eine qualitativ-empirische Analyse, Study commissioned by the German credit 
industry, final report, AMF (2020), ‚Investisseurs particuliers: leurs motivations et leurs pratiques 
d'investissement‘, Etude AMF, October 2020. 
535 See Egan, M. et al. (2017), The Market for Financial Adviser Misconduct, NBER Working Paper No 
22050, September 2017. 
536 Clifford, Ch. and Gerken, W. (2021), ‘Property Rights to Client Relationships and Financial Advisor 
Incentives’, Journal of Finance 2021.  

250 

 
 
 
 
 
 
 
 
 
                                                           
Since advice is a credence good, the low number of independent financial advisors, the difficulties 
in finding advisors and the distrust in financial advisors bode ill for the desired increase in retail 
investor participation. New unexperienced investors are in particular need to receive quality advice 
tailored to their situation whereas financially literate investors have a higher level of mistrust and 
are particularly demanding. According to a recent paper, trust in the quality of advice appears to 
be crucial for those that are risk averse.537 The authors identify two factors important to build trust: 
competence and caring. Certification of qualifications of advisors cater for the former, standards 
that align incentives for advisors with those of their clients for the latter.  

The qualification and competence of financial advisors are regulated in the EU by MiFID II and 
IDD.  Both  MiFID  II  and  IDD  contain  generic  safeguards  requiring  staff  advising  on  or  selling 
investment products to retail clients, to possess an appropriate level of knowledge and competence 
in  relation  to  the  products  offered.  Nevertheless,  a  recent  analysis  of  the  current  framework538 
highlights that competences and standards vary significantly across the EU because the relevant 
national requirements are very diverse. Besides national differences, there are also considerable 
differences across sectoral legislations. Requirements for advisors operating under the MiFID II 
and the IDD frameworks differ. In addition, differences with advisors operating only under national 
rules, because they are exempted from the EU legislation, are even larger. 

This  creates  fragmentation  within  the  EU  market  and  may  put  at  risk  retail investors  who  may 
receive  inadequate  advice  from  poorly  qualified  financial  advisors.  The  low  level  of  retail 
participation in many EU Member States indicates a certain level of mistrust in capital markets and 
the  low  level  of  trust  in  financial  advisors  may  contribute  to  it.    The  existing  rules  have  not 
dismissed the distrust. 

Furthermore, requirements with regard to the assessment of clients’ sustainability preferences will 
increasingly  make  the  provision of  investment  advice  more  complex  due to the  necessity to  go 
beyond purely financial considerations. This reinforces the role of financial advisors and the need 
for them to hold the necessary knowledge in this regard as well. 

The  High  Level  Forum  on  Capital  Markets  Union  (‘HLF’)  highlighted  that  existing  rules  on 
qualification requirements for investment advisors are deemed insufficient and can lead to clients 
receiving  inappropriate  advice  and  being  victims  of  mis-selling.539  A  relative  majority  of 
stakeholders  consulted  by  the  Commission  on  the  HLF’s  recommendations  in  the  form  of  a 
feedback process (39% of those taking a position) agreed that the qualification of advisors was a 
very important or rather important issue to tackle (37% thought it was rather not important or not 
important at all, 25% neutral). Support for this view was greatest amongst companies and business 
organisations  (66%),  but  less  pronounced  amongst  business  associations  (33%)  and  public 

537 A Polish study asked consumers to rate their experience with financial advisors. It concluded that 
judgements were predominantly about difference in risk attitudes between advisor and customer by 
customers with low tolerance for risk. See Barnaba, D. et al. (2020), ‘Expertise is in the eye of the 
beholder: financial advisor evaluations and client satisfaction as a result of advisor recommendations’, 
Polish Psychological Bulletin, Vol. 51, No. 1. 
538 Report on the current framework for qualification of financial advisors in the EU and assessment of 
possible ways forward, SWD(2022) 184 final. 
539 See: ‘A new Vision for Europe’s capital markets – Final Report of the High Level Forum on the Capital 
Markets Union’, June 2020. 

251 

 
 
 
 
 
 
                                                           
authorities (17%). Consumer associations, which were represented amongst the experts of the HLF 
and took part in preparing the HLF report, did not provide additional feedback.  

The existence of issues was also confirmed by respondents to the 2020 consultation on the ‘Review 
of the regulatory framework for investment firms and market operators’, which sought evidence 
from stakeholders on areas that would merit targeted adjustments to MiFID II and MiFIR, which 
started to apply in January 2018. A substantial part (39%) of all respondents that took a position 
on this question agreed that there would be merit in setting up a certification requirement for staff 
providing  investment  advice  and  other  relevant  information.  Amongst  others,  proponents  of  a 
certification  requirement  pointed  out  the  need  for  harmonisation  and  for  having  a  minimum 
standard  for  all  advisors,  the  high  impact  investment  advice  can  have  on  the  overall  economic 
situation of European citizens and the high influence the quality of investment advice can have on 
a financial institution’s reputation.  

1.2 What are the available policy options? 

In addition to the baseline scenario, the impact assessment identifies two policy options to address 
the identified problem. Both options aim at improving investor protection and addressing market 
fragmentation.  They  are  linked,  in  particular,  to  SO2,  i.e.  better  aligning  interests  between 
intermediaries and investors, to ensure that the advice is of better quality and can therefore better 
identify  and  address the needs,  preferences  and  objectives  of investors.  In  addition,  such  better 
alignment might also lead to more cost-effective products offered to investors (SO3). Finally, the 
options might support SO1, improving the information provided to investors, as more qualified 
advisors  should  be  capable  to  better  tailor  the  information  provided  to  the  clients’  needs.  The 
measures  considered  can,  however,  not  address  the  identified  underlying  problems  in  full  and 
should be seen as complementary to other measures assessed in this impact assessment. 

Under the baseline (option 1), no action would be taken and hence the existing requirements set 
out in MiFID II and IDD would be maintained. With regard to MiFID, current non-binding ESMA 
guidelines  would  continue  to  apply,  but  fail  to  achieve  convergence  across  Member  States. 
Qualification requirements and modalities around examination and verification of qualifications 
would continue to be largely determined by Member States. Some principles would continue to be 
set out under the relevant provisions in MiFID II and IDD and Member States would maintain the 
possibility to exempt advisors from these rules under certain conditions540, as is currently the case. 
As a result, the level of qualification of advisors would continue to diverge amongst Member States 
and  amongst  advisors  operating  under  different  legal  frameworks.  Investors  would  therefore 
continue to be distrustful of advice and this would continue to have an impact on retail investor 
participation in capital markets.  

Option 2 would seek to strengthen the existing standards and further harmonise requirements set 
out  in  MiFID  II/IDD.  Under  this  scenario,  the  requirements  for  necessary  knowledge  and 
competence of financial advisors currently set out in MiFID II/IDD could be further strengthened 
and some elements around the evaluation of competences of advisors could be further specified. 
This would involve the transfer of some high level principles and other elements from the existing 
non-binding ESMA guidelines into the level 1 and possibly level 2 legislative framework of MiFID 
II  to  ensure  a  more  harmonised application  in  the Member  States  and its extension to  the  IDD 

540 i.e. where advice is provided outside the MiFID II framework, based on the Article 3 exemption. 

252 

 
 
 
 
 
 
                                                           
framework. Furthermore, the IDD requirements on continuous training could be further detailed 
and extended to MiFID II.  Inclusion of certain knowledge of sustainability as part of the training 
of financial advisors could be included as well. Strengthening the existing standards could also 
include  the  introduction  of  additional  conditions  for  the  Member  States  applying  the  Article  3 
exemption under MiFID II (e.g. requiring the Member States to ensure that equivalent standards as 
regards knowledge and competence are applicable to the advisors operating outside the MiFID II 
framework). 

Option 3 would seek to create and completely harmonise detailed qualification requirements for 
all financial advisors – whether operating under MiFID II or IDD or under the existing exemptions. 
This would entail a detailed assessment of the necessary skills, knowledge and competences and 
their  establishment  through  primary  and  secondary  legislation  whilst  leaving  little  discretion  at 
national level. It would also require the development of a regulatory mechanism to ensure that these 
requirements are updated on a sufficiently frequent basis to take into account developments in the 
area of finance, i.e. digitalisation, sustainability, new economic and financial concepts and models.  

Option label 

Option description 

Baseline 
(Option 1) 

Option 2 

Option 3 

No changes to the legal frameworks  

Strengthening of the existing standards and further harmonising some 
of the requirements set out in MiFID II and IDD 

Maximum harmonisation of the requirements related to qualification 
under MiFID II and IDD. 

1.3 What are the impacts of the options and how do they compare? 

1.3.1  Benefits 

The  baseline  (Option  1)  would  maintain  the  status  quo.  Some  principles  regarding  the 
qualification requirements would continue to be set out in MiFID II and IDD, however they would 
likely continue to diverge between Member States and between the legislative frameworks. Retail 
investors  will  continue  to  obtain  a  largely  divergent  quality  of  advice  across  the  EU,  mistrust 
towards advisors and advice would continue to persist and would influence the decision of a large 
number of retail investors to refrain from engaging with capital markets. 

Under  option  2  some  additional  qualification  requirements  would  be  introduced  and  further 
harmonised at EU level, hence contributing to a better alignment of rules on advisors’ knowledge 
and competence both across Member States and across different types of providers of advice (e.g. 
advisors  on  regular  investment  products  and  insurance-based  investment  products).  Certain 
equivalent requirements  would also  become  mandatory  for advisors  falling  under the MiFID  II 
Article  3  exemption.  This  would  raise  the  standards  for  individuals  carrying  out  activities  as 
advisors  where  these  are  currently  lower  and,  as  a  result,  help  reduce  instances  of  unsuitable 
products recommended to clients where this is related to an advisor’s deficiencies of knowledge 

253 

 
 
 
 
 
 
 
 
and competence. It would also improve the level playing-field amongst advisors operating from 
different Member States and make it easier for them to offer their services cross-border. 

This  would  primarily  benefit  retail  investors  that  would  receive  better  advice.  The  resulting 
increase  of  trust  in  financial  advice  would  allow  retail  investors  to  make  better  use  of  the 
opportunities offered by capital markets to help them cater for their long-term needs. 

Option 3 would help raise standards even further by establishing a high and homogenous standard 
for knowledge and competence of financial advisors operating in the EU. This could significantly 
raise  the  standards  and  level  of  investor  protection  in  some  Member  States,  however  a  rigid 
framework set out at European level could also risk reducing the standards in the Member States 
with well-developed national frameworks, which are adapted to the specific national context. The 
benefits to retail investors under option 3 would therefore likely be only marginally higher overall 
than the benefits to them under option 2 (please see more on this in section 1.3.3). 

1.3.2  Costs 

The costs related to option 2 would depend on the current situation in the Member State concerned. 
In some Member States the adjustment to meet the new requirements may be very small, in others 
(notably where the standards are currently lower) more significant changes might be necessary. 
The costs for investment firms and insurance distributors could increase where bigger adjustments 
to  the  framework  are  necessary,  as  hiring  well-qualified  advisors  and  continuing  training  may 
become more expensive   

Advisors may incur additional costs to meet the potentially higher requirements linked to accessing 
the profession and for continuous training. 

Some public authorities may have to incur costs related to the testing and certification procedures 
and, where relevant, adapting supervisory practices under the new legislative setting.  

The  overall  administrative  burden  should  however  remain  similar  as  the  new  requirements 
introduced at EU level would largely replace existing diverging requirements at national level. For 
companies and advisors operating in several legal jurisdictions, the administrative burden would 
likely  be  somewhat  reduced  given  that  there  would  be  fever  divergences  in  standards  and 
requirements.  

Option  3  would  imply  significantly  higher  costs  than  option  2.  Setting  out  fully  harmonised 
requirements at EU level would necessitate a lot of adjustments by market participants (investment 
firms and insurance distributors) and advisors/experts across the majority of Member States to a 
likely quite different – compared to the status quo - set of new rules and processes. This would be 
due to the fact that requirements would be completely harmonised at EU level and therefore even 
Member  States  with  a  comparable  level  of  requirements  would  have  to  adjust  their  national 
systems. This option would also present more significant on-going administrative costs for public 
authorities related to the certification system and for European authorities as well as costs related 
to the review and updating of the pan-European requirements which would be more rigid and less 
able to adapt to market developments in a timely manner given the nature of the European Union’s 
legislative procedures. 

1.3.3  Overall assessment 

254 

 
 
 
 
 
 
When considering both benefits and costs, as set out above, option 3 may be a marginally more 
effective measure to increase the level of knowledge and competence of advisors across the EU 
(and consequentially of the quality of advice provided to retail investors in all Member States) than 
option  2.  It  would  ensure  the  widest  possible  coverage,  benefitting  clients  of  insurance 
intermediaries and investment firms, and the highest level of professional competence from which 
no Member State would be allowed to depart. Nevertheless, option 3 is likely to be a very intrusive 
option that, given its maximum harmonisation nature, would also not allow catering for national 
specificities,  hence  potentially  representing  downsides  attributable  to  any  one-size-fits-all 
approach.  This  appears  more  relevant  in  the  area  of  professional  qualifications,  where  national 
specificities (for example related to features of the existing education system in a given Member 
State) can be relevant. Furthermore, option 3 may not allow for the set-up of a certification system 
adequately fitting the national capital market context, e.g. adjusting it to financial products and 
services  exclusively  offered  or  more  popular  in  a  given  Member  State.  This  could  represent  a 
further shortcoming of option 3, keeping in mind that some respondents to the public consultation 
also consider that the mechanisms to control and assess knowledge and competence should rather 
be organised by local regulators who know their ecosystems.  

In addition, option 3 would likely entail significantly higher costs than option 2, rendering it less 
cost  efficient.  As outlined in the  sections  above,  both  options  would  present  comparable added 
value to retail investors, whilst the costs of option 3 which would require a complete harmonisation 
of  measures  at  EU  level  would  be  significantly  higher  –  both  one-off  costs,  due  to  the  need to 
initiate more substantive changes to the existing requirements in order to harmonise them, and on-
going costs for firms, due to the rigidity of the one-size-fits-all framework and difficulty to adapt 
the requirements as necessary in a timely manner. Option 2 is thus on balance more cost efficient, 
while  not  necessarily  less effective  in  addressing  the  problem,  and  for  those  reasons  should  be 
preferred to option 3. 

Under  both  measures,  the on-going  administrative  burden  would be likely  neutral  as  the  newly 
introduced  pan-European  requirements  would  replace  the  diverging  national  requirements 
currently in place. 

Option 2 would effectively reduce the currently existing significant variations of competence of 
advisors across the EU and between advisors captured under MiFID II and IDD (without, however, 
fully eliminating them). Option 2 would also lower the risk of investment products being sold to 
retail  investors  across  the  whole  EU  that  are  poorly  aligned  with  their  needs,  preferences  and 
objectives, to the extent that this results from insufficient knowledge and competence of advisors. 
Including sustainability aspects in the competence requirements set out at EU level would help 
ensure that advisors are well placed to carry out the necessary assessment of clients’ sustainability 
preferences in line with the key objective of the EU in the area of sustainability and green transition. 

The  overall  cost-effectiveness  of  option  2  would  be  positive  due  to  the  low  associated  costs. 
Whereas option 3 would have lower cost-efficiency, albeit still positive, depending however on the 
extent of changes to the existing national requirements arising due to a complete harmonisation 
exercise which is difficult to quantify.  

Based on the overall assessment described above, option 2 is the preferred option. 

1.3.4  Summary 

Effectiveness 

Efficiency 

Coherence 

255 

 
 
 
 
 
 
 
Improved 
investor 
protection 

Reduced  market 
fragmentation 

Baseline 
(Option 1) 
Option 2 
Option 3 

0 

+ 
+ 

0 

+ 
++ 

Increased 
burden 
for 
advisors  and 
firms 
0 

- 
-- 

(cost-
effectiveness) 

0 

++ 
0/+ 

0 

+ 
+ 

256 

 
 
 
 
 
 
 
 
 
ANNEX 11: EVALUATION OF THE RETAIL INVESTOR 
PROTECTION FRAMEWORK 

1. 

INTRODUCTION 

7. 

1.1 Purpose and scope of the evaluation 

As set out in the September 2020 Capital Markets Union (CMU) Action Plan, the CMU aims to 
put capital markets at the service of people, offering them both sustainable investment opportunities 
and strong investor protection. Investor protection rules are currently set out in a number of sector 
specific  legislative  instruments,  including  Markets  in  Financial  Instruments  Directive  (MiFID 
II)541, Insurance Distribution Directive (IDD)542, Packaged Retail and Insurance-Based Investment 
Products  Regulation  (PRIIPs)543,  Undertakings  for  the  Collective  Investment  in  Transferable 
Securities Directive (UCITS)544, Solvency II Directive545, Alternative Investment Fund Managers 
Directive  (AIFMD)546  and  Pan-European  Personal  Pension  Product  Regulation  (PEPP)547.  The 
scope  of  the  evaluation,  which  is  targeted  and  deals  exclusively  with  retail  investor  protection 
aspects, focuses in particular on MiFID, IDD, PRIIPs, UCITS with regard to product governance 
and oversight and Solvency II with regard to disclosures548 rules, however, AIFMD549 and PEPP550 
are not assessed.   

541  Directive (EU) 2014/65 of the European Parliament and of the Council of 15 May 2014 on markets in 
financial instruments. 
542 Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance 
distribution. 
543 Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on 
key information documents for packaged retail and insurance-based investment products (PRIIPs). 
544 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the 
coordination of laws, regulations and administrative provisions relating to undertakings for collective 
investment in transferable securities (UCITS).  
545 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the 
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). 
546  Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative 
Investment Fund Managers (AIFMD). 
547 Regulation 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-
European Personal Pension Product (PEPP). 
548 Solvency II recently had a separate review process focusing on prudential aspects (Solvency II review - 
Have your say). The framework does not include many aspects related to investor protection. However, the 
rules on disclosures, are assessed as they concern investor protection aspects.  
549  AIFMD recently had  a separate  review  process (AIFMD  review  -  Have  your  say) which  looked  more 
broadly at the areas covered  by the Directives and are  currently  under  negotiations. The  review  has been 
comprehensive and covered investor protection aspects; hence it would not be appropriate to review the rules 
in parallel or before they start to apply and sufficient experience with their functioning is gathered.  
550 The PEPP Regulation started to apply on 22.03.2022. It is therefore premature to evaluate this framework 
as we do not intend to review it at this stage. 

257 

 
 
 
 
 
 
                                                           
The Commission is preparing this evaluation of the current investor protection rules in order to 
assess whether the original objectives of the legislative acts have been sufficiently achieved, and 
whether the current rules are able to sufficiently address new developments. This evaluation also 
fulfils the legal mandates set out in the different legislative acts requiring the Commission to review 
legislation551.  

The evaluation focusses on aspects of the framework which are directly related to retail investor 
protection, namely: 

  How the rules on disclosures have achieved their objective to improve transparency 
and fairness of information and assist retail investors in making optimal investment 
decisions.  

  How the rules on “inducements” (i.e. the payment or receipt of fees, commissions 
and monetary or non-monetary benefits by third parties in relation to the provision 
of  financial  services  to  retail  investors)  have  impacted  the  distribution  of  retail 
investment products across the Union, and the extent to which they have improved 
the quality and impartiality of advice to retail investors.  

  How the rules on suitability and appropriateness  assessments have fulfilled their 
intended objectives of ensuring that advisers recommend financial products that are 
suitable for retail investors or, when acting without advice, retail investors invest in 
financial products that are appropriate for them. 

  How product oversight and governance rules have fulfilled their intended objectives 
of  ensuring  that  the  products  that  are  offered  target  the  appropriate  market,  i.e. 
features of products are aligned with needs of groups of clients reached by those 
products.  

The evaluation is based on several sources of information, in particular:  

  A comprehensive study552 which was designed to capture the whole process of 
retail  investor  decision-making,  from  searching  for  information,  reviewing 
information documents, to undergoing a suitability assessment/ demands and need 
test,  and  receiving  advice.  The  methodology  used  for  the  study  included  legal 
research which covered a detailed review and assessment of the legal framework 
at EU and national levels, 149 in depth interviews553  covering national regulators, 
consumer protection bodies, industry associations, distributors and manufacturers 
across  15  Member  States,  interviews,  reviewing  and  scoring    information 
documents for a sample of 560 investment products in 15 Member States, mystery 
shopping that concluded in 240 observations for traditional distribution channels 
in  8  Member  States  and  13  observations  for  robo-advisors,  a  consumer  survey 
with  an  integrated  behavioural  experiment  with  11497  respondents  across  10 
Member States. This evaluation is largely based on the study which has assessed 
the rules applying the five evaluation criteria. 

  A public consultation that gathered views from a broad group of stakeholders on 
how the current framework for retail investments is functioning and how it could 

551   PRIIPs Article 33, IDD Article 41, and MiFID II Article 90. 
552 Retail investment study. 
553 249 respondents participated in those interviews. 

258 

 
 
 
 
 
 
                                                           
possibly  be  improved.  A  total  of  186  respondents  responded  to  the  public 
consultation (the results are presented in Annex 2).  

  ESA’s recommendations as a reply to the call for evidence issued by Commission 

in 2021 (the results are presented in Annex 2). 
  Reviews and reports published by the ESAs554. 
  The  results  of  specific  consultation  processes  with  various  stakeholders  (the 

results are presented in Annex 2).  

  The IOSCO report555 on retail distribution and digitalisation which looked at the 
rapid  growth  in  digitalisation  and  use  of  social  media  in  the  marketing  and 
distribution of financial products. 

 The purpose of this evaluation is to assess to what extent the existing EU rules on disclosures, 
inducements, suitability and appropriateness assessments and product governance have met their 
objectives in relation to investor protection and whether they have been efficient, coherent, relevant 
and have provided EU added value.  

2.  WHAT WAS THE EXPECTED OUTCOME OF THE INTERVENTION? 

8. 

2.1   Description of the intervention and its objectives 

Given the focus of this evaluation is on how the current legal framework is addressing problems 
related  to  investor  protection  in  retail  financial  services,  and  more  specifically  in  the  areas  of 
disclosures, inducements, suitability and product oversight and governance, this section examines 
how the rules in each area apply across the sectoral legislation and how the intervention logic works 
for each topic. 

2.1.a Disclosures 

Disclosures aim to  promote informed and effective decision-making by providing retail 
investors with information that is fair, easy to read, understandable, comparable and not 
misleading. The rules are intended to improve transparency and engage consumers and to 
encourage them to inform themselves about relevant product features. This is in line with 
the broader aim of reducing information asymmetries between retail investors and financial 
service providers, which should, in turn, promote more competitive and efficient markets, 
i.e. on the basis of more informed investment decisions. 

After the global financial crisis, an important focus was placed on information disclosure556 
as  a  way  of  limiting  market  failures  arising  from  information  asymmetries  and  driving 
better retail investor outcomes557, thus improving investor protection.  

554 Reports and reviews published by the ESAs are sources for this evaluation and are referenced in detail 
at the corresponding section throughout the document.  
555 IOSCO report on retail distribution and digitalisation. 
556 Seira, Elizondo, & Laguna-Müggenburg, 2017 
557 Australian Securities and Investments Commission (ASIC) & Dutch Authority for Financial Markets 
(AFM), 2019).  

259 

 
 
 
 
 
 
                                                           
Relevant legal provisions  

Disclosure requirements are covered in a large and multi-layered set of rules at EU level. 
Retail investor disclosures include the provision of information to clients at pre-contractual 
(generic  information  on  the  products),  contractual  and  post-contractual  stages  (targeted 
information  to  the  consumer’s  situation),  to  ensure  that  at  all  stages  of  the  consumer 
journey, clients receive the information they need for well-informed investment decisions 
and to ensure their protection.   

Product disclosures are provided in the PRIIPs KID558 (Key Information Document) and 
the UCITS KIID559 (Key Investor Information Document) at a pre-contractual stage.   

The  PRIIPs  regulation  introduced  uniform  rules  on  transparency  for  retail  investment 
products that their manufacturers and distributors must abide by. Specifically, it requires 
providers of financial products to produce a KID, capturing the key information about an 
investment product and to make it available to retail investors. The regulation sets out rules 
on  the  contents  of  the  KIDs  and  their  presentation.  It  also  covers  updating  of  the 
information  included  in  KIDs  and  supervision.  One  article  also  requires  that  marketing 
communication  should  not  contradict  the  contents  of  the  KIDs.  The  specification  of 
relevant  rules,  notably  on the content,  presentation and timing of delivery  of the KIDs, 
have been further developed through regulatory technical standards.  

PRIIPs applies to all products manufactured by the financial services sector which provide 
an investment opportunity to retail investors and where (irrespective of the investment's 
legal  form)  the  product’s  return  is  subject  to  the  performance  of  assets  which  are  not 
directly purchased by the retail investor or subject to fluctuation because of exposure to 
reference values. Therefore, the PRIIPs KID is required for structured banking products, 
investment-based  insurance  products  (IBIPs)  and  packaged  retail  investment  products 
available to retail clients.560   

Product  manufacturers  of  UCITS  funds  had  to  produce  and  make  available  a  similar 
document, the UCITS KIID. As of January 2023, the UCITS KIID has been replaced by 
the PRIIPs KID561. The disclosure rules of the new Regulatory Technical Standards are 

558 Chapter II PRIIPs. 
559 Chapter IX, Section 3 UCITS.  
560  The PRIIPs applies to product information across different sectors: The same key information 
document applies for structured deposits (banking product), insurance-based investment products 
(insurance product) and packaged financial instruments (investment product). This means that AIFs which 
are marketed to retail investors under Article 43 of the AIFMD are also captured by PRIIPs obligations.  
561  Regulation (EU) 2021/2259 of the European Parliament and of the Council of 15 December 2021 
amending Regulation (EU) No 1286/2014 as regards the extension of the transitional arrangement for 
management companies, investment companies and persons advising on, or selling, units of undertakings 
for collective investment in transferable securities (UCITS) and non-UCITS, OJ L 455, 20.12.2021, pages 
1–3. 

260 

 
 
 
 
 
 
                                                           
designed to make the PRIIPs KIDs for UCITS fully applicable562. In light of the date of 
application, the impact of this change cannot be assessed in this evaluation but is part of 
the baseline in the impact assessment.  

MiFID II considers the provision of information at all stages of the consumer journey and requires 
that  all information,  including  marketing  communications,  addressed  by  the  investment  firm  to 
clients is fair, clear and not misleading563.  It also specifies that appropriate information about the 
investment  firm  and  its  services,  the  financial  instruments  and  proposed  investment  strategies, 
execution venues and all costs and related charges must be provided in good time to the client564. 
In particular, MiFID II requires that information on all costs and charges in connection with the 
investment services and the financial instruments are aggregated to allow the client to understand 
the overall cost, as well as the cumulative effect on return of the investment565. Where applicable, 
such information must also be provided to the client on a regular basis, at least annually, during the 
life of the investment.  

The MiFID rules require that the above-mentioned information is provided in a comprehensible 
form  but  do  not  establish  an  information  template  or  document.  Member  States  may  however 
require that information is provided in a standardised format566. MiFID II Delegated Regulation 
(EU)  2017/565  lays  down  further  requirements  on  information  to  be  provided  to  retail  clients, 
including on marketing communications567. 

IDD obliges insurance distributors to provide, in good time before the conclusion of an 
insurance  contract,  information  about  their  identity  and  registration  data,  any  group 
relationships with insurance companies and the form of advice they provide and they nature 
(but not the amount) of their remuneration568 as well as specific information requirements, 
in  particular  information  about  the  risks  and  all  costs  and  charges,  in  relation  to  the 
distribution of IBIPs569.  

Finally, Solvency II lays down some general information requirements, to be disclosed 
before a life insurance contract is concluded570. 

562 Commission Delegated Regulation (EU) 2021/2268 of 6 September 2021 amending the regulatory 
technical standards laid down in Commission Delegated Regulation (EU) 2017/653 as regards the 
underpinning methodology and presentation of performance scenarios, the presentation of costs and the 
methodology for the calculation of summary cost indicators, the presentation and content of information on 
past performance and the presentation of costs by packaged retail and insurance-based investment products 
(PRIIPs) offering a range of options for investment and alignment of the transitional arrangement for PRIIP 
manufacturers offering units of funds referred to in Article 32 of Regulation (EU) No 1286/2014 of the 
European Parliament and of the Council as underlying investment options with the prolonged transitional 
arrangement laid down in that Article, OJ L 455I , 20.12.2021, pages 1–55.  
563 Article 24(3) MIFID II. 
564 Idem Article 24(4). 
565 Ibid. 
566 Idem, Article 24(5). 
567 Chapter II of delegated regulation 2017/565. 
568 Article 18 IDD. 
569 Idem, Article 29. 
570 Article 185, Solvency II 

261 

 
 
 
 
 
 
                                                           
Pre-contractual  information  requirements  stemming  from  multiple  Directives  and 
Regulations need to be respected, depending on the investment product or service to be 
sold. Nevertheless, the role of pre-contractual (product level) disclosures and disclosures 
at  distributor  level  is  different  and  generally  complementary.  Product-level  disclosures, 
besides providing information directly for those retail clients that actively search for them, 
are also intended to provide distributors with the elements they need to feed into their own 
obligation to provide risk and cost information on products they sell. 

Intervention logic of disclosure rules  

 The legal provisions governing disclosure are spread across multiple legal frameworks. 
The following intervention logic has been reconstructed focusing on disclosures, to present 
the logical links between the different legal instruments, policy objectives and expected 
outputs, results, and impacts.  

EU  action  on  information  disclosure  regimes  for  retail  investments  was  considered 
necessary  to  address  market  failures  due  to  informational  asymmetries  between  retail 
investors  and  advisors  and  prevent  retail  investors  from  making  uninformed  or  biased 
choices  when  making  investment  decisions.  Specific  disclosure  requirements  were 
introduced as part of PRIIPs, UCITS, IDD, MiFID II and Solvency II, with the objective 
of  improving  clarity,  transparency  and  comparability  of  information  in  order  to  guide 
investors to choose optimal products.  

The rules overall require that certain information on the firm and the services is provided 
to the potential client and that distributors prepare and regularly review key information 
documents and provide guidance and training to advisors. The information to be provided 
is defined by the regulation and needs to be accessible by the retail investors at all times. 
The desired impact is so that investors have access to information that is clear, comparable, 
not  misleading and understood and that ultimately, they  are able to  make informed and 
optimal  decisions  when  choosing 
transparency  and 
comparability of information would also help increase competition in the market.  

investment  products.  The 

Figure.1 - Reconstructed intervention logic571  

571 As presented in the Retail investment study for the disclosure rules of information documents. 

262 

 
 
 
 
 
 
                                                           
Source: Consortium.  

2.1.b Inducements and advice 

Professional advice assists retail investors in decision-making when choosing investment products. 
However, the advice process is affected by strong information asymmetries between the advisor 
and  the  potential  investor.  Informational  asymmetries  can  play  an  even  greater  role  where 
inducements are paid by product manufacturers to advisors, which can potentially result in biased 
advice.  

In  general,  inducements  are  payments  that  distributors/intermediaries  receive  by  means  of 
retrocessions from the product manufacturers (e.g. the asset managers). They represent a portion 
of the total costs that are paid by the retail investor. The following example illustrates in general 
terms the fee flows and the payment of inducements between different parties in the distribution of 
an investment fund572. 

Source: Study on distribution systems of retail investment products, 2018 

The  EU  legal  framework  aims  to  improve  investor  protection  by  imposing  rules  governing  the 
payment of inducements.  

572 Note: the distribution of retail investment products may vary per product category, distribution 
channel and jurisdiction. 

263 

 
 
 
 
 
 
 
 
                                                           
The rules on inducements aim to:  

  minimise conflicts of interest so as to ensure that advice and other services that are 

 

delivered to prospective investors are in their best interest;  
inform  prospective  investors  whether  the  advice  given  is  independent  or  non-
independent and whether the investment firm or insurance distributor receives an 
inducement for the sale of a given product, so that retail investors are aware of their 
relationship with the product manufacturer and take it into account when making 
their investment decision;  

  more generally, improve the quality of advice and reinforce the duty of care of retail 
financial product distributors, as well as to make sure that prospective investors are 
well informed and understand the advice.  

Summary of the relevant legal provisions and the scope of their application  

Depending on the type of distributor and investment product, different rules may apply under the 
current framework. The main legal texts concerned are MiFID II and IDD, which contain specific 
rules on inducements. Furthermore, both MiFID II and IDD set out the duty of care obligation and 
contain  rules  to  avoid  conflicts  of  interest,  such  as  continuous  organisational  rules  and 
remuneration policies.  

The  MiFID  II  inducement  regime  applies  to  investment  firms  and  the  IDD  inducement  regime 
applies  to  insurance  intermediaries  or  undertakings  distributing  insurance-based  investment 
products  (IBIPs).  The  application  of  inducement  regimes  to  the  different  types  of  products  is 
summarised below:   

While MiFID II and IDD rules on inducements aim to achieve the same objective, they differ as 
regards the specific conditions:   

  Under  MiFID  II,  inducements  (i.e.  fees,  commissions  or  any  monetary  or  non-
monetary benefits paid or provided by any third party or a person acting on behalf of 
a third party in relation to the provision of the service to clients) are prohibited for 
portfolio management and independent advice. Where inducements remain possible, 
the MiFID II framework only allows them if they are designed to enhance the quality 
264 

 
 
 
 
 
 
 
of  the  relevant  service  to  the  client;  nor  should  they  impair  compliance  with  the 
investment firm’s duty to act honestly, fairly and professionally.  

  Under the IDD framework, inducements (similarly defined as fees or commissions, 
or any non-monetary benefits  in  connection with  the distribution of an insurance-
based investment product or an ancillary service, provided to or by any party except 
the  customer  or  a  person  on  behalf  of  the  customer  only)  are  generally  allowed, 
provided that they do not have a detrimental impact on the quality of the relevant 
service to the customer and do not impair compliance with the distributor’s duty to 
act honestly, fairly and professionally. 

Quality enhancement test (MiFID II) and Detrimental impact test (IDD)  

The  nature  as  well  as  the  conditions  of  the  quality  enhancement  test  under  MiFID  II  and  the 
detrimental impact test pursuant to IDD are different.  

On  the  basis  of  Article  11(2)  of  the  MiFID  II  Delegated  Directive573,  an  inducement  shall  be 
considered to enhance the quality of the relevant service to the client if:  

 

 

 

the  inducement  is  justified  by  the  provision  of  an  additional  (or  higher)  level  of 
service to the client;  
the  inducement  does  not  directly  benefit  the  recipient  firm  (its  shareholders  or 
employees included) without tangible benefit to the relevant client and;  
the inducement is justified by the provision of an on-going benefit to the client 

The MiFID II Delegated Directive also establishes a number of conditions requiring justification 
of the provision of an additional or higher-level service to the relevant client574: 

  provision of non-independent investment advice, access to a wide range of suitable 

financial instruments including instruments from a third party;  

  provision of non-independent investment advice combined with either: (a) an offer 
to the client to assess the continuing suitability of the financial instruments; or (b) 
with another on-going service about the optimal asset allocation of the client; or 
  provision of access to a wide range of financial instruments that are likely to meet 
the needs of the client, including instruments from third-party product providers. 

For the detrimental impact test, pursuant to the IDD regime, the following criteria are relevant575:  

  whether 

the 

inducement  could  provide  an 

insurance 
intermediary/undertaking to offer/recommend an insurance product/service to the 
client despite the fact that another insurance product or service would better meet 
the client’s needs; 

incentive 

the 

to 

573 Commission Delegated Directive (EU) 2017/593 of 7 April 2016 supplementing Directive 2014/65/EU of 
the European Parliament and of the Council with regard to safeguarding of financial instruments and 
funds belonging to clients, product governance obligations and the rules applicable to the provision or 
reception of fees, commissions or any monetary or non-monetary benefits. 
574 Idem, Article 11(2). 
575 Article 8(2), second subparagraph of IDD Delegated Regulation. 

265 

 
 
 
 
 
 
                                                           
  whether  the  inducement  is  mainly  based  on  quantitative  commercial  criteria/ 
whether it takes into account appropriate qualitative criteria (such as compliance 
with applicable regulations, the quality of services provided, client satisfaction); 
 
the value of the inducement paid in relation to the value of the product/service;  
  whether the inducement is paid at the conclusion of the contract or is extended for 

 
 

the whole term of that contract;  
the existence of a mechanism for reclaiming the inducement; 
the existence of any form of contingent threshold unlocked by “attaining a target 
based on volume or value of sales”.  

All  the  relevant  legal  frameworks  (IDD576,  MiFID  II577,  UCITS578)  contain  provisions  on  the 
principle of duty of care. These provisions are set out in the conduct of business rules applicable 
when services are provided to the client. They apply to all aspects of business and not only to advice 
while receiving inducements. 

Furthermore,  Solvency  II,  IDD,  MiFID  II,  UCITS  and  AIFMD  also  contain  other  rules  on 
avoiding  or  mitigating  conflicts  of  interest,  such  as  continuous  organisational  rules  and 
remuneration policies.  

Continuous organisational rules and administrative arrangements: 

Under the MiFID II and IDD regimes, there is an obligation to identify conflicts of interest in the 
course of the service provision. The MiFID II regime579 makes it mandatory to identify conflicts of 
interest between investment firms, and their clients, or a conflict between one client and another, 
including those caused by the receipt of inducements from third parties, or by the investment firm’s 
own remuneration and other incentive structures. The IDD regime makes it mandatory to identify 
conflicts of interest between insurance intermediaries and insurance undertakings, including their 
managers and employees, or any person directly or indirectly linked to them by control and their 
clients, or between one client and another.  

The  MiFID  II  and  IDD  regimes  also  contain  continuous  organisational  rules  obliging  service 
providers to take all appropriate steps to prevent or manage conflicts of interest between a client 
and themselves (including service providers’ managers, employees, tied agents, or any other person 
linked directly or not directly by control). Overall, the MiFID II and IDD regimes are consistent in 
applying  comparable  regimes  to  prevent  conflicts  of  interest  in  the  context  of  continuous 
organisational  rules  and  administrative  arrangements.  In  cases  where  organisational  or 
administrative  arrangements  for  preventing  conflicts of  interest are  not  sufficient  to  ensure  that 
risks  of  damage  to  client  interests  are  prevented,  such  conflicts  of  interest  should  be  clearly 
disclosed to the client.  

Disclosure of conflicts of interest: 

576 Please refer to Article 17(1) IDD.  
577 Please refer to Article 24(1) MiFID II.  
578 Please refer to Article 29 UCITS Implementing Directive. 
579 Article 16(3) and Article 23 MiFID II. 

266 

 
 
 
 
 
 
                                                           
The rules  on the  disclosure  of  conflicts  of interest  under  MiFID  II  and  IDD  are  consistent and 
contain an obligation to disclose conflicts of interest under a condition of last resort580, the rules on 
how disclosure should be made (e.g. on a durable medium) and the rules covering the content of 
such disclosure581.  

Remuneration policies and disclosure of remuneration  

Remuneration policies aim to reduce the risk that a financial service provider’s remuneration and 
incentive practices could give rise to conflicts of interest with its clients. The MiFID II delegated 
regulation provides that a firm’s remuneration policy, as approved by the managing body, ensures 
that the interests of the firm’s clients are treated fairly and are not impaired by the remuneration 
practices  adopted  by  the  firm  in  the  short,  medium  or  long  term.  More  specifically,  the  policy 
should be designed in a way that firm members are not incentivised to favour the firm’s or their 
own interest, to the detriment of its clients’. Under IDD, remuneration policies should not conflict 
with the duty to act in the best interest of the client. Such policies should prevent sales targets or 
other arrangements that could provide an incentive to recommend a particular financial instrument 
when  the  financial  services  provider  could  otherwise  offer  another  financial  instrument  more 
appropriate to the client’s needs. 

Intervention logic of the measures concerning inducements and advice  

Rules on inducements are covered under MiFID II and IDD. In order to facilitate the presentation 
of  why  an  intervention  was  required  on  the  rules  on  inducements  at  a  European  level,  an 
intervention logic has been reconstructed presenting the logical links between the different legal 
instruments, policy objectives and expected outputs, results and impacts. 

The introduction of rules on inducements and advice was considered necessary due to the existence 
of informational asymmetries and the risk of product bias in the distribution process and mis-selling 
practices that hindered trust in investment markets. Specific requirements for investment advice 
and  inducements  were introduced in  IDD  and  MiFID  II  with  the  objective  of  ensuring  that  the 
payment of inducements is transparent and does not have a detrimental impact on retail investors 
(IDD) or improves the quality of the advice (MiFID II).   

Under the MiFID rules, inducements can only be put in place where they are justified by 
an  enhancement  of  the  service  provided  to  end-investors.    Distributors  are  required  to 
review existing practices and apply quality enhancement and detrimental tests respectively 
to justify the presence of inducements.  Distributors must also inform retail investors about 
the key features of the products offered and disclose information about the type of advice 
provided  (e.g.  independent  or  non-independent),  as  well  as  on  the  existence  of  any 

580 To be used only where the organisational and administrative arrangements established by an 
investment firm are “not sufficient to ensure, with reasonable confidence, that risks of damage to client 
interests will be prevented”.  
581 Content such as: sufficient details, consideration of the nature of the client allowing the client to take 
an informed decision in the context of which the conflict of interest arises, description of the conflict of 
interest, organisational and administrative arrangements established to prevent or manage conflicts of 
interest, as well as a specific description of the conflict of interest, the general nature and sources of 
conflicts of interest, the risks to the client that arise as a result of the conflicts of interest, the steps 
undertaken to mitigate these risks, and the level of detail to enable that the client would take an 
informed decision. 

267 

 
 
 
 
 
 
                                                           
inducements.  Lastly,  the  rules  require  distributors  to  implement  practices  around  the 
training of advisors, management of conflict of interest and remuneration.  

Under the IDD rules, inducements are only allowed if it can be demonstrated that they do 
not have a detrimental impact on the quality of the relevant service to the customer and do 
not impair compliance with the distributor’s duty to act honestly, fairly and professionally, 
in  accordance  with  the  best  interests  of  their  customers.    Similar  to  the  MiFID  rules, 
distributors have to inform retail investors about the key features of the product offered 
and about the type of advice provided and the form of the remuneration received. However, 
they  are  not  required  to  disclose  the  amount  of  inducement  received.  The  concept  of 
independent advice does not exist under the IDD framework. 

The desired impact is that retail investors receive unbiased advice, better and wider offer 
of  products  which  allows  them  to  make  better  choices.    Greater  transparency  of 
remuneration would lead to a decline in inducements. As a result, the rules would improve 
the market as mis-selling would be reduced and there would be a higher share of consumers 
offered suitable products.   

268 

 
 
 
 
 
 
 
 
 
 
 
 
 
 Figure.2 - Reconstructed intervention logic582  

Source: Consortium.  

2.1.c Suitability/Appropriateness 

Depending on the financial services offered to their clients, firms must perform a know-your-client 
assessment in order to ensure that the products that may be purchased are suitable or appropriate. 
Retail investors without professional experience are prone to making investment decisions that may 
not be optimal or they may even be the target of mis-selling practices. Assessing the profile of retail 
investors  is  an  important  component  of  the  investor  protection  framework.  The  suitability 
assessment aims to ensure retail investors are not recommended financial products or services that 
are  not  suitable  for  them.  The  appropriateness  assessment  (when  the  client  makes  a  decision 
without  advice)  aims  to  ensure  that  the  client  is  warned  in  case  the  financial  product  is  not 
appropriate.   

Relevant legal provisions and the scope of their application  

The rules on suitability assessments generally cover the same principles under MiFID II and IDD:   

  Under  MiFID  II  rules,  investment  firms  must  conduct  a  suitability  assessment 
when  providing  investment  advice  or  portfolio  management583.  The  assessment 
covers the client’s (i) level of knowledge and experience in the relevant financial 
instrument  or  investment  service  field,  (ii)  financial  situation  and  ability  to  bear 
losses, and (iii) investment objectives, including risk tolerance. The result of this 
procedure  is  that  firms  providing  investment  advice  or  performing  portfolio 
management must ensure that they understand the essential facts about the client 

582 As presented in the Retail investment study. 
583  Article 25(2) MiFID II and Articles 54 and 55 of MiFID II Delegated Regulation. 

269 

 
 
 
 
 
 
 
                                                           
and have a reasonable basis for determining that the transaction to be recommended 
or  to  be  made  in  the  course  of  the  advice/portfolio  management  meets  the 
investment  objectives  and  risk  tolerance  of  the  client  and  that  the  client  is  able 
financially to bear the investment risks consistent with their investment objectives.  
  Under IDD584 a ‘demands and needs’ test needs to be performed by the distributor 
before  the  establishment  of  a  contract.  This  test  is  mandatory  for  all  insurance 
products,  including  IBIPs585.  In  the  case  of  advised  sales  of  IBIPs,  a  suitability 
assessment must be conducted under basically the same rules as under MiFID II. 
The output of the requirement is a list of products in line with the client’s demands 
and needs, and in the case of advised sales of IBIPs, products that are considered 
suitable.  
In the case of non-advised services (under MiFID II and under IDD for non-advised 
sale of IBIPs), firms must undertake an appropriateness assessment is to ensure that 
retail  investors  have  the  necessary  experience  and  knowledge  to  understand  the 
risks of the financial products they are considering purchasing.  

 

Both  MiFID  II  and  IDD  allow  for  exemptions  from  performing  the  appropriateness  test  under 
certain circumstances (e.g. where the service only consists of executing a client’s order on   non-
complex products).  

Table  2  -  The  scope  of  application  of  suitability  and  appropriateness  assessments  (and 
demands and needs test) 

Source: Consortium.  

584 Article 20(1) IDD. 
585 Additional provisions exist for IBIPs and PEPP Article 30(1) IDD; EIOPA Q&A - QUESTION 1638 on IDD 
available from: https://www.eiopa.europa.eu/content/1638_en and Article 23(1)(a) PEPP Regulation. 

270 

 
 
 
 
 
 
 
                                                           
Intervention logic of the measures concerning suitability and appropriateness assessments and 
demands and needs test  

The legal provisions governing the suitability assessments and demands and needs tests are set out 
across several legislative texts. In order to facilitate the presentation of why an intervention was 
required at a European level, an intervention logic has been reconstructed which presents the logical 
links between the different legal instruments, policy objectives and expected outputs, results and 
impacts. 

The suitability and demands and needs assessments were introduced in legislation in order 
to ensure retail investors do not invest in financial products that are too risky for them or 
do not  meet  their investment objectives,  and more  generally to assist  retail  investors to 
make optimal choices. The requirements were introduced into IDD and MiFID II with the 
objective  of  preventing  mis-selling  of  products  and  strengthening  the  decision-making 
abilities of retail investors, in order to allow them to make optimal choices, thus increasing 
consumer trust in the market.   

The rules require that distributors have policies and procedures in place that allow them to 
perform suitability assessments and demands and needs tests, further clarified through EU 
guidance586.  The  results  of  these  tests  must  be  documented  and  communicated  to 
consumers, and advisors must be trained to perform them.  The desired impact is twofold: 
to ensure that i)   distributors consider the outcome of the screening when providing advice 
and ii) retail investors are recommended products that are suitable for them. As a result, 
the rules should improve the market by reducing mis-selling and increasing the share of 
retail investors with suitable financial products.   

586 ESMA Guidelines on MIFID II Suitability requirements 2018 and 2022, EIOPA Q&A on demands and 
needs test, EIOPA guidance on integrating the customer’s sustainability preferences in the suitability 
assessment under the IDD | Eiopa (europa.eu). 

271 

 
 
 
 
 
 
 
 
                                                           
Figure.3 - Intervention logic for the suitability assessment and demands and needs test 587  

Source: Consortium.  

As regards the appropriateness assessment, the intervention logic follows a similar rationale. The 
appropriateness  assessment  was  introduced  in  order  to  ensure  retail  investors  do  not  invest  in 
financial products (in particular the too risky ones) or services that are not appropriate for them and 
to  assist  the  retail  investors  in  making  optimal  choices.  The  rules  require  that  investors,  when 
investing  on  their  own,  need  to  undergo  an  appropriateness  assessment.  If  the  result  of  the 
appropriateness  assessment  is  negative,  the  firm  must  warn  the  client  that  the  product  is  not 
appropriate.    The  desired  impact  is  that  retail  investors  are  warned  if  they  want  to  invest  in  a 
complex financial product, that is not appropriate for them.  

2.1.d - Product oversight and governance  

Relevant legal provisions and the scope of their application  

Product  oversight  and  governance  (POG)  requirements  aim  at  ensuring  that  the  interests  of 
customers take prime importance during product design and throughout the lifecycle of a financial 
instrument/product, including the arrangements for its distribution. 

The  POG  requirements  apply  to  investment  firms  and  insurance  undertakings  which  create, 
develop, issue  and/or  design  financial  instruments  or insurance  products  (manufacturing  stage). 
POG  rules  also  apply  to  investment  firms  and  insurance  distributors  which  distribute  financial 
products and investment services to clients (distribution stage). An investment firm or an insurance 
undertaking involved in both the manufacture and distribution of the relevant financial instruments 
or  insurance  products  will  need  to  apply  both  sets  of  requirements.  As  with  other  financial 
instruments, UCITS products are captured by MIFID and IDD POG rules, where distributed by 

587 As presented in the Retail investment study. 

272 

 
 
 
 
 
 
 
                                                           
MIFID  and  IDD  firms  or  by  asset  managers  providing  investment  services  under  MIFID.  This 
applies also to compliance with relevant rules for product manufacturers.   

The POG requirements under MIFID and IDD have the following main features in common: an 
obligation for firms to define   target markets for the financial products, to have a product approval 
process,  a  regular  review,  a  distribution  strategy,  and  to  exchange  information  between 
manufacturers and distributors. These requirements can be summarised as follows:  

•  A manufacturer of financial instruments/products or insurance products for sale to 
end-clients/customers shall maintain, operate and review a process for the approval 
of  each  financial  instrument  or  insurance  product  and  significant  adaptations  of 
existing financial instruments  or insurance products  before they are marketed or 
distributed to clients.  

•  The  product  approval  process  shall  specify  an  identified  target  market  of  end-
clients  within  the  relevant  category  of  clients/customers  for  each  financial 
instrument  or  insurance  product  and  shall  ensure  that  all  relevant  risks  to  such 
identified target market are assessed and that the intended distribution strategy is 
consistent with the identified target market.  

•  A  manufacturer  shall  also  regularly  review  financial  instruments  or  insurance 
products it offers or markets, taking into account any event that could materially 
affect the potential risk to the identified target market, to assess at least whether the 
financial instrument or insurance product remains consistent with the needs of the 
identified  target  market  and  whether  the  intended  distribution  strategy  remains 
appropriate.  

•  A manufacturer shall make available to any distributor all appropriate information 
on the financial instrument or insurance product and the product approval process, 
including the identified target market of the financial instrument/product. 

•  The product distribution arrangements shall aim to prevent and mitigate customer 
detriment and ensure that the objectives, interests and characteristics of customers 
are duly taken into account. 

While  these  main  requirements  are  almost  identical  across  MIFID  and  IDD,  there  are  different 
levels of granularity as regards the specific obligations that need to be fulfilled for each of them. In 
particular,  under  MIFID  there  are  explicit  obligations  for  manufacturers  to  assess  financial 
instruments’ risk and reward profile and costs vs performance of products588, whereas in IDD there 
are no specific provisions covering charging structures. MiFID II in particular requires from the 
manufacturers of financial instruments that the design of those instruments is driven by features 
that  benefit  the  client  and  not  by  a  business  model  that  relies  on  poor  client  outcomes  to  be 

588 See Article 9(12) of Delegated Directive (EU) 2017/593: Obligation to consider the charging structure 
proposed for the financial instrument, including by examining whether the financial instrument’s costs 
and charges are compatible with the needs, objectives and characteristics of the target market, that 
charges do not undermine the return expectations and that the charging structure is appropriately 
transparent for the target market. 

273 

 
 
 
 
 
 
                                                           
profitable589. Distributors, on their side, have to obtain from the manufacturers information to gain 
the necessary understanding and knowledge of the products they intend to recommend or sell in 
order to ensure that these products will be distributed in accordance with the needs, characteristics 
and objectives of the identified target market590. 

In addition to the MIFID/IDD rules, the UCITS directive sets out POG requirements for product 
manufacturers of UCITS funds. These requirements are implemented at different levels.  

Firstly, UCITS funds are subject to authorisation by NCAs on the basis of several requirements, 
including a clear strategy and an investment objective of the product. Before UCITS are authorised, 
NCAs are provided with information on fee structures and have the powers to assess whether these 
fee structures are suitable for the UCITS to meet its investment objective. NCAs make active use 
of these powers including for ongoing supervision. 

Secondly, UCITS management companies are subject to different product governance-type 
rules, notably the obligation to act in the best interests of investors. This includes ensuring 
that investors in UCITS are not charged undue costs591. They are subject to rules designed 
to minimise the transaction costs charged to the UCITS in implementing their investment 
decision592.  UCITS  management  companies  are  also  subject  to  rules  on  conflict  of 
interests. These rules are enforced through ongoing supervision. 

Thirdly,  the  UCITS  framework  requires  that  investment  products  are  subject  to  several 
levels  of  oversight,  the  first  being  that  of  senior  management  which  is  responsible  for 
checking the adequacy of internal procedures593, including the process for charging costs 
and fees and best execution/best selection rules. The second and third layers of control are 
the permanent compliance function and the permanent internal audit function. The UCITS 
framework  also  relies  on  a  strong  depositary  function,  entrusted  with  various  tasks594, 
including  oversight  that  applies,  among  others,  to  checking  whether  POG  rules  are 
respected. Depositaries are also subject to authorisation and supervision. Finally, UCITS 
framework requires appointment of financial auditors at the level of the UCITS and of the 
management company.  

Intervention logic of the measures concerning product oversight and governance  

589 Idem, Article 9(11)(b).  

590 Idem, Article 10(2). 

591 Based on Article 14(1)(a) and (b) of the UCITS, the management company shall: (a) act honestly and 
fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity of 
the market; (b) act with due skill, care and diligence, in the best interests of the UCITS it manages and the 
integrity of the market. Article 22(4) of the Commission Directive 2010/43/EU (UCITS Level 2 Directive) 
provides that Member States shall require management companies to act in such a way as to prevent 
undue costs being charged to the UCITS and its unitholders. These are further specified through ESMA 
supervisory briefing.  
592 Articles 26 and 27 of Commission Directive 2010/43/EU, similar to MIFID II best execution and best 
selection rules.  
593 Idem, Article 9. 
594 These obligations are set out mainly in Articles 22 to 26 of the UCITS. 

274 

 
 
 
 
 
 
                                                           
The legal provisions governing POG are set out across multiple legislative instruments. In order to 
facilitate the presentation of why an intervention was required on POG rules at European level, an 
intervention logic has been reconstructed, presenting the logical links between the different legal 
instruments, policy objectives and expected outputs, results and impacts. 

POG requirements were introduced to ensure that the needs and interests of retail investors are 
always at the centre of the lifecycle of a financial instrument/product. Specific POG requirements 
were  introduced  under  MIFID  and  IDD  to  ensure  that  the  products  that  enter  the  market  are 
appropriate for the types of investors to whom they are intended to be distributed, thereby ensuring 
that retail investors have access to good quality investment products.   

The rules require that manufacturers have policies and procedures in place for the approval of each 
product  and  the  defined  target  market  and  distribution  strategy.    Manufacturers  must  regularly 
review the financial instruments offered to the market to ensure they continue to be suitable for the 
target market and that all necessary information on the products is made available to the distributors 
that will sell the product. The desired impact is that manufacturers test and approve their products 
before they enter the market, and that the products are designed in a way that meets the needs of 
the intended market. As a result, the quality of the products distributed to retail investors should 
improve and products can better meet retail investors’ needs in terms of desired results.  

Figure.4 - Reconstructed intervention logic 

Source: Commission services 

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9. 

2.2 Point(s) of comparison  

The starting point to assess the effectiveness of the investor protection rules is the period 2014-
2016595, before the adoption of the legislation that now sets out the current framework of retail 
investor protection rules across the different sectors. While all legislative instruments aim to protect 
investors,  they  were  not  conceived  as  a  common  overarching  framework  and  were  subject  to 
sectoral differences. It is therefore more efficient to assess the points of comparison of the rules 
separately.  

Prior to the introduction of MiFID II, rules on disclosure of important information to clients 
were in place (e.g. on conflicts of interest), however they were more general and did not define in 
detail the type of information that should be disclosed to clients. 

In the area of inducements, the concept of independent advice, did not exist in the legal framework 
under MiFID. Inducements were allowed for all types of services.  

As  regards  suitability  and appropriateness  assessments,  rules  were  already  in  place  prior  to  the 
introduction  of  MiFID  II  to  ensure that  products offered to  clients  were  suitable  or  appropriate 
(depending on the service). The MiFID I regime was only marginally modified by MiFID II, and 
the overall philosophy and functioning of the framework was maintained.  

Prior to the introduction of MiFID II, product manufacturers were not required to define a target 
market  for  the  products  they  conceived,  and  there  were  no requirements  to ensure  that product 
manufacturing undergoes an approval process or that it is reviewed on a regular basis. This made 
it difficult for supervisors to ensure the quality of the products that enter the market.  

Prior to the introduction of the IDD, there were no specific information and conduct of business 
rules  for  the  distribution  of  IBIPs.  The  general  rules  on  disclosure  of  important  information  to 
customers (such as on conflicts of interest or costs) were not sufficiently detailed to ensure retail 
investors could make a fully informed decision. There was no obligation to disclose the amount of 
commission  or  other  inducements  an  intermediary  received  for  the  conclusion  of  an  insurance 
contract. Furthermore, the legal framework before the introduction of the IDD did not provide for 
a  general  duty  to  act  in  customers’  best  interests,  or  rules  on  investment  advice  such  as  the 
suitability  and  appropriateness  assessment,  nor  did  it  regulate  in  any  way  the  product  approval 
process. 

As  a  consequence,  there  was  a  significant  regulatory  difference  between  investment  products 
covered by MiFID and investment products with insurance elements that were subject to a more 
rudimentary legal discipline. This was seen as a serious gap in investor protection and an incentive 
to regulatory arbitrage. 

Prior to the introduction of the PRIIPs KID, disclosures on packaged retail investment products 
were uncoordinated and often did not help retail investors compare different products or understand 
their  features.  This  problem  was  especially  pronounced  for  more  complex  products,  that  are 
difficult  to  understand.  Consequently,  retail  investors  have  often  made  investments  without 

595 Markets in Financial Instruments Directive (MiFID II) - 2014/65/EU replaced the previous framework 
defined by MiFID I, adopted in 2004; Insurance Distribution Directive (IDD) (EU) 2016/97 replaced the 
previous framework defined by the Insurance Mediation Directive (IMD), adopted in 2002; PRIIPs 
Regulation No 1286/2014 was introduced in 2014.  

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understanding the  associated  risks  and costs and have,  on  occasion, suffered  unforeseen losses. 
They  may  also  have  lacked  confidence  and  refrained  from  investing.  Divergent  rules  on 
disclosures,  governed  by  different  product-specific  and  national  frameworks,  led  to  an  unlevel 
playing field between different products and distribution channels, and posed barriers to an internal 
market  in  financial  services  and  products.  They  also  left  unmitigated  powerful  asymmetries  of 
information between retail customers and the industry. 

More specifically596, product disclosures for UCITS funds were provided under the Key Investor 
Information (KII) of UCITS Directive, while other open-ended funds were only covered by high-
level product disclosure requirements for sale of financial instruments under MiFID (which also 
applied to UCITS, structured securities and closed-end funds). Unit-linked life insurance products 
were covered by Solvency II (CLD rules) and the Insurance Mediation Directive for some product 
disclosure requirements. Finally, there were no rules at EU level capturing structured term deposits. 
Most  disclosure  regimes  were  relatively  high-level  and  did  not  set  out  in  detail  the  form  and 
content, with the exception of the UCITS KIID regime. Moreover, there was substantial variation 
in product disclosures across EU Member States.  

The  UCITS  directive,  including  the  current  product  oversight  and  governance  rules  has  been 
unchanged since approximately the start of the reference period for the points of comparison of this 
evaluation (2014-2016). The most recent review of UCITS directive597 took effect in 2014 (“UCITS 
V”) and brought harmonisation and strengthening of some legal provisions related to retail investor 
protection,  such  as  the  function  of  the  depositary, remuneration  policies  of  UCITS  asset 
management companies, and relevant sanctions. Prior to the introduction of UCITS V, the rules 
under the UCITS framework did not provide sufficient protection of investors vis-à-vis managers 
of  UCITS  funds  and  their  depositaries  and  offences  by  UCITS  managers  were  not  always 
adequately sanctioned. 

3 

 HOW HAS THE SITUATION EVOLVED OVER THE EVALUATION PERIOD? 

10. 

Current state of play 

The  investor  protection  rules  are  currently  set  out  in  a  number  of  sector-specific  legislative 
instruments. For the analysis of how the situation has evolved during the period, we present below 
the state of play of these instruments and how they have been implemented: 

MiFID II 

Member States had to transpose Directive 2014/65/EU into national law by 3 July 2016 (extended 
to 3 July 2017). Under MiFID II, Member States are required to provide notifications in case of 
additional requirements that they may decide to impose on investment firms beyond those provided 
by  Directive  2014/65/EU.  Additional  requirements  are  only  permitted  in  two  areas  a)  the 
safeguarding of client assets (as referred to in article 16(11) of the directive) and b) the general 
principles of investor protection and the information to clients (as referred to in article 24(12)).  

596 See the Impact assessment on PRIIPs, notably the text on problem drivers and table 2.  
597 Directive 2014/91/EU  

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All Member States have communicated their full transposition of Directive 2014/65/EU. Following 
internal assessment and review of the completeness assessments provided by an external contractor, 
the state of completeness of the transposition is considered sufficient. DG FISMA is currently in 
the process of carrying out a conformity assessment of key provisions of MiFID II. There are no 
outstanding infringement cases or completeness examinations related to MiFID II itself598.  

IDD  

EU Member States had to transpose Directive (EU) 2016/97 into national law by 23 February 2018 
(extended to 1 October 2018). All Member States have communicated their full transposition of 
Directive  (EU)  2016/97.  Following  internal  assessment  and  review  of  the  completeness 
assessments provided by an external contractor, the state of completeness of the transposition is 
considered  sufficient  for  all  but  one  Member  State.  DG  FISMA  is  currently  in  the  process  of 
carrying out a conformity assessment of the Directive. 

The IDD is a minimum harmonisation directive, allowing Member States to introduce additional 
provisions  or  to  bring  additional  activities  into  the  scope  of  the  legislation.  The  IDD  does  not 
prevent Member States from keeping or introducing more stringent provisions, as long as they are 
consistent with the directive. This is explicitly confirmed by specific provisions covering stricter 
requirements on inducements (including a ban) and rules on mandatory advice. The Directive also 
states explicitly that where a Member State has decided to impose stricter provisions in its national 
transposition, these requirements have to be complied with by all distributors selling products to 
customers residing in the relevant Member State, including distributors from other Member States 
operating under the freedom to provide services or the freedom of establishment. EIOPA has also 
issued guidance on transposition and compliance in the form of Q&As.  

PRIIPs 

The PRIIPs Regulation ((EU) No 1286/2014) aims to improve the transparency and comparability 
of  investment  products  across  the  EU  through  key  information  documents  (KIDs).  PRIIPs  is  a 
regulation, hence the rules did not need to be transposed. The contents and presentation of the KIDs 
have been further developed through secondary legislation and ESA guidance.  

After consulting with the European Commission and European Parliament, the rules on KIDs were 
published as Commission Delegated Regulation (EU) 2017/653 and came into force on 1 January 
2018. Since then, KIDs  must be provided by those producing or selling investment products to 
retail investors. 

Important  changes  to  PRIIPs  secondary  legislation  have  very  recently  taken  effect  (1  January 
2023), through an amended RTS. The disclosure rules of the new Regulatory Technical Standards 
are designed to make the PRIIPs KIDs fully applicable for UCITS. Due to the very recent entry 
into  application  of  the  RTS,  there  is  not  yet  sufficient  experience  with  their  application  of  the 

598 However, MiFID II has been amended and supplemented on a number of occasions. More recently 
introduced directives part of the MiFID package, such as the Capital Market Recovery Directive and the 
Delegated Regulation and Directive relating to the integration of sustainability factors are in the early 
stages of transposition assessment. In relation to others, namely Directive (EU) 2019/2177 and Directive 
(EU) 2020/1504, there are ongoing infringement cases for non-transposition against a small number of 
Member States.  

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changes599 it introduced that would allow to assess their effectiveness, efficiency and coherence 
hence, they are excluded from this review.  

UCITS 

The most recent review of UCITS directive took effect in 2014 (“UCITS V”)600 with a deadline for 
the  transposition  in  national  legal  systems  of  18  March  2016.  All  Member  States  have 
communicated  the  national  provisions  transposing  UCITS  V  by  now.  Following  internal 
assessment and review of the completeness assessments provided by  an external contractor, the 
state  of  completeness  of  the  transposition  is  considered  sufficient.  With  regards  to  conformity 
checks,  the  outstanding  issues  have  been  assessed  based  on  the  clarifications  from  the  national 
authorities. In few cases, the informal exchanges concluded that minor amendments to the national 
laws  were  required  in  order  to  ensure  conformity  with  UCITS  V  Directive.  UCITS  V  is  now 
considered fully transposed and implemented across EU Member States. Amendments to UCITS 
since then include changes on cross-border distribution rules601, where transposition checks are still 
ongoing. Finally, some amendments are currently under negotiation as part of the AIFMD review602 
to ensure that the same MIFID product governance rules would apply when investment funds are 
distributed directly by asset managers providing investment services. 

4 

EVALUATION FINDINGS (ANALYTICAL PART) 

4.1 To what extent was the intervention successful and why?  

Has the retail investment framework been overall successful in improving investor protection?  

Overall, the EU legal framework was designed to ensure investor protection. The EU legislative 
actions over the period 2014-2016 across the different financial services (see table 2.2.1) introduced 

599 The amended RTS notably has brought the following changes:  

 

 

 

 

new methodologies for calculating appropriate performance scenarios and a revised 
presentation of the scenarios, with a view to ensuring that retail investors are not provided with 
inappropriate expectations as to possible returns; 
revised summary cost indicators and changes to the content and presentation of information on 
the costs of PRIIPs, to allow retail investors to better understand the different types of cost 
structure and to facilitate the use of this information by persons advising on or selling PRIIPs; 
a modified methodology for calculating transaction costs, to address practical challenges that 
have arisen when applying the existing rules, and issues regarding their application to certain 
types of investment; 
provisions in respect of past-performance information for certain types of UCITS, retail AIFs and 
insurance-based investment products. 

600 Directive 2014/91/EU amending Directive 2009/65/EC on the coordination of laws, regulations and 
administrative provisions relating to undertakings for collective investment in transferable securities 
(UCITS) 
601 Directive 2019/1160/EU amending Directives 2009/65/EC and 2011/61/EU with regard to cross-border 
distribution of collective investment undertakings. 
602 Information about the 2021 AIFMD review is available at: https://ec.europa.eu/info/law/better-
regulation/have-your-say/initiatives/12648-Financial-services-review-of-EU-rules-on-alternative-
investment-fund-managers_en.  

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changes that included new elements and aimed to move towards a more integrated EU market and 
increased investor protection.  

The framework has to a certain extent achieved its objectives to increase investor protection.  The 
details  of  the  analysis  are  presented  in  the  sections  below  per  area  of  focus  (disclosures, 
inducements, suitability and product oversight and governance). In addition, according to the public 
consultation603, slightly more than half of the respondents (52%), were of the view that the current 
framework sufficiently empowered and protected retail investors. 

However, when looking at where there might be scope for improvements to the framework, the 
areas identified in the public consultation by the respondents were: 

 
 

 

 

financial literacy (supported by all groups),  
improvements  to  the  disclosure  requirements,  clear  preference  of  consumer 
organisations and NGOs, also priority area according to respondents from public 
authorities, 
the  suitability  and  appropriateness  assessment,  clear  preference  of  consumer 
organisations and NGOs, and 
inducements and quality of advice, clear preference of consumer organisations and 
NGOs, also priority area according to respondents from public authorities. 

To  further  determine  whether  the  intervention  has  been  successful,  we  have  assessed  the 
effectiveness, efficiency and coherence of the four areas that are captured below, and how the rules 
in these areas contributed to improving the investor protection with the aim of identifying potential 
areas of improvement.  

4.1.1 More specifically, have the disclosure rules been successful in 
improving information for retail investors? 

Effectiveness 

The  key  elements  identified  in  the  retail  study  for  the  assessment  of  the  effectiveness  of  the 
framework on disclosures rules are the following: 

Availability  and  accessibility:  Information  documents  are  generally  available  and  accessible 
when  a  consumer  searches  for  them.  However,  the  use  of  information  documents  when 
firms/advisors give information to retail investors varies. Under the current legal requirements, pre-
contractual information should be disclosed “in good time” before the retail investor is bound by 
any contract or offer relating to the product or service604. However, in practice, the documents are 
not systematically provided to potential clients at a very early stage of their investor journey. Only 
54% of mystery shoppers received a key information document or were referred to one online when 
they were simulating the first contact with an advisor. It is possible that these advisors might have 
provided the document at a later stage, which would however be too late to inform the decision-
making. Even when provided with the document, mystery shoppers were only very rarely given 
time to read it. While all these practices  may comply with the general requirement of “in good 

603 See Annex 2 for the summary of the results on stakeholder consultations. 
604 PEPP, MiFID II and PRIIPs further specify at which point in the retail investor journey this disclosure 
occurs. 

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time”, in practice, if disclosure information is provided at the end of the process or at the time of 
the contract signature, it is likely that it will not allow retail investors to make informed decisions. 
There is therefore a certain ambiguity in the definition of “in good time” which is intended to ensure 
that KIDs and KIIDs are used as the main resource for the consumer’s decision-making. This is 
also highlighted in recent case law (Judgment of 24 February 2022 in Joined Cases C-143/20 and 
C-213/20, A and others (’Unit-linked’ Assurance Contracts), ECLI:EU:C:2022:118, point 116). 
Furthermore, a substantial proportion of shoppers were provided with multiple documents, thus 
contributing  to  information  overload.  Furthermore,  as  indicated  by  the  Joint  Committee  of  the 
ESAs, the PRIIPs KID is not always easy to find on the PRIIP manufacturers’ website605.  

While many regulatory disclosures focus on the pre-contractual stage, periodic ex post disclosures 
to retail investors, focusing on the costs and performance of the products in their portfolio, are more 
limited. As identified in EIOPA’s advice on retail investor protection, in the area of IDD, some 
Member States have developed national practices beyond the outdated rules in Solvency II, but 
there is currently no common standard for ex post periodic disclosure in EU legislation which might 
improve  the  comparability  of  different  IBIPs  and  help  inform  investors  about  the  costs  and 
performance  of  their  portfolio.  Both  the  MiFID  and  IDD  rules606  require  investment  firms  and 
insurance distributors to provide investors with annual information on costs and charges related to 
financial  instrument(s),  investment  and  ancillary  services  and  IBIPs.  However,  as  regards 
investment  services,  this  requirement  only  applies  to  situations  where  there  is  an  ongoing 
relationship  between  the  client  and  the  investment  firm.  The  same  report  does  not  cover  the 
performance  of  the  investor’s  portfolio,  taking  into  account  the  performance  of  the  financial 
products and the costs and fees borne by the investor.  

As a result, a significant number of investors do not receive appropriate ex-post information in an 
easily accessible and comprehensible way, which limits their possibilities to effectively monitor 
the developments of the investment product purchased, including performance and costs paid.   

Completeness  and  complexity  of  information:  According  to  the  retail  study,  disclosure 
documents  such  as  the  PRIIPs  KID  capture  relevant  information  that  retail  clients  need  to 
understand investment products and that allows them to choose between products. When a sample 
of disclosure documents was checked, the majority were compliant, complete in terms of items 
covered  and,  in  most  cases,  up-to-date.  Where  disclosure  frameworks  such  as  PRIIPs  have 
standardised  the  information  to  be  provided  to  investors,  such  as  in  case  of  IBIPs,  profit 
participation products or structured products, the study noted a higher degree of completeness than 
for  those  products  that  are  not  subject  to  PRIIPs,  such  as  securities,  traditional  life  insurance 
products  and  pension  funds.  Hence  from  the  perspective  of  completeness,  PRIIPs  and  other 
disclosure  frameworks  have  contributed  to  improving  information  for  retail  investors.  A  list  of 
items  that  need  to  be  included  in  KIDs  (or  KIIDs)  has  also  contributed  to  this.    Although 
standardisation  (using  common  reference  points  for  comparison  such  as  standardised  risk 
indicators) covers some items that improve understanding, it does not overcome the complexity of 
the terminology nor that of costs. This complexity, even when presented in a standardised manner, 
inhibits understanding. There is limited focus on situations in which the disclosure document is to 
be used and which might help retail investors in their decisions. 

605 Page 32 of Advice of the ESA joint committee on PRIIPs. 
606 Delegated Regulation (EU) 2017/565 Article 50.9, Article 29(1). 

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Readability  and  user-friendly  presentation:  In  order  improve  understanding  of  investment 
products, disclosure documents also need to present information in a user-friendly manner that is 
engaging and captures their attention. However, only around half of the information documents 
reviewed as part of the study contained nudges for reading, and only around half of the mystery 
shoppers who received an information document were verbally encouraged to read it. The review 
of  information  documents  shows  that  they  are  rarely  engaging,  and  that  their  layout  is 
frequently  very  dense  and  therefore  not  reader-friendly.  Furthermore,  presentation  of  the 
contents of disclosure documents, notably the PRIIPs KIDs is static, presented in a single document 
and does not allow layering of information or interactivity to enable users to engage with them 
according to their needs. This may imply missed opportunities to present the document in more 
user-friendly ways. 

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Retail study: behavioural experiment on perception of simplified information documents by 
consumers 

During the behavioural experiment conducted as part of the retail study, retail investors were 
exposed to a simplified one-page information document and asked to give feedback on the 
documents reviewed on the basis of four criteria (ease of understanding; volume of numbers and 
figures (proxy for complexity); overall layout and presentation (proxy for engagement); usefulness of 
information). The simplified document that was assessed is much shorter than the documents that 
are actually observed in the market, which are in practice much longer than one page. 

The ease of understanding of the documents shown was rated the least favourably of the four 
criteria. On a ten-point scale whereby 1 is very bad and 10 is very good, the average score was 
slightly above the mid-point – 6.1. Some differences in the rating of these mock-up documents by 
subgroups were noted:  

1.  people with savings, no investments but looking to invest rated the ease of understanding 

most positively, even though it was still below 7 – average score 6.65; but  

2.  people with savings, but not interested in investing rated the ease of understanding the worst – 

average score 5.68 (i.e. 1 point below the segment of people searching to invest);  
3.  people with high trust in banking rated the ease of understanding relatively high (7.59) 

compared with those whose trust rating of banking is low (5.09);  

4.  older age groups considered the documents to be less clear than younger age groups;  
5.  risk-averse individuals rated the documents as more understandable than those seeking risk 

6. 

exposure (6.4 versus 5.54);  
the differences according to level of education or financial literacy scores were much 
narrower, with the trust and interest in investing variables recording the greatest differences. 

The complexity of the documents, as measured by the perception of respondents of the volume of 
numbers and figures, was also rated as middling – 6.51 on a scale of 1 (very bad) to 10 (very good). 
The documents were already simplified. With regard to differences among subgroups the following 
were observed: 

7.  people seeking to invest considered the volume of numbers and figures more positively (6.9) 
than those who were not interested in investing (6.14), while the other segments were in-
between;  
those with trust in banking considered complexity most positively (7.78 versus 5.74 for those 
with low levels of trust).  

8. 

The layout and presentation of the documents were used as a proxy for the engaging character of 
the documents. Engagement is a precondition for people to actually read the disclosure documents. 
This in turn is a prerequisite of effectiveness. The score for the layout of the documents was also 
middling – 6.43.  

Clarity  of  information:  According  to  the  retail  study,  information  in  the  documents  is  clearly 
presented,  accurately  labelled  and  correctly  structured.  There  were  notable  differences  between 
products,  with  information  on  UCITS  funds  and  IBIPs,  which  corresponded  to  a  majority  of 

Finally, usefulness of the documents was rated below 7 points. The average score for the perceived 
283 
usefulness of information presented was 6.74. Only a small number of people chose the bottom 
three options (5%), while the majority chose the middle scores (60%). Young people, those who are 
risk averse, those with a high level of trust in banking and those interested in investing, considered 
the information as more useful compared with other segments.  

 
 
 
 
 
 
 
 
 
 
 
products covered by KIIDs or KIDs, being generally clearer, and information on traditional life 
insurance and pension funds, which are not subject to a PRIIPs KID, being significantly less clear. 
It can be deduced that the specifications for the titles and content of different sections that must be 
completed by the product manufacturer in KIID and KID templates have contributed to greater 
clarity. Comparative to other elements of disclosure, the study concluded that information on costs 
was  complex  and  sometimes  inconsistent,  making  comparison  and  use  challenging  for  retail 
investors.  A  specific  issue  was  identified,  notably  in  case  of  KIDs  for  Multi-Option  Products 
(“MOPs”), which consist of a wrapper (insurance contract) and an underlying investment, where 
clients choose between multiple options (e.g. whether returns are linked to S&P500 index, Stoxx 
Europe 600 or several specific shares). The Advice of the ESA joint committee on PRIIPs confirms 
that it is difficult for the investor to identify the total costs related to a particular investment option 
and information on the underlying investment option typically does not include the total costs of 
investing in that option. This hinders retail investors’ ability to understand costs related to these 
products and hence reduces the effectiveness of PRIIPs KIDs for this market segment.  

Comparability  of  information:    Even  though  according  to  the  Retail  investment  study  the 
comparability  of  information  documents  was  generally  rated  lower  than  the  clarity  of  the 
information provided, notably across product categories, it is evident that the application of the 
regime around disclosures has improved comparability and understandability of products through 
information documents. Comparability is relevant to the market, as the consumer survey conducted 
as part of the retail investment study showed that 76% of those who hold at least one investment 
product do make comparisons before making their choice: 40% compared products of the same 
type, while another 36% compared different types of products. The type of information included 
in the information documents (products description, risk, past and expected future performance, 
costs, holding period) contribute to consumer understanding and are relevant in driving consumer 
choices,  as  confirmed  by  the  results  of  a  questionnaire  in  the  retail  study.  The  transparency  of 
information provides evidence that can be used in the event of any litigation.  

Decision-making:  The  behavioural  experiment  conducted  as  part  of  the  study,  using  already 
simplified  versions  of  the  product  information  documents,  demonstrated  the  limits  of  the 
effectiveness  of  disclosure  when  it  comes  to  supporting  retail  investors’  decision  making. 
Simplified information documents, for certain products such as UCITS and insurance products, 
were  effective  in  supporting  optimal  choice,  similar  to  the  status  quo.  Such  documents  were 
however not as effective where more complex products were involved, and with which people were 
not familiar. Financial literacy also plays a role in this regard.  

Overall, disclosure rules have led to improved and more comparable documents for retail investors. 
However,  weaknesses  were  identified  with respect  to  accessibility  of  the  documents during  the 
advice process and with their readability and lack of user-friendly presentation. The complexity of 
the information, in particular relating to costs, inhibits understanding. Documents are also rarely 
engaging, and their layout is frequently very dense and therefore not reader-friendly. While they 
contain relevant information that can guide investor decisions, these weaknesses hinder, to a certain 
extent, the actual use of such information by retail investors in their investment journey.  

With  respect  to  marketing  communications,  the  current  rules  under  the  MiFID  and  IDD 
frameworks require inter alia that marketing communications are clearly identifiable as such and 
that  the  information  they  contain  is  consistent  with  any  information  the  distributor  provides  to 
investors in the course of providing investment services. However, in terms of the effectiveness of 

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these rules, ESMA607 has indicated that there may be confusion in how the definition of marketing 
communications is applied, and whether online advertising and firms’ private messages to clients 
and potential clients on social media fall under this definition608, both when communicated directly 
by  the  firm  or  through  third  parties’  social  media  (i.e.  finfluencers  who  operate  on  behalf  of 
financial service providers). Marketing communications, particularly in the online environment, 
may also tend to overemphasize the potential benefits of the product and hide information on costs 
and risks.609   

The PRIIPs regulation requires marketing communications to avoid inconsistencies with 
KIDs  or  prohibit  them  from  reducing  its  significance.  Limited  information  is  available 
from  supervisors  regarding  the  efficiency  of  this  rule610.  Nine  NCAs  do  not  supervise 
marketing  documents  and  six  NCAs  reported  no  material  differences  between  PRIIPs 
marketing materials and the KID. Meanwhile, two sources of evidence – responses to the 
call for evidence and a mystery shopping exercise conducted by one NCA – indicated that 
distributors tend to focus on marketing documents in the sales process, instead of the KIDs. 

Efficiency 

According  to  the study,  the  efficiency  (cost-effectiveness)  of requirements regarding  disclosure 
through information documents is high, also considering the overall attainment of the objective of 
increasing retail investor protection that has been described above. The study estimated that total 
ongoing  costs  for  all  three  main  product  categories  (investment  funds,  pension  products  and 
insurance products) are approximately 570 million euro per year. When estimating the cost per 
client, we calculate a unit cost of €3.86. The estimated cost represents approximately 0.0017% of 
the net asset value. In addition, there are several lesser issues with regard to legal clarity, such as 
whether PRIIPs applies to certain types of corporate bonds, which could be addressed to further 
improve efficiency.  

Coherence 

Overall,  the  requirements  for  format,  readability,  clarity,  conciseness,  language  use  and 
comprehensive  coverage  are  coherent  across  the  different  legislative  texts.  The  key  elements 
relating  to  disclosures  that  have  been  identified  in  the  retail  study  for  the  assessment  of  the 
coherence of the framework are: 

Means  of  information  communication:  All  EU  legislative  texts  include  the  option  to 
communicate the pre-contractual information through various means, i.e. on paper, on a durable 
medium other than paper under certain conditions, and on a website under certain conditions. The 
different 
inconsistencies  and 
impracticalities, such as when one information document is provided to the retail investor in paper 
format, while another is available only online. This provides evidence of the need to make changes 
to the regulatory framework to increase coherence across the different legislative texts. It is also 
linked to the increased need for digitalisation of financial services disclosures. The ESAs have also 

requirements  across 

framework  created 

legislative 

the 

607 ESMA advice on retail investor protection, page 9. 
608 ESMA advice on retail investor protection, page 9, point 21. 
609 ESMA advice on retail investor protection, pages 10 and 14. 
610 Advice of the ESA joint committee on PRIIPs. 

285 

 
 
 
 
 
 
                                                           
concluded  that  digitalization  trends  are  not  adequately  captured  and  that  although  the  current 
framework  is  “supposed  to  be  technology-neutral,  it  was  mainly  designed  without  considering 
digital distribution, and certainly before the “app-revolution611”. Likewise, the Retail investment 
study also suggested the need for greater emphasis on the digital environment612. Disclosures that 
would be digitally adapted would allow for minimisation of information overload (through layering 
of  information)  and  for  greater  accessibility  in  the  growing  digital  distribution  channels.  But 
disclosure rules currently differ in this aspect - while some more recent legal frameworks such as 
the PEPP cater greater digital use of key information documents, PRIIPS has not been similarly 
adjusted yet.  

The figure  below  (presented  in  the  retail investment  study)  shows  the  relationship  between the 
volume of disclosure and retail investor understanding of the products.  

Figure 5: relationship between the volume of disclosure and retail investor understanding of 
the products 

Informational  requirements  and  methodology:  the  requirements  regarding  the  introductory 
section  of  pre-contractual  disclosure  documents  are  broadly  coherent.  Some  overlapping 
information requirements are present in EU legislation related to the sale of IBIPs (also underlined 
by  EIOPA).  EIOPA  made  specific  recommendations  for  addressing  duplication  (overlapping 
information requirements) by targeted interventions in Solvency II, IDD and the DMFSD (Distance 
Marketing for Financial Services Directive). With regard to the methodologies for calculating risks, 
some concerns were expressed, during the interviews conducted as part of the study, regarding the 
comparability  of  performance  disclosure  in  the  PRIIPs  KID  for  its  application in  the  insurance 
sector. However, elements of PRIIPs KIDs related to presentation of cost and performance have 
been recently amended through secondary legislation, applicable from January 2023, so it will take 
several years before sufficient experience is accumulated to properly assess whether these changes 
have been effective. Interviewees expressed concern that the KID requirements were developed for 
investment funds and were ill-adapted to insurance products. Some interviewees mentioned certain 

611 Advice of the ESA joint committee on PRIIPs, page 43, para 3.5.1 and EIOPA advice on retail investor 
protection, page 36. 
612 Retail investment study, pages 15 and 106. 

286 

 
 
 
 
 
 
 
                                                           
elements specific to insurance-based investment products (biometric risk coverage) that do not find 
an appropriate placeholder in the KID.  

Comparability of costs: The study shows that the comparability of costs across products has not 
(yet) been achieved and that retail investors face uncertainties. The differences relate mainly to 
technical aspects, such as the reference period, methodologies, etc. and to reconciling the overall 
costs with the breakdown of the costs. Another example (as a challenge to internal coherence of 
the  PRIIPs  framework)  are  the  difficulties  for  retail  investors  to  compare  total  costs  of  MOPs, 
which is described under effectiveness. Practical incoherence has also been mentioned in ESMA’s 
Technical  Advice. The incoherent  practices in the  application  of  the  current framework  largely 
diminish the usefulness of disclosures on their investor journey.   

4.1.2: More specifically, have the rules on inducements and advice 
been successful in reducing conflict of interest problems? 

Effectiveness 

Rules on inducements were introduced in order to tackle the problem of conflicts of interest at the 
level  of  the  intermediary,  which  are  inherent  in  the  “commissions-based”  distribution  model. 
Financial  intermediaries  receive  remuneration  from  persons  other  than  retail  investors  for  the 
products they are recommending and selling to them. These conflicts of interest can be significant 
since  remuneration  through  inducements  can  represent  an  important  portion  of  the  incomes  of 
intermediaries.  

The key elements related to rules on inducements and advice that have been identified, inter alia 
in the Retail investment study, for the assessment of the effectiveness of the framework are: 

 

the legal provisions regarding the disclosure of inducements are not being fully 
implemented and reduce the usefulness for investors’ decision-making:  

o  The  information  documents  analysed  rarely  contain  explicit  information 
about inducements613. In order to identify information about inducements, 
it is necessary to search in other types  of documents, and even there this 
information is not provided in a clear and direct manner. 

o  Costs disclosed by product manufacturers do not specify the share of the 
costs  that  are  linked  to  the  payment  of  inducement  to  distributors. 
Therefore, when considering disclosure from product manufacturers, end-
investors are not in a position to quantify the extra cost linked to the fact 
that the product they buy is subject to inducements.  

o  As  the  amount  of  inducements  is  directly  decided  and  paid  by  product 
manufacturers,  distributors  are  usually  only  in  a  position  to  disclose  the 
general conditions surrounding inducements to end-investors. 

o  Inducements are also frequently not disclosed during client conversations 

as observed during the mystery shopping.  

  The rules on disclosure of inducements aimed at ensuring retail investors would 
be made aware of the advisor’s potential gains from the sale of a given product and 

613 The references to inducements are often implicit. In most product information sheets only one line is 
included in the costs disclosure along the lines of: “This also includes the costs of selling and marketing 
the product” or “This includes the cost of distributing your product”.  

287 

 
 
 
 
 
 
 
                                                           
thus  contribute  to  better-informed  choices.  However,  according  to  the  survey 
conducted as part of the study, most retail investors do not understand the concept 
of  inducements  (only  36%  of  respondents  chose  the  correct  statement  about  the 
meaning of inducements). Retail investors are also primarily concerned with the 
overall product costs, and not the costs of selling the product (inducements) that 
are being passed on to them. Such disclosures can still be important, as they can 
increase  competition  between  manufacturers  and  distributors  and  lead  to  lower 
prices  and  allow retail investors to  seek  redress  if they  feel that the advice they 
received was inappropriate. However, disclosure of inducements does not appear 
to  make  substantial  difference  to  a  consumer’s  informed  choice  as  it  does  not 
sufficiently address the inherent conflict of interest. 

Professional advice as part of the consumer journey  

As part of the retail study, a segmentation of consumers surveyed in 10 countries was performed, 
according to a number of characteristics which are likely to make them more or less vulnerable 
when faced with inadequate advice. Five consumer segments were identified, two of which relate to 
consumers not able or disinterested in investing1 The other three segments of consumers who are 
considering investing or have made investments are shown in the figure below.  

These segments show that the consumer needs and expectations vis-à-vis professional advisors 
differ. Experienced and confident investors are much more likely to make their own decisions, 
possibly using digital tools allowing comparison or robo-advisors. In contrast, vulnerable potential 
investors are likely to seek and follow advice as they do not trust their own decision-making 
capacity. This further reinforces the need to ensure that the quality of advice is adequate and can 
help boost the trust of retail investor in the financial markets. 

In  terms  of  the  impact  of  the  rules  on  consumer  behaviour  and  choice,  the 
behavioural experiment, conducted as part of the Retail investment study, found 
that:  

o  The inclusion of a statement about inducements in financial advice is only 
marginally likely to influence the consideration paid by retail investors to 

 

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the  products  and  their  information  documents.  In  the  experiment,  when 
consumers  received  advice  (good  or  bad)  which  included  a  product 
recommendation  and  a  warning  about  inducements,  they  were  in  fact 
slightly  less  likely  to  go  back  and  review  the  product  information 
documents  than  they  were  in  the  other  scenarios  tested.  The  mention  of 
inducements  did  not  appear  to  make  consumers  more  cautious  about  the 
advice received.   

o  People tend to follow the advice they receive, even when the advice is bad. 

They do so despite the different types of warnings tested.  

o  When comparing different forms of disclosure about inducements, it was 
observed that the effects of the different forms on consumer choice are not 
very significant. 

  The introduction of MiFID II rules on advice does not appear to have triggered 
a  shift  towards  more  independent  advice  nor  increased  the  market  share  of 
independent  advice.  Except  in  the  Netherlands  where  independent  advice  has  a 
strong  market  share,  in  other  countries  the  trend  remains  towards  largely  non-
independent  advice.  In  other  countries  independent  advice  remains  relatively 
limited  and  tends  to  focus  on  private  or  high  net  worth  individuals.  Non-
independent  advice  remains  the  prevalent  model  for  distributors  of  retail 
investment products in the EU614 among banks, asset/fund managers and insurance 
companies active in the EU and is more commonly used than independent advice 
to  distribute  products.  While  in  the  US  and  the  UK,  there  has  been  an  organic 
development and growth of disintermediated advice, in countries such as Germany, 
Spain,  Italy,  the  Netherlands,  where  their  capacity  to  penetrate  well-established 
markets  is  lower  there  is  only  a  small  share  of  independent  financial  advisors 
(IFAs).  

  Regarding the significance and volume of inducements, the Retail investment study 
showed, on the  basis of  those documents that  actually  contained information  on 
inducements,  that  inducements  have  a  significant  value.  On  average,  for  the 
products  in  the  sample,  inducements  were  equivalent  to  about  40%  of  the  total 
product  costs  charged  to  the  retail  investor.  The  application  of  inducements  is 
reflected in higher costs for retail investors. The cost of the inducements seems to 
be  passed  almost  entirely  on  to  retail  investors,  with  the  products  on  which 
inducements are paid being – on average - about 24-26% more expensive than those 
investment products on which no inducements are paid615. A study conducted by 
EFAMA616 showing that distributors receive around 38% of the costs paid by retail 
investors through retrocessions (both for actively and passively managed funds), 
would appear to confirm those figures. ESMA has also indicated in its 2019 Cost 
and  performance  report617,  that  for  UCITS  funds,  the  total  costs  present  a 
significant  drain  on  the  fund  performance,  impacting  retail  investors  to  a  much 
higher extent than institutional investors (as retail clients on average pay twice as 

614 Retail investment study, page 232. 
615 Retail investment study, page 263. 
616 European Fund and Asset Management Association,  EFAMA Market insight, September 2021.  
617 ESMA Cost and Performance Report 2019. 

289 

 
 
 
 
 
 
                                                           
much as institutional clients), with costs on average accounting for 25% of gross 
returns in the period from 2015 to 2017. It is clear that the current rules have not 
(yet)  resulted  in  a  market  where  retail  investors  receive  better  value  for  money, 
thanks to lower inducements.  

  As part of the Retail investment study, the rules on inducements and advice were 
further assessed by reviewing whether advisors act in retail investor’s best interest 
through  a  mystery  shopping  exercise.  The  exercise  assessed  the  information 
provided during conversations when informing or advising about a product(s), 
including providing them with product recommendations that match their profile 
and with the information they need so as to make the optimal decision about product 
in which to invest. The exercise concluded that the most important product features 
were  not  systematically  covered  when  providing  information  during  the  advice 
sessions (whether in the case of traditional channels or robo-advisors). The results 
are summarised in the table below:  

Figure.6 - Summary overview of items covered by advisors during first conversations 
about products and robo-advisors  

A  similar  study  was  carried  out  in  2018  by  Deloitte  on  request  of  the  European 
Commission, which also featured a large mystery shopping data collection exercise. 
The 2018 study analysed only the provision of information about risks and costs and 
presented a more positive picture618 of the situation than the findings presented in the 

618 As part of the exercise performed in the Deloitte study, information about past experience with 
investments was asked about in a much higher number of cases (between 77% and 100% of observations 
reported being asked about this). However, some of the differences could be due to the mode of mystery 

290 

 
 
 
 
 
 
 
                                                           
retail investment study. However, the 2018 Deloitte study also found notable gaps with 
respect to costs and charges that were not discussed in a significant minority of cases 
and, in some cases, risks were also not covered. 
  With respect to insurance-based investment products, a report by EIOPA619 found 
that monetary incentives from asset managers (managing the assets of unit-linked 
insurance products) to insurance companies are widespread and significant in the 
industry,  totalling  EUR  3.7  billion  in  2015.  According  to  EIOPA,  monetary 
incentives  and  remuneration  received  represented  a  median  value  of  0.56%  of 
assets under management (46% of fund management charges). A large majority of 
the  insurance  undertakings  did  not  disclose  these  monetary  incentives  and 
remuneration to  the policyholders, nor did  they  pass  these incentives on to  their 
clients.  According  to  EIOPA,  these  incentives  may  limit  the  choice  for 
policyholders and result  in  poor investment  outcomes, in  particular  for products 
with long investment horizons, as underlying investment vehicles may be chosen 
on the basis of the highest  level  of monetary incentive and  remuneration, rather 
than relevance or competition.  
In  addition,  consumer  and  financial  user  organisations,  such  as  BEUC,  Better 
Finance and Finance Watch620, have complained that the existing safeguards are 
not  sufficient  to  prevent  mis-selling,  as  financial  incentives  lead  to  the  sale  of 
investment products and services to retail investors that are not suited to their needs 
and/or  which  are  too  costly  or  underperforming,  causing  significant  consumer 
detriment.  

 

  Evidence suggests that in many jurisdictions certain simple and cheap investment 
products occupy a limited market share and are seldom offered or recommended to 
retail investors, compared to more expensive and complex products. Commissions 
can be an important incentive to offer specific products (so-called “product bias”), 
for example, where the fund commission can be ten times higher for an actively 
managed  fund  as  compared  to  an  index  fund,  generating  significant  conflicts  of 
interest621.  The  Commission’s  study  on  distribution  systems  of  retail  investment 
products622  found  that  low-cost  ETFs623  (which  typically  carry  low  costs)  are 
among the most commonly available products on websites in many Member States, 
but  in  some  Member  States  are  almost  completely  absent  from  traditional 
distributors’  online  offering.  Although  marketed  online,  low-cost  ETFs  were 
almost  never  proposed  in  traditional  physical  advice  distribution  channels.  The 

shopping conversations which included exclusively face-to-face mystery shopping visits while for the retail 
investment study a mixed model was used intended to reflect the fact that consumers are searching for 
advice and information about products from home and are not necessarily making physical appointments 
during the product “shopping around” phase.  
619 EIOPA, Report on Thematic review on monetary incentives and remuneration between providers of 
asset management services and insurance undertakings, 26 April 2017.  
620 Better Finance Evidence paper on the effects of inducements, BEUC work on the price of bad advice, 
Consumer organisations’ Open Letter on the Retail Financial Services Action Plan. 
621 2022 Consumer Protection Report, Swedish Finansinspektionen (FI), page 16. 
622 Study on distribution systems of retail investment products, page 33. 
623 Exchange Traded Funds which often provide index tracking or other exposure to markets.   

291 

 
 
 
 
 
 
                                                           
Retail  investment  study  found  that  low-cost  ETFs  have  gained  market  share  in 
certain  Member  States  (e.g.  Finland,  the  Netherlands  and  Poland),  but  remain 
marginal in other countries such as France624, where comparatively more expensive 
products, such as life insurances, were advised in the majority of cases625. While it 
is  clear  that  these  more  expensive  products  carry  different  features  and  benefits 
which may be suitable for some groups of retail investors, desk research, based on 
data provided by ESMA and EIOPA, provides an illustration as to how an investor 
investing  EUR  10,000  in  a  unit-linked  insurance  product  in  the  period  between 
2014  and  2020  would  have  achieved  a  significantly  lower  outcome  than  by 
investing in ETFs (EUR 2,200 versus EUR 7,600)626. 

  The  European  Court  of  Auditors  (ECA)  concluded  in  its  special  report  on 
investment  funds627  that  European  legislation  in  relation  to  (the  distribution  of) 
investment funds had not delivered the expected gains for investors, such as lower 
fees  through  competition  and  innovation,  or  access  to  more  products.  Costs 
continued  to  be  high  and  investors  were  still  not  sufficiently  protected  against, 
among  other  things,  biased  advice  from  financial  intermediaries  incentivised  by 
inducements. The ECA recommended that the European Commission should better 
protect retail investors, in particular through stricter rules on inducements.  

Overall,  the  rules  on  inducements  and  advice  and  their  application  have  not  been  effective  in 
addressing issues of conflict of interest, resulting in more expensive products in the market, with 
inducements representing a large percentage of the total costs.  Evidence also shows that in many 
cases, the advice given omits important information. Finally, the rules on disclosure of information 
on inducements only have a marginal effect in helping retail investors in their investment decisions.   

Efficiency 

Regarding the cost-effectiveness (efficiency) of rules governing advice, the following issues were 
observed. According to the retail investment study, the relevant costs to the firms/distributors to 
implement the regulatory requirements on advice and inducements are approximately €0.68 per 
client and that they represent 0.0003% of the value of assets managed. The costs mainly relate to 
the  training  of  advisors,  collecting  regular  statements  from  advisors,  and  ensuring  that  robo-
advisors are compliant with regulations. 

The costs appear reasonable for the industry when set against the benefits for retail investors from 
receiving personalised advice. However, the cost-effectiveness of the rules is reduced for the retail 
investors, as in practice advice does not systematically cover all the essential product features, as 
evidenced by the results of the mystery shopping exercise, and the cost of inducements is passed 

624 Retail investment study, page 69. 
625 Study on distribution systems of retail investment products, page 22. 
626Calculations were based on costs and performance data provided by ESMA and EIOPA. It is important 
to note that data on unit-linked products may not be fully comparable with data on ETFs, because of 
slight differences in methodology and sample size. However, it still provides a useful approximation of 
how both investments would have developed over a 7-year period. 
627 European Court of Auditors, Special report: Investment funds, EU actions have not yet created a true 
single market benefiting investors, 2022, Special Report 04/2022: Single Market for investment funds 
(europa.eu) 

292 

 
 
 
 
 
 
                                                           
on to the client, resulting in higher product costs charged by the product manufacturer compared 
to products sold without inducements. In other terms, inducements also lead to an inflation of costs 
charged by product manufacturers.  

Coherence 

Overall, with respect to coherence, the rules on conflicts of interest under IDD and MiFID II apply 
a similar approach to prevent such conflicts and define organisational arrangements628. However, 
some differences between the two legal frameworks exist, especially regarding the treatment of 
inducements: 

  With respect to definitions, a clear definition629 of “inducements” is present in IDD, 
whereas  MiFID  II  contains  only  a  concept  of  “inducement”630.  Nevertheless, 
pursuant to IDD and MiFID II, inducements are understood in the same manner – 
as any fee or commission, or any non-monetary benefit. The IDD inducements rules 
apply  only  to  insurance  intermediaries  and  undertakings  in  relation  to  the 
distribution of insurance-based investment products and not to other life insurance 
products. 

  The  MiFID  II  regime  is  designed  in  principle  to  only  allow  inducements  as  an 
exception:  inducements  are  forbidden  under  portfolio  management,  under 
independent advice, and when the payment of inducements cannot be justified by 
an  enhancement  of  the  service  provided  to  the  client.  In  practice  however,  the 
results of the retail investment study showed that inducements were identified in 
approximately 40% of information documents for investment funds (falling under 
MiFID  II).    The  regime  intended  as  an  exception  under  MiFID  II  thus  remains 
relatively widespread in practice.  

  The test that requires that an enhancement of service is proven is both challenging 
to  demonstrate  for firms and  challenging to supervise for competent authorities. 
This  safeguard  also  appears  to  lead  to  different  interpretations  across  Member 

628 Similar definition/concepts, presence of specific tests, conduct of business and conflict of interest 
rules, disclosure requirements and clear information on inducements. 
629 For the definition of “inducement” under IDD, please refer to Article 2(2) of Commission Delegated 
Regulation (EU) 2017/2359 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European 
Parliament and of the Council with regard to information requirements and conduct of business rules 
applicable to the distribution of insurance-based investment products (IBIPs Regulation); For the concept 
of “inducements” under MiFID II, please refer to Article 24(9) of Directive 2014/65/EU of the European 
Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 
2002/92/EC and Directive 2011/61/EU. In 2021, Article 24 of MiFID II was supplemented by Article 24(9a), 
which was added by Directive (EU) 2021/338 of the European Parliament and of the Council of 16 
February 2021 amending Directive 2014/65/EU as regards information requirements, product governance 
and position limits, and Directives 2013/36/EU and (EU) 2019/878 as regards their application to 
investment firms, to help the recovery from the COVID-19 crisis (OJ L 68, 26.2.2021, pages 14–28).  
630 The definition of inducements under IDD and the concept of inducements under MiFID II are 
comparable, but not identical.  

293 

 
 
 
 
 
 
                                                           
States  and firms,  despite convergence  efforts by  ESMA. A number of studies631 
have also identified shortcomings in how these rules are applied.   

  As  a  result,  the  enforceability  and  the  quality  of  checks  surrounding  this 
requirement are not fully satisfactory and the usefulness of this safeguard is thus 
called into question.  

  Under the IDD regime, inducements are allowed as long as they do not interfere 
with the obligation to act honestly, fairly, and professionally, in accordance with 
the client’s best interests and do not have a detrimental effect on the client. The 
same difficulty as under MIFID exists with respect to the application of the non-
detrimental effects test. 

  As IDD is a minimum harmonisation directive, Member States may impose stricter 
requirements  on  inducements.  The  IDD’s  conduct  of  business  rules  have  been 
implemented into national law in different ways, in contrast to MiFID II’s conduct 
of business rules which are based on maximum harmonisation rules and thus there 
are no such deviations. 

  The two regimes impose different rules on the information that must be disclosed 
to retail investors and the level of detail varies. The retail investment study revealed 
that no information about inducements was contained in information documents for 
the insurance and pension products. Such differences may hinder the usefulness of 
disclosed information in the investor’s decision-making.   

  The MiFID  II  framework clearly defines retail  and professional  investors, while 

IDD does not.  

  Both MiFID II and IDD allow Member States to impose additional requirements632 
. As a consequence, there are differences between the legal frameworks at EU level 
and those at  national  level  (e.g. an inducement ban in  the Netherlands, different 
interpretations  as  regards  the  quality  enhancement  criteria,  different  additional 
requirements under IDD in Member States). 

  The possibility of circumvention of the rules633 arises as a consequence of sectoral 
divergences  with  respect  to  scope  of  applicability634.  Under  the  MiFID  II,  it  is 

631 Danish Financial Supervisory Authority (2019), Thematic survey of quality improvement services for 
investment clients: Temaundersøgelse af kvalitetsforbedrende services til investeringskunder 
(finanstilsynet.dk) and Financial supervisory authority of Norway (2020) Temaundersøkelse om 
etterlevelsen av reglene for returprovisjon (finanstilsynet.no) Danish Financial Supervisory Authority 
(2019), Thematic survey of quality improvement services for investment clients: Temaundersøgelse af 
kvalitetsforbedrende services til investeringskunder (finanstilsynet.dk) and Financial supervisory authority 
of Norway (2020) Temaundersøkelse om etterlevelsen av reglene for returprovisjon (finanstilsynet.no) 
632 Page 256 of the Retail investment study 
633 For instance, in the “European Commission, ‘Open Hearing on Retail Investment Products’” (2008), 
indicates cases that took place in the Netherlands of companies trying to circumvent the rules. Similar 
cases are described in “European Commission, Impact Assessment Accompanying the Proposal for a 
Regulation of the European Parliament and of the Council on key information documents for investment 
products (SWD (2012)187, 3 July 2012). 
634 The MiFID II inducement regime relates to investment firms in connection with the provision of an 
investment service or an ancillary service. The IDD inducement regime relates to an insurance 
intermediary or undertaking. 

294 

 
 
 
 
 
 
                                                           
possible to combine an investment product with funds and an  insurance element 
(the  so-called  "insurance  wrapper")635.  An  insurance  product  can  only  be 
distributed by insurance intermediaries or undertakings. That raises the question as 
to whether all disclosures to retail investors would be respected where UCITS and 
AIFs have been included into an IBIP – hence following (only) the IDD regime. In 
theory,  the  level  of  investor’s  protection  in  such  cases  might  be  jeopardised, 
because the strict MiFID II rules on inducements would not be followed (which 
would include the payment of inducements). Banks, independent financial advisors 
or  asset  managers  selling  IBIPs  are  registered  as  insurance  intermediaries  and 
acting as such under the IDD rules.  

  Furthermore,  stricter  national  rules  could  create  an  unlevel  playing  field  for 
financial service providers operating cross-border. On the other hand, it may also 
expose  retail  investors  in  host  Member  States  with  stricter  rules  to  different, 
potentially weaker, levels of investor protection. 

4.1.3: More specifically, have the rules on suitability/appropriateness assessment been 
successful in ensuring suitable product purchases? 

Effectiveness 

According to the retail investment study, the main observations regarding the effectiveness of the 
client profile suitability/appropriateness processes are:  

  Suitability assessments are applied and the majority of retail investors who received 
advice  about  investment  products  recall  being  asked  questions  about  their  profile 
receiving a suitability assessment report.  

  There are inconsistent practices in the market with regard to: 

-  The  timing  of  the  screening  process.  The  legal  framework  only  states  that  the 
suitability  assessment  needs  to  be  done  “when  providing  advice”,  while  advice 
needs to be given “in good time before the provision of services”. There are no legal 
provisions stipulating that the suitability assessment needs to take place before the 
advice  is  given.  The  mystery  shopping  exercise,  stakeholder  interviews  and 
national studies show that there are clear instances where the suitability assessment 

635 The scored IBIPs/PPPs rarely disclose separately the KIID of the underlying investment funds (at least 
on the online search). There is also no cost standardization between KIID and KID or inducements. But 
from January 2023, also UCITS will have to prepare KID instead of KIIDs. An example concerns the unit 
linked/hybrid IBIS with multiple options. The practices can range from 3-4 investment scenarios or 
selection from 10-20 different funds, with different generation of personalized offers, KIDs and KIIDs 
(common or individual). In particular, costs concerning MOPs may not be precise because sometimes 
options are UCITS funds investment for which different disclosure requirements under UCITS are in place. 
In many instances, there is a generic cost information disclosed as a range in the PRIIPs KID while option 
level costs are disclosed pursuant UCITS. Even in preparing their own reports, EIOPA has undertaken data 
quality checks, ‘conversions’ between UCITS disclosures - KIIDs and equivalent reduction in yields (RIYs) 
from KID and the explicit data collection of ‘wrapper costs’ - costs that are not at the option level but are 
ultimately paid by consumers because part of the insurance product as a whole. These costs, when the 
information is disclosed as range in the generic KID may not always be easily identifiable. The main 
objective should be cost standardization and disclosure under MiFID II and IDD for all cost items, and 
especially inducements - a horizontal regime - for product comparability.  

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is  carried  out  at  the  very  last  stage,  shortly  before  the  contract  signature.  In  the 
mystery shopping exercise, several clients were explicitly told that this would only 
be  done  later,  at  a  contractual  stage.  Such  late  performance  of  the  suitability 
assessment means that in these instances, the objective of using information about 
the client to provide advice is not fulfilled.  

-  The  depth  of  information  covered  before  a  product  is  recommended.  An 
important proportion of conversations that resulted in product suggestions covered 
only minimal or hardly any information about clients (questions such as investor 
knowledge,  family  status  (linked  to  the  client’s  capacity  to  bear  losses)  or  the 
client’s wealth and assets, were in many cases not covered). The varied practices 
are also confirmed by the reports from supervisory authorities. On the other hand, 
robo-advisors  use  a  range  of  questions  that  generally  tend  to  cover  all  essential 
areas.  

-  Whether and how the suitability assessment is actually linked to the provision 
of  advice  and  recommendation.  Both  good  and  bad  practices  co-exist  and  the 
quality of the suitability assessment questioning does not as such guarantee good 
advice. This is particularly evident in cases in which the advice is given before the 
suitability assessment is done.  

The  above  areas  of  improvement  indicate  that  the  current  framework  for  assessing  product 
suitability and appropriateness does not necessarily ensure that retail investors are recommended 
financial products or services that are suitable for them and to assist the investors in making optimal 
choices.  

Efficiency 

Regarding efficiency, the time needed for a face-to-face screening procedure is the most significant 
cost636 of the suitability assessment and process. The benefits that the suitability assessments would 
bring to the retail investor, also considering the overall attainment of the objective of increasing 
retail investor protection, indicate that overall, the framework is efficient. There are however some 
issues,  identified  that  hinder  the  cost-effectiveness  of  the  suitability  assessment  and  where  the 
current framework could be improved: 

  The  screening  process  alone  is  not  sufficient  to  provide  good  quality  advice  (as 

 

shown under effectiveness). 
If clients do extensive research and undergo assessments with different distributors 
before choosing the right product, the costs per screening increase. This indicates 
the possible need for standardisation and portability of elements of the suitability 
assessments to help minimise the costs.  

636 According to the retail investment study, the estimated range of costs for screening processes is 
between 0.0006% and 0.0015% of the net assets managed by the service provider, therefore between 
EUR0.7 to EUR 5.4 per client. The maximum cost per screening is around EUR30 on average. In the 
absence of data about the share of purchases made by robo-advisors and the share of execution-only 
purchases, the retail investment study assumed that all screenings were carried out using an advisor 
driven process and that the products sold were accompanied by advice and were not execution-only. 
Thus, the actual costs per screening are likely to be lower.  
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On the other hand, the use of online processes and the growing trend towards cheaper and often 
execution-only products can help reduce the cost of the suitability assessment.  

Coherence 

According  to  the  legal  analysis  performed  as  part  of  the  retail  investment  study,  the  legal 
requirements on suitability and appropriateness are coherent. The standards set out in IDD and 
MiFID  II  on  the  application  of  the  suitability  and  the  appropriateness  assessment  are  largely 
identical. Although some minor potential inconsistencies and gaps have been identified through the 
legal  analysis  of  the  EU  requirements  for  the  suitability  and  appropriateness  assessment,  these 
mainly relate to reporting obligations (e.g., the suitability statement) and recording obligations, and 
are therefore unlikely to have impacts on the financial decisions of retail investors.  

Additionally, regarding the coherence at national level, differences exist between the Member 
States. IDD is a minimum harmonisation directive which implies that the Member States are given 
some leeway to implement rules differently, whereas MiFID II aims at maximum harmonisation. 
However, national-level interviews did not reveal major concerns.  

There  are  some  differences  between  IDD  and  MiFID  II  regarding  the  treatment  of  non-
complex products. IDD allows Member States to derogate from the obligations on appropriateness 
where no advice is given in relation to IBIPs, while under MiFID II, firms are allowed to provide 
non-advised services with respect to non-complex investment products, without the need to conduct 
an appropriateness assessment, provided a warning is given.  

The  option  given  to  Member  States  to  make  advice  obligatory  for  certain  types  of  insurance 
products  (under  IDD  Level  3  rules)  could  create  potential  inconsistencies  between  insurance 
products across the EU.  

4.1.4.  More  specifically,  have  the  rules  on  product  oversight  and 
governance  been  successful  in  ensuring  that  products  entering 
target markets are suitable, i.e. aligned with needs of those target 
markets? 

Effectiveness 

The current product oversight and governance rules have set the foundation to steer the markets 
towards  ensuring  that  the  interests  of  customers  are  integral  to  the  product  design  process  and 
throughout  the  lifecycle  of  a  financial  instrument/product,  including  distribution  arrangements. 
However, as evidenced by several sources, the rules under MIFID and IDD have not been effective 
in ensuring this objective and offering value to the retail investor. With respect to effectiveness of 
POG  rules  under  UCITS  directive,  available  evidence  suggests  that  rules  are  generally  quite 
effective, although with some scope for further improvement. 

EIOPA’s637 and ESMA’s638 annual cost and past performance reports indicate that some products639 
offered  to  retail  investors  have  in  recent  years  offered  very  low  if  not  negative  returns, 

637  EIOPA Cost and past performance report 2022. 
638   ESMA Performance and Costs of EU Retail Investment Products 2022. 
639  e.g. certain structured investment products or insurance-based investment products. 

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disproportionate to the risk that is taken by the investor, calling into question their value  to the 
retail investors640.  In  addition,  such  products  are  often  overly  complex  and include  costs641  that 
limit the potential returns and diminish the investment outcome for retail clients642.  

The figure below shows the weighted average net return of a sample of unit-linked products by 
Member State commercialised cross-border over the period 2020-2016643  and the weighted net 
return in 2020. These net returns do not take into account the effects of inflation during the same 
period. 

Figure.7 - weighted average net return of a sample of unit-linked products by Member State 
commercialised cross-border  

In November 2021 EIOPA issued a supervisory statement on IDD644 in light of concerns about the 
significant  impact  that  costs  can  have  on  returns  of  insurance-based  investment  products,  in 
particular  in  respect  of  unit-linked  products  which  may  not  be  designed  in  a  customer-centric 
manner. Competent authorities have been reporting a number of issues, such as: high complexity, 
mis-selling, mismatches between actual returns and customers’ expectations.  The outcome of the 
Common  Supervisory  Action  (CSA)  on  product  governance  requirements  under  MiFID  II645, 
coordinated by ESMA in January 2021, indicated that: 

640  See page 38 EIOPA’s 2022 cost and performance report (“Products corresponding to lower risk classes 
had particularly low net returns, at times negative, questioning the value for money offered by these 
products.”) or page 37 of ESMA’s Performance and Costs of EU Retail Investment Products 2022 (“once 
costs were taken into account, the simulated returns for a number of SRP’s were below zero”).  
641  Products offered to retail investors frequently incorporate high levels of fees and commissions. In 
2021, retail clients were charged on average around 40% more than institutional investors across asset 
classes.  
642  The ESMA report on performance and costs indicates “In terms of simulated returns and costs, the 
patterns that were identified in last year’s report largely persist. The key findings are as follows: Once 
costs were taken into account, the simulated returns for a number of SRPs were below zero. This illustrates 
the benefit of mandating, as done in the PRIIPs KID Delegated Regulation, that performance scenario 
information provided to investors in the KID be made available net of costs. … There appears to be little 
correlation between total costs and the underlying asset type, and total costs do not appear to be lower 
for products that are more popular with retail investors (i.e. economies of scale do not appear to 
materialise in the market for SRPs).”  
643 Source EIOPA’s cost and performance report 2022. 
644  Supervisory Statement on “Assessment of value for money of unit-linked insurance products under 
product oversight and governance”. 
645 ESMA 2021 CSA on MiFID II product governance requirements. 

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  Even  though  firms  generally  define  a  target  market  for  the  products  they 
manufacture and/or distribute and do so by following the target market categories 
defined  in  the  ESMA  guidelines,  such  definition  is  approached  as  a  formalistic 
exercise, is not sufficiently granular and the terms used are not clearly defined. In 
addition,  the  definition  of  a  target  market  does  not  always  lead  to  the  firms 
developing a compatible distribution strategy. 

  Under  Article  9(10)  of  the  MiFID  II  Delegated  Directive,  firms  are  required  to 
perform a scenario analysis to assess the risks of poor outcomes for end clients. The 
CSA showed that the analysis is inconsistently performed among firms and it is not 
always clear how these scenarios are actually used for the identification of the target 
market. 

  Product  manufacturers’  procedures  insufficiently  describe  how  a  product’s  cost 
structure646 is evaluated to ensure compatibility with the product’s target market and 
the application of the product governance requirements does not guarantee that the 
products that enter the market deliver value to retail investors. The product reviews 
are not performed with an adequate scope nor frequently enough to verify if the 
financial  instrument  remains  consistent  with  the  needs,  characteristics  and 
objectives of the target market. 

  On the exchange of information between manufacturers and distributors, the 
CSA on MIFID rules revealed that a significant number of firms do not provide 
reports proactively to the product manufacturers, but only upon request. 

One notable area of products which may be prone to a higher incidence of poor value for money 
are  structured  products  (SRPs),  which  particularly  stood  out.  In  its  ESMA’s  Annual  Statistical 
Report 2022 on Performance and Costs of EU Retail Investment Products647,  ESMA highlighted 
the two key types of costs as those that are embedded in the product when it is issued, and costs 
involved in distributing the product, such as sales commissions. In its analysis ESMA focused on 
the former. ESMA indicated that different types of SRPs are offered to retail investors in the EU, 
many with complex pay-off structures.  ESMA’s main conclusions are that: 

 
 

 

 

the total costs do not depend on issuance size or underlying type; 
there  does  not  appear  to  be  any  clear  correlation  between  total  costs  and  the 
Summary  Risk  Indicators,  or  between  total  costs  and  the  recommended  holding 
period for each product - in other words, it is not the case that riskier, or longer-
maturity  SRPs  have  higher  costs  than  their  less  risky  or  lower-maturity 
counterparts; 
there is no negative correlation between sales volume and costs (i.e. economies of 
scale do not appear to materialise in the market for SRPs); 
the existence of a plurality of reference assets does not seem to lead to higher costs 
per se (SRPs backed by single equities tend to have higher costs than SRPs backed 
by other underlying assets, including baskets of assets and indices). 

  under the moderate performance scenario, approximately one in ten SRPs would 
offer negative returns, despite this being the second-best scenario out of four. This 

646  As required under Article 9(12) of the MiFID II Delegated Directive. 
647 SRPs are investments whose return is linked to the performance of one or more reference indices. 

299 

 
 
 
 
 
 
                                                           
share increases to one quarter of SRPs when looking at the returns after one year, 
rather than at a product’s maturity.  

In light of negative results of this exercise, ESMA suggested that it is rather the ‘structured’ nature 
of SRPs’ payoff (the most challenging part for investors to assess) that drives costs.  

This  evidence  shows  that  in  case  of  some  products,  higher  costs  are  embedded  irrespective  of 
features which could constitute better product quality but rather relate to complex costs structure. 
This should not be the case, as complexity of cost structure is justified only when it aims to better 
align costs to the quality of the product and the returns it generates. 

As a result, the current MiFID and IDD rules, despite the efforts of ESMA and EIOPA in this area 
to  address  the  product  manufacturing  process  and  rules  governing  the  distribution  of  retail 
investment  products,  do  not  fully  tackle  the  issue  of  cost-efficiency  of  products  and  are  not 
sufficiently effective to ensure that retail investors are offered products that are cost efficient.  

The Common Supervisory Action coordinated by ESMA in January 2021648 concluded that the 
supervised entities' compliance with the UCITS framework, and in particular the rules detailed in 
their  supervisory  briefing,  is  satisfactory.  For  example,  ESMA  has  reached  the  conclusion  that 
“Very  few  NCAs  reported  of  regulatory  breaches  which  were  already  addressed  by  imposing 
administrative  measures”.  In  particular,  while  larger  asset  managers  were  found  to  have  good 
structures in place, small UCITS management companies have less structured pricing processes in 
place. Subsequent to the CSA, NCAs have engaged in remedial action in cases where deficiencies 
were  identified,  in  order  to  obtain  the  correction  of  identified  deficiencies.  Some  NCAs  have 
extended the scope of follow-up actions to all UCITS management companies649. 

Beyond  these  positive  results,  ESMA  identified  room  for  improvement  to  achieve  greater 
convergence between  Member  States  and  is also  working  on  an  opinion to  further improve  the 
regulatory  framework,  where  necessary.  In  particular,  ESMA’s  report  mentioned  the  benefit  of 
having a clearer definition of the notion of “undue cost” in the Level 1/Level 2. However, NCAs 
“reported that the supervisory briefing on the supervision of costs provided useful indications on 
the cases where a cost should be considered as due/undue and the categories of costs identified by 
fund managers largely corresponded to the macro categories included in the supervisory briefing. 
“Further assessment by ESMA highlights the key role of supervision in achieving the objectives of 
POG  rules,  notably  reduction  of  costs.  ESMA's  annual  statistical  report  on  the  costs  and 
performance  of  retail  investment  products  reports  a  moderate  but  broad-based  change  in  costs 
across investment horizons and reporting periods. For equity, total costs went from 2% at the ten-
year investment horizon for the reporting period ending with 2017 to 1.6% at the one-year horizon 
in the analysis ending in 2019. While more factors contribute to this effect, it is likely that increased 
supervision has played a role650.  

648 See ESMA’s Final report on the 2021 CSA on costs and fees. 
649 For instance, the CSSF has asked all management companies to conduct, by Q1/2023, a comprehensive 
assessment with regard to the compliance of their policy, approach and arrangements related to costs, in 
relation to the observations of ESMA and of the CSSF and to take, if applicable, the necessary corrective 
measures (CSSF report on the CSA) 
650 There has been an increased focus on costs of investment products notably since 2018.  

300 

 
 
 
 
 
 
                                                           
Nevertheless, there is an important limitation to what POG rules under the UCITS framework can 
achieve, as the majority of the costs charged to investors do not go to the UCITS management 
companies, and thus these companies do not have control over them. Indeed, according to a study 
by EFAMA, “fund managers only retain 41% of the total cost paid by retail investors.”651 Most 
commonly, distribution and advice costs make up between 30% and 60% of the total cost charged 
to the UCITS. Costs are also higher for cross-border funds than for domestic funds, mainly due to 
distribution costs on a cross border basis (translation, etc.)652. This conclusion is also consistent 
with ESMA’s report on costs and performance653. ESMA also spots that costs are higher for cross-
border  funds  than  for  domestic  funds,  mainly  due  to  distribution  costs  on  a  cross  border  basis 
(translation,  etc.)654.  While  it  is  possible  that  POG  rules  under  UCITS  have  contributed  to  the 
overall decline in costs that has been evidenced by ESMA655,  this limits the impact that these rules 
can have on the overall costs paid by retail investors.  

Efficiency 

The costs related to compliance with product oversight and governance rules are mainly associated 
with the work performed by the firms to define business models ensuring that products meet the 
needs of identified target markets and mitigate consumer detriment, e.g. costs for setting up controls 
and systems that allow for identification of the target market, product testing, defining a distribution 
strategy and product review.  

Anecdotal  evidence  on  the  costs  of  implementation,  based  on  the  report  on  the  Guidelines  on 
product governance656, shows that many respondents identified several one-off and ongoing costs657 
as relevant, but did not provide a quantification. In some cases, respondents noted that costs and 
resources needed for the implementation of the new framework would be fully compensated by the 
benefits connected to it. The compliance costs associated with the rules therefore seem reasonable 
in light of the importance of safeguarding the interests of customers in the product design process 
and throughout the lifecycle of a financial instrument/product.  However, the cost-effectiveness of 
the  rules  is  significantly  reduced  in  practice  for  retail  investors,  as  the  application  of  the 
requirements  does  not  guarantee  that  the  products  that  enter  the  market  deliver  value  to  retail 
investors, as shown under the effectiveness assessment of the rules.  

651 EFAMA Market insight, September 2021. Indeed, the breakdown of the cost of ownership attributable 
to the different service providers along the value chain, on average, 41% of the fees charged by UCITS 
cover the expenses incurred by fund management companies in the area of product development and 
investment management. This means that part of these costs is used to pay providers, for example data 
and research providers. A slightly lower proportion of the cost of ownership (38%) is paid to distributors 
in compensation for the provision of advice and for acting as the intermediary for retail investors. The 
remaining 21% covers administration services, depositary, tax and other expenses 
652 ESMA Annual Statistical Report 2022 on “Performance and Costs of EU Retail Investment Products”. 
653 Ibid. For instance, it is well documented that the TER (yearly total expense ratio) over 5 years in the NL 
where inducements are banned is 0,63% compared to an average of 1,6% for the other countries. 
654 Ibid. 
655 Ibid. There has been a widespread secular decline in costs of UCITS funds which adds up to a non-
trivial reduction in cost levels over time. By the end of 2021, investors could on average expect to pay 9% 
less in terms of ongoing costs for equity UCITS than four years ago.  

656 Page 29, Report on the Guidelines on product governance. 
657 Ibid, Point 64.  

301 

 
 
 
 
 
 
                                                           
Meanwhile, while the UCITS legal obligations also carry a cost, the consultations organised by the 
ESAs  and  the  Commission  on  RIS  and  in  the  context  of  the  AIFMD  review  (which  partially 
captured also UCITS in its scope) did not identify any significant issues with the level of costs in 
stakeholders’  answers  with  regard  to  UCITS  and  AIFMD  frameworks.  Overall,  the  whole 
ecosystem built on UCITS is considered to work well and the IT systems, resources and procedures 
involved  have  over  the  years  became  part  of  business  as  usual.  Combined  with  the  broad 
effectiveness  of  UCITS  framework  (discussed  under  effectiveness),  product  oversight  and 
governance rules under the UCITS framework can be considered as broadly cost-effective. 

Coherence 

The  legal  requirements  on  product  governance  are  coherent.  The  standards  are  similar  across 
MIFID and IDD, but they are applied with different levels of granularity as regards the specific 
obligations to be fulfilled for each of these requirements. Explicit obligations to assess the risk and 
reward  profile  and  cost  and  performance  of  financial  instruments  exist  under  MIFID  at  the 
manufacturing stage. However, such requirements are not specified under IDD, where the rules 
remain more general and provide an obligation to assess whether the insurance product over its 
lifetime meets the identified needs, objectives and characteristics of the target market658. Based on 
the analysis performed, the evidence shows that the differences in the specific obligations under 
the two legal frameworks do not suggest problems arising from the coherence of the rules. Product 
oversight and governance rules under UCITS can be considered coherent with MIFID rules. They 
are complementary to the principle-based POG rules under MiFID, which are applicable to most 
cases of UCITS funds distribution. The only situation where MiFID rules would not apply is the 
scenario  of  direct  distribution  by  fund  managers  (almost  negligible),  without  MIFID 
intermediation. Some amendments to UCITS and AIFM directives have already been included in 
the AIFMD review currently under negotiation to ensure that the same MIFID product governance 
rules  would  apply  when  investment  funds  are  distributed  directly  by  asset  managers  providing 
investment services. This should hence close such regulatory gap. The more detailed POG rules 
applicable to UCITS manufacturers (described above) are applied in addition to MIFID product 
governance rules and there have been no signs of misalignment.       

4.2 How did the EU interventions make a difference?  

In general, the EU intervention in the area of retail investments (across sectors) has contributed to 
ensuring  investor  protection  across  the  EU  and  a  harmonised  internal  market.  Even  though  a 
completely integrated internal market for retail investments is still not in place, the steps taken have 
created common standards and facilitated competition across the EU.  

According to the retail investment study, in the area of product disclosures, the EU added value 
stems  primarily  from  the  standardisation  of  key  information  documents  across  all  EU 
countries. Those key information documents adopt the same content categories across the legal 
requirements.  Harmonisation  of  the  risk  indicator,  as  well  as  other  content  categories,  makes 
products more comparable across borders, which could not be achieved through action at the level 
of  individual  Member  States.  This  creates  transparency  on  the  market  and  enhances  consumer 

658 Article 6 of the IDD Delegated Regulation (EU) 2017/2358 on product oversight and governance 
requirements for insurance undertakings and insurance distributors. 

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protection through detailed and clear disclosure. Extension of PRIIPs to UCITS funds is expected 
to further enhance this EU value added.   

In  the  absence  of  an  EU  legal  framework,  it  is  likely  that  countries  would  have  adopted 
diverging disclosure requirements (as also demonstrated by the situation before the introduction 
of PRIIPs KID and UCITS KIID). The fragmentation of disclosure requirements would lead to 
differences  in  the  level  of  consumer  protection.  It  would  also  imply  that  manufacturers  and 
distributors operating in multiple countries would have to comply with different sets of rules, which 
would increase the costs of producing and updating disclosure documentation.  

With  respect  to  advice  and  inducements,  the  EU  added  value  can  mainly  be  found  in  the 
harmonised set of ground rules for the (i) management of conflicts of interest; (ii) stipulations on 
which  products  can  be  sold  through  execution-only  services  and  which  products  have  to  be 
accompanied  by  advice;  (iii)  rules  on  when  inducements  are  permitted  and  when  banned,  and 
associated tests; (iv) requirement for the disclosure of the independent or non-independent status 
of the advice and disclosure of inducements.  

If legal provisions at EU level were not in place, national legislation and connected guidance would 
likely diverge more than is currently the case.  Member States choosing to place more emphasis on 
retail consumer protection would implement stricter rules, while others with a stronger focus on 
sectoral competitiveness would relax the rules. Regulatory divergence would be unlikely to affect 
basic principles  – such as the duty of care and the obligation to detect and manage conflicts of 
interest –although the detailed provisions could vary in substantial ways.  

In the absence of a European legal framework, rules would not converge solely through the actions 
of EU Member States. Should national approaches diverge further, leading to different scope of 
advice subject to the law, fair competition on the  Single Market for retail financial products 
could be harmed.  

Concerning the impacts on businesses, legal fragmentation would lead, on the one hand to higher 
transaction costs for businesses conducting cross-border operations and likely non-compliance in 
some cases with the associated legal risk. On the other hand, more lenient legal requirements in 
certain Member States could hamper free and fair competition in the Internal Market.  

In the area of suitability assessments, the difference made by the EU intervention is mostly visible 
in the harmonisation of obligations for investor profile screening and recommending suitable 
products.  In  the  absence  of  EU  legislation,  national  approaches  would  diverge  and  consumer 
protection across the EU would not be achieved at the same level, leading to a weaker functioning 
of  the  internal  market  (notably  the  cross-border  provision  of  financial  services  involving 
investment advice). This would also harm fair competition within the EU.  

Lastly,  in  the  absence  of  a  European  legal  framework,  product  oversight  and  governance  rules 
would not converge solely through the actions of individual Member States. Common European 
rules and the role of ESMA and EIOPA in providing guidance on product oversight and governance 
facilitate competition in the European market, allow companies to operate cross-border and ensure 
a retail investor protection of the same level across the EU.  

303 

 
 
 
 
 
 
4.3 Is the intervention still relevant? 

The retail investment framework and its objectives remain important and correspond to the current 
needs within the EU. The established framework and the changes it introduced are to a significant 
extent relevant for retail investors to promote consumer protection.  

The priorities of the European Union related to the European Green Deal and sustainability, as well 
as achieving a Europe fit for the digital age, confirm the need to review the rules on disclosures, 
inducements and suitability assessments to ensure they remain relevant in view of these priorities 
and of market developments (inter alia increasing digitalisation of financial services, inclusion of 
sustainability preferences in the suitability assessment or sustainability-relevant information in key 
disclosure documents). 

In addition, the evaluation of the application of the rules under the current framework in the areas 
of disclosures, inducements, suitability assessments product governance has identified some points 
where the relevance of the current framework can be improved.  

Disclosures  

The objectives of the rules on disclosures under the current legal framework remain appropriate. 
However,  as  evidenced  under  effectiveness  and  coherence,  the  retail  investment  study  also 
suggested the need to put greater emphasis on the digital environment659 with regard to disclosure 
requirements. The ESAs have also concluded that digitalization trends are not adequately captured, 
and although the current framework is “supposed to be technology-neutral, it was mainly designed 
without considering digital distribution, and certainly before the “app-revolution660”.  

In  addition,  the  current  disclosure  framework  does  not  sufficiently  take  into  consideration  new 
market developments, such as the growing sustainability preferences of retail investors. In recent 
years, there was a significant increase in the market for sustainable investments. Between 2015 and 
2020, assets invested in sustainability-focused funds have grown by 173% (37% on a year-on-year 
basis)661. This strong market growth is largely driven by growing preferences for more sustainable 
investment products. However, preferences for such products and for more sustainability-related 
information662 is currently not well reflected in key information documents for retail investors, in 

659 Retail investment study, pages 15 and 106. 
660 Advice of the ESA joint committee on PRIIPs, page 43, para 3.5.1 and EIOPA advice on retail investor 
protection, page 36. 
661 Source: European Financial Stability and Integration Review 2021. The definition of sustainable 
investment fund sustainable funds used here is based on sustainability criteria set out by Morningstar. 
This definition includes funds that according to their prospectus: (i) state they use ESG criteria as a key 
part of their security selection process; and/or (ii) indicate they pursue a sustainability-related theme 
and/or (iii) seek measurable positive impact alongside financial return. This definition excludes funds that 
employ only limited exclusionary screens, funds that state they consider ESG factors but do so in a non-
definitive way as well as certain types of funds (money market funds, feeder funds, funds of funds).   
662 Indicated notably in the public consultation on renewed sustainable finance strategy. More about this 
consultation and responses received can be accessed here. 

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particular in the KIDs prepared under the PRIIIPs legal framework (and UCITS KIIDs they will 
replace).  

While  existing  legal  provisions  allow  for  inclusion  of  some  information  of  environmental  and 
social  profile  of  investment  products,  they  do  not  appear  to  be  provided  consistently  and  in  a 
standardised manner. This could be considered a regulatory gap and potentially as a consequence 
of original objectives of PRIIPs not having fully anticipated this change in consumer preferences, 
that has been growing since 2015663. PRIIPS KIDs so far make little use of new information that is 
collected by financial product manufacturers and presented on their websites under the Sustainable 
Finance Disclosure Regulation (SFDR) and other sustainability-related disclosures. Some funds 
have  referred  to  SFDR  fund  categories  (“Article  8  and  9  funds”),  but  such  information  is  not 
particularly useful and could be misleading, as it was not intended as a fund label. In this regard, 
relevance of disclosure documents could be improved. 

With respect to the rules on marketing and communications, in order to remain relevant, they 
need to be adapted to the increasing digitalisation of the industry and able to adapt to new trends. 
A majority of respondents in the public consultation considered there was a need for further  EU 
coordination/harmonisation of national rules on  online advertising and marketing of investment 
products664.    As  stated  in  ESMA’s  advice665,  there  may  be  confusion  in  the  application  of  the 
definition  of  marketing  communications  as  to  whether  online  advertising  and  firms’  private 
messages  to  clients  and  potential  clients  on  social  media  fall  under  this  definition,  both  when 
communicated directly by the firm or through third parties social media (i.e. ‘finfluencers’ who 
operate on behalf of financial service providers). Marketing communications, particularly in the 
online environment, may also tend to overemphasize the potential benefits of the product and hide 
information on costs and risks666.   

The  existing  powers  of  NCAs  to  tackle  aggressive  online  marketing  practices  may  not  allow 
sufficiently timely intervention667, nor the possibility for NCAs and ESMA to impose the use of 
risk warnings for specific risky financial instruments which may be subject to (aggressive) online 
marketing and advertising campaigns668.  

Inducements and advice 

The objective of the rules on inducements and advice under the current legal framework remains 
relevant to the current needs in the EU. The current rules have set out the framework to ensure 
advice given and investment services provided to retail investors are in their best interest. However, 
the current framework does not yet fully address the informational asymmetry and the fact that 
advice and other services are driven by the financial interests of advisors or other market players.  

Suitability  

663 As witnessed notably in the especially large shift towards ESG investment funds, described in European 
Financial Stability and Integration Review 2021.   
664 See 2021 Public consultation, Q3.6. 
665 ESMA advice on retail investor protection, page 9, point 21. 
666 Idem, pages 10 and 14.  
667 Idem, page 12. 
668 Idem, page 37. 

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The design of the framework regarding the requirement that the advisor needs to know the client 
when providing investment advice by conducting the suitability assessment remains relevant for 
achieving the objective of consumer protection in financial markets.  

However, as shown under effectiveness, the application of the rules under the current framework 
has some limitations with regard to the usefulness of the suitability assessment in ensuring optimal 
choice  of  investments:  improvements  in  the  consistent  use  of  practices  can  be  considered  with 
respect to on the timeliness and depth of the assessment. For the framework to remain relevant, it 
should  also  allow  for  further  development  and  adaptability  to  allow  for  cost  efficiencies  in  the 
digital environment, only made possible if the use of the rules in the industry is consistent and 
potentially more standardised.  

Product Governance 

The  objective  of  the  rules  on  product  oversight  and  governance  under  the  current  legal 
framework remains relevant to the current needs in the EU. The current rules set out the basis to 
ensure at manufacturing stage that the products are  designed to meet the needs of an identified 
target market of end-clients, are distributed to the identified target market and remain up-to-date 
and relevant to meet the needs of that market. Current rules apply also to the distribution stage, 
requiring that distributor understands the features of the financial instruments recommended and 
establishes and reviews effective arrangements to identify the category of clients to whom products 
and services are to be provided. 

In the current economic environment, this becomes even more relevant, as high inflation, together 
with costs of products and investment services may completely undermine return expectations for 
retail investors in the coming years, potentially discouraging them from investing at all. As a result, 
for the framework to remain relevant, improvements are needed to be in line with the specific issues 
identified in the previous sections.  

5. WHAT ARE THE CONCLUSIONS AND LESSONS LEARNED? 

5.1 Conclusions and lessons learned 

The different sector specific legislative instruments covered in this evaluation aim at providing a 
protection to retail investors when buying investment products and services, taking into account 
their best interest and allowing for their informed and fair participation in the financial markets. 
Overall, with regard to effectiveness, this has been achieved to a certain extent as compared to the 
previous  regimes,  however  there  are  still  areas  where  the  objectives  have  not  been  sufficiently 
fulfilled.  The  results  of  the  evaluation  show  that  further  action  is  needed.  In  respect  of  the 
efficiency, the evaluation indicates that the costs borne by the industry for the implementation of 
the rules on investor protection are reasonable when compared to the benefits for retail investors 
around  transparency  of  information  and  advice  given.  In  terms  of  coherence,  the  rules  on 
disclosures,  inducements,  suitability  assessments  and  product  governance  are  generally  aligned 
across the different legal instruments and set out the same principles for investor protection. There 
are however elements that indicate a lack of coherence of the current framework. With regard to 
EU added value, the current investment protection framework has provided a basis for consumer 
protection  in  the  investment  financial  services  across  the  EU.  In  the  absence  of  an  EU  legal 
framework, it is likely that countries would have adopted diverging requirements in the areas of 

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disclosures,  inducements,  suitability  assessments  and  product  governance,  which  would  pose 
additional barriers to cross-border distribution of investment products.  The legal framework that 
covers investor protection rules remains broadly  relevant for the current needs of EU, with the 
need to protect the interests of investors that are becoming ever more relevant as use of digital 
marketing grows and in light of rising inflation. There are, however, areas where the relevance 
could  be  increased,  in  particular  considering  the  need  for  greater  emphasis  on  the  digital 
environment and sustainability, that have not been fully captured in the original objectives of this 
legal framework.  

In  relation  to  disclosures,  the  framework  has  been  broadly  effective,  notably  in  providing 
information  to  retail  investors  that  is  comparable  and  useful  for  their  decision-making. 
Nevertheless,  some  issues  were  identified  with  regard  to  readability  and  user-friendliness  of 
presentation of information documents and the timing with which they are made available in the 
distribution  process.  Information  on  costs  is  also  not  always  clear.  With  respect  to  ex-post 
information (especially on costs and performance), a significant group of investors does not receive 
documentation in an easily accessible and comprehensible way, which limits their possibilities to 
effectively monitor the developments of their investment, including performance and costs paid.   

The effectiveness of rules on marketing and communication is compromised by the confusion in 
the way the definition of marketing communications is applied, especially in the context of digital 
media and online advertising and social media, and the fact that key information may not always 
be presented in a balanced way. However, the retail investment study’s behavioural experiment 
which looked at disclosures shows that there is an inherent difficulty for retail investors to make 
the  optimal  choice  in  respect  of  which  product  is  best  for  them.  Despite  improvements  on 
information disclosures, additional measures should therefore be taken in other areas relating to 
retail investor protection (e.g. the quality of advice to investors). 

 In terms of coherence, in the area of disclosures, the requirements governing format, readability, 
clarity, conciseness, language use and comprehensive coverage are coherent between the different 
pieces of legislation. Some issues were nevertheless identified, such as different level of adaptation 
to digital or inconsistent application of the requirement to provide disclosure information in ‘good 
time’ in the market. In addition, for the insurance industry there are some overlapping information 
requirements present in EU legislation related to the sale of IBIPs.  

The relevance of the current rules on disclosures could be improved, in particular considering the 
need to place greater emphasis on the digital environment and sustainability. The relevance of the 
rules on marketing and communications could also be improved to better address the challenges 
that are the result of increased digitalisation of financial services, including the dissemination of 
marketing communications through digital channels (e.g. social media).  

Regarding inducements, the current framework has not been sufficiently effective, notably in the 
following areas: 

 

the  requirements  on  disclosure  of  inducements  are  in  practice  not  fully 
implemented.  Information  documents  rarely  contain  explicit  information  on 
inducements  and  inducements  are  frequently  not  disclosed  during  client 
conversations.  

  most  retail  investors  do  not  understand  the  concept  of  inducements  and  are 
primarily concerned with the overall product costs, and not the costs of selling the 

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 

product (inducements) that are being passed on to them. Disclosure of inducements 
does not appear to substantially impact a consumer’s informed choice.  
the existence of inducements is reflected in higher costs for retail investors.  

 
  evidence  concludes  that  the  most  important  product  features,  such  as  costs  and 
charges,  are not  systematically covered by advisors when providing information 
during advice sessions. 
the  MiFID  II  rules  (specifying  conditions  for  inducements  including  the  quality 
enhancement test) have not triggered a shift towards more independent advice or 
increased the market share of independent advice. Non-independent advice remains 
the prevalent model for most distributors of retail investment products in the EU669. 
the existence of inducements may lead to product bias, thus restricting the offer of 
certain simple and cheap investment products to investors. Existing safeguards are 
not sufficient to ensure that investors are provided with unbiased advice and offered 
products which best suit their interests and needs and/or which are not too costly or 
underperforming. 

 

Even though IDD and MiFID II are largely coherent in their aim to prevent conflicts of 
interest and define organisational arrangements, there are still differences between the two 
regimes. Under MiFID II, inducements are designed to be the exception, while under IDD 
inducements  are  in  principle  allowed.  However,  in  practice,  in  the  way  the  rules  are 
applied,  inducements  are  widespread  under  both  regimes.  The  different  safeguards  to 
ensure  that  inducements  ‘enhance  the  quality  of  service’  (under  MiFID)  or  ‘are  not 
detrimental  for  the  service’  (under  IDD),  have  proven  to  be  challenging  for  firms  to 
demonstrate  and  for  competent  authorities  to  supervise.  In  the  area  of  MiFID,  this 
safeguard also leads to different interpretations across Member States and firms, despite 
convergence efforts by ESMA.  

In the area of suitability assessments, the main issues affecting the effectiveness of the rules relate 
to the depth and timing of the screening process, which is in some cases performed at the very last 
stage, thereby defeating the objective of using the information of the assessments as a basis for the 
provided  advice.  There  are  also  different  practices  regarding  the  depth  of  information  covered: 
some advisors cover only minimal or hardly any information about clients, impacting the quality 
of  the  assessment  and  weakening  the  link  to  actual  advice  and  recommendations  given.  With 
regards  to  the  cost-effectiveness  of  the  assessments,  even  though  overall  for  the  industry  the 
measure  is  cost-effective  there  are  potential  areas  of  further  cost  efficiencies,  as  the  costs  are 
increased when clients do extensive research and undergo assessments with different distributors 
and there is room for cost efficiencies through standardisation and portability of elements of the 
suitability assessments.  

With respect to coherence, there are minor differences between IDD and MiFID II mainly related 
to reporting obligations, and the application of the frameworks in the Member States670, although 
they do not adversely impact the implementation of the framework. Finally, the usefulness and 

669 Retail investment study, page 232. 
670 Resulting from the fact that MiFID II aims at maximum harmonisation while IDD (as a minimum 
harmonisation directive) allows Member States to be more flexible. 

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relevance  of  the  suitability  assessment  is  compromised  by  inconsistent  practices  and  lack  of 
adaptability to the digital environment.  

The product oversight and governance rules under MIFID and IDD, which impose requirements 
on  the  definition  of  the  target  market,  scenario  analysis,  product  review  and  exchange  of 
information  between  manufacturers  and  distributors,  are  often  insufficiently  and  inconsistently 
applied. In practice, they are a formalistic exercise and fail to ensure that the products that enter the 
market deliver value to retail investors. Their role in protecting retail investors is hindered by the 
ineffective application of the framework leading to the following consequences:  

  Some products671 offered to retail investors have in recent years offered very low 
if not negative real returns disproportionate to the risk that is taken by the investor. 
Such  products  are  also  often  overly  complex  and  include  costs  that  limit  the 
potential returns and diminish the investment outcome for retail clients.  

  With respect to structured retail products and the costs of products embedded in 
their issuance, these costs do not appear to depend on issuance size or underlying 
type, nor to the risk of the products, while the existence of a plurality of reference 
assets does not seem to lead to higher costs per se and economies of scale do not 
appear to materialise in the market for SRPs. There is no correlation between the 
costs and embedded features that would constitute a justification for better product 
quality, rather the evidence points to unjustified complex costs structures.  

The above issues reduce significantly the cost-effectiveness of the product governance rules for 
retail investors, as they do not sufficiently prohibit products that deliver little or no value from 
entering the market.  

The economic developments and the shift from low interest rates and inflation to a high inflation, 
high interest rate environment underlines the urgent necessity for a framework where the products 
oversight  and  governance  rules  remain  relevant  and  are  able  to  ensure  that  retail  investors  are 
adequately protected and are only offered products that deliver them value for money.  

With respect to the additional product oversight and governance rules under the UCITS framework, 
available evidence suggests that rules are generally effective, efficient and coherent, although there 
is scope for further improvement, such as insufficient clarity of the notion of “undue costs”. 

Lessons learned 

The above conclusions from this targeted evaluation and the lessons learned in terms of the main 
areas  for  improvement  serve  as  the  basis  on  which the  Commission  will aim  to  provide  policy 
conclusions or follow-up action. These need to be understood within the general conclusion that 
even though the framework has been broadly acknowledged by most stakeholders as fit for purpose, 
there  are  important  elements,  especially  in  the  area  of  inducements  and  advice,  that  have  not 
sufficiently contributed to the achievement of the intended objectives of the investor protection 
framework.  

In terms of the information disclosed to the retail investor, overall, the requirements are relevant, 
however  there  are  some  targeted  areas  of  improvement;  information  can  still  be  complex  (in 

671  e.g. certain structured investment products or insurance-based investment products. 

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particular  relating  to  costs)  or  not  sufficiently  useful  or  relevant  to  guide  their  ability  to  make 
informed decisions. The rules are not sufficiently adapted to digital channels and disclosures do 
not  sufficiently  respond  to  growing  sustainability  preferences  of  consumers.  Marketing  and 
communication rules could be improved to better protect investors from the increasing risks linked 
to oversimplified or misleading guidance from digital channels and marketing practices.   

With respect to inducements and advice, the existing safeguards have not sufficiently to limited the 
product bias and ensured that investors are provided unbiased advice and offered products which 
may better suit their interests and needs. In addition, understanding the concept of inducements is 
challenging  for  retail  investors  and  disclosure  of  their  existence  does  not  appear  to  make  a 
substantial contribution to a consumer’s informed choice nor does it sufficiently address conflicts 
of interest. 

With respect to the current rules on product oversight and governance, while they have set 
up a framework to promote the offer of products that are tested and address the needs of a 
target market, the rules do not sufficiently ensure high quality of all the products offered 
to retail investors: some retail investment products incorporate unjustifiably high levels of 
costs and/or do not offer value to retail investors. 

Finally,  the  suitability  and  appropriateness  assessment  regime,  even  though  generally 
effective  and  efficient  in  ensuring  that  the  needs  of  the  clients  are  considered  in  the 
screening process, can be further improved in certain respects. Evidence has shown that 
the  timing  and  depth  of  the  assessments  is  not  applied  optimally  in  practice  to  ensure 
intermediaries have sufficient knowledge about their clients that would allow them to only 
recommend suitable products. Improvements could be made in suitability assessment so as 
to remove inconsistent practices and adapt it to the digital environment.      

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ANNEX 12: SME TEST  

Step 1) Are SMEs likely to be affected? 

Although the Retail investment initiative does not specifically target SMEs, its scope will include SMEs 
and the measures will have some direct and mostly indirect impacts on them. SMEs will be affected in 
their various roles. 

-  SMEs as investors will benefit in the same way as any other retail investors, among 
others, from the improved disclosures, from the better choice of products offering value 
for their money and from unbiased advice following the removal of conflicts of interest 
of advisors. We do not have exact information on their number, however, extrapolations 
suggest that the number of SMEs concerned should be at most 1 million firms672.  
-  SMEs will also be affected as providers of financial services, in particular the ban on 
inducement  will  oblige  SME  advisors  to  change  their  business  models  to  fee-based 
systems.  Although  the  precise  number  of  SME  financial  services  providers  is  not 
available, official statistics suggest that about 617,000 firms in the financial sector had 
less than 10 employees in the EU-27 in 2020, representing 97% of all financial firms673. 
There is no statistical information how many of them serve retail customers and services 
related  to  investment.  To  give  an  indication,  of  the  815,000  licensed  insurance 
intermediaries in the EU, about 467,000 are physical one-person businesses (see annex 
7).   

-  Listed SMEs as users of funds will also be affected by the initiative. Retail investor 
participation  in  capital  markets  is  expected  as  an  indirect  positive  impact  of  the 
measures, which will offer better opportunities also for listed SMEs. There are about 
2800 listed SMEs according to ORBIS data. Data from exchanges revealed that 1464 
out of 4371 companies on regulated markets were SMEs in 2021, i.e. 33%. Another 
1740 firms are listed on SME growth markets, though not all of them would still be 
SMEs.  

Step 2) Consultation of stakeholders 

During the public consultation procedure all stakeholders, including SMEs, were consulted and were 
given the opportunity to contribute with their views to the development of the policy initiative.  
The  result  of  all  consultation  activities  is  summarised  in the synopsis  report (annex  2).  Stakeholder 
outreach activities  also included  discussions  with  consumer  organisations  as  well  as  representatives 
from  the  banking,  insurance,  financial  intermediaries  and  investment  management  industries.  The 
public consultation in particular received input from SMEs, namely medium  (50 to 249 employees), 
small  (10  to  49  employees)  and  micro  (1  to  9  employees)  companies  active  in  the  aforementioned 
sectors. Notably, among them there were also a few micro and small advisory firms and representatives. 
Other  consulted  stakeholders,  moreover,  involved  BIPAR,  the  European  federation,  which 
groups national associations representing insurance as well as financial intermediaries, ranging from 
multinational  companies  to  SMEs  and  micro-enterprises.  The  SME-specific  input  received  mainly 

672 An extrapolation using German data, based on the number of security accounts held by NFCs, relative to 
the number of NFCs being 4%, as 99.5% of NFCs are SMEs, this is extrapolated to EU NFCs. 
673 The number of firms come from Eurostat, Business demography by size class [BD_9BD_SZ_CL_R2].  

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focused  on the need to ensure proportionality if additional regulatory burden is imposed on smaller 
businesses, particularly in the insurance sector, which has a higher proportion of SMEs with respect to 
other financial sectors. 

Step 3) Assessment of impact on SMEs 

The impacts on SMEs can be threefold: SMEs as users of capital markets, SMEs as investors, and SMEs 
as providers of retail investment services and products.  

SMEs as users of capital markets are expected to benefit from the measures. Given that the ban on 
inducements can indirectly lead to increased retail participation, SMEs listed on the capital markets 
could profit from a more diverse and deeper investor base over the longer-term (i.e. by being selected 
in the assets of small, mid or micro-cap company investment funds).  

SMEs as investors  will directly benefit from the ban on inducements, including from lower costs of 
retail investment products. In addition to the removal of conflicts of interest in the advice process, they 
will also get a better choice of products that offer them value for their money, in the same way as other 
retail investors. They will also benefit from improved disclosures, in the form of more targeted and 
more engaging information aimed at facilitating their decision-making, and by better protection against 
exposure to misleading marketing. Like other retail investors, SMEs will benefit from the impact of 
Value  for  Money  on  the  transparency  and  return  of  financial  products  if  they  intend  to  invest  their 
financial  surpluses  in  financial  assets.  The  flanking  measures  will  have  a  positive  impact  on  retail 
investors, including SMEs, by further improving their protection (e.g. thanks to stronger supervisory 
enforcement  measures)  and  by  empowering  them  to take  better  informed  investment  decisions (e.g. 
thanks to improving their financial literacy levels).  

SMEs, which are providers and distributors of retail financial services (such as smaller advisors), will 
face, as other market participants, adjustment costs to the transition from a commission-based to a fee-
based model. As they will no longer receive commissions from product manufacturers but receive fees 
from retail investors, they will need to demonstrate the added value of their service to retail investors 
including  through  assessments  against  value  for  money  benchmarks.  In  the  same  way  as  for  other 
market participants, it is difficult to predict the market dynamics for SME financial intermediaries. On 
the one hand, those smaller businesses, which will not be capable or do not want to take the opportunity 
offered by the need for a structural transition from an inducement-based to a fee-based system, may exit 
the market. This might further contribute to the ongoing trend of consolidation in the advice segment 
as a result of digitalisation of financial services. On the other hand, however, smaller distributors who 
would like to take  advantage  from  the  removal  of  the  barrier  that  currently  exists  to  their  ability  to 
provide independent advice will benefit from a better opportunity to grow their business. This is also 
shown  by  the  growth  of  independent advice in  the  Netherlands (see  annex  7).  In  addition,  with  the 
removal of the inducements, the relative bargaining power of distributors against product manufacturers 
will also increase.  

If Member States outsource their financial education efforts to private parties, SMEs active in financial 
education  could  benefit  from  additional  revenues.  In  a  similar  vein,  the  qualification  of  financial 
advisors could create additional demand for SMEs that provide qualification and training programmes. 
Financial firms may have to count on a slight increase in their pay for qualified staff. While the investor 
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categorisation  would  allow  more  SMEs to  qualify  as professional investors at request,  this  effect is 
likely to be extremely small. 

Step 4) Minimising negative impacts on SMEs 

The preferred package of options will include a transitional period for the introduction of the ban on 
inducements.  It  is  necessary  to  ensure  that  distributors  and  manufacturers  have  time  to  adjust  their 
business models from a commission-based to a fee-based model, which applies to all sizes of firms, 
including  SMEs.  Examples  of  the  steps to be taken are adjustments  to  the current fee  schedule and 
billing systems, informing clients of the new structures, creating new share classes without inducements 
in the case of investment funds and upgrading IT systems where necessary. It can also be envisaged 
that the contribution of financial SMEs to the Value for Money benchmarks will be phased in after a 
sufficient transition time.  

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Term or acronym 

Advised services  

AIFs 

Best execution  

Biometric risk 

CBDF  

Client  

Closed architecture 

ANNEX 13: GLOSSARY 

Meaning or definition 

When an intermediary offers or advises a client to perform a certain 
investment  service  (e.g.  investment  advice),  or  otherwise  when  the 
client does not expressly solicit the service.  

Alternative Investment Funds regulated by Directive 2011/61/EU on 
Alternative Investment Fund Managers  

Brokers are obliged (Art. 27 MiFID II) to endeavour to “execute orders 
on terms most favourable to the client” and “obtain the best possible 
result”.  

All liability risks related to the person’s living conditions, including 
health, longevity, disability, death, etc. 

Directive  (EU)  2019/1160  and  Regulation  (EU)  2019/1156  on  the 
cross-border distribution of collective investment undertakings  

Any natural or legal person to whom an investment or insurance firm 
provides investment or ancillary services. See ‘Retail client’.   

Signifies  that  a  financial  institution  confines  its  offering  to  retail 
investors to in-house financial products (also called captive products). 
See opposite, ‘open architecture.’ 

CMU  

Capital Markets Union  

Commission-based model  

Distributor 

DMFSD 

EIOPA  

ESAs  

ESMA  

ETF 

Synonymous to ‘inducement-based model’. In the commission-based 
model,  distributors  and  brokers  are  paid  through  commissions  by 
product  manufacturers  or  other  services  providers,  which  are 
embedded  in  the  price  of  the  product  through  annual  costs.  See 
‘inducements’.  

Any  investment  firm  that  decides  the  range  of  financial  instruments  or 
products it intends to offer or recommend to clients, whether they are issued 
or manufactured by itself or other entities (subject or not to MIFID II)674. 

Directive 2002/65/EC on Distance Marketing of Financial Services 

European Insurance and Occupational Pensions Authority  

European Supervisory Authorities  

European Securities and Markets Authority  

Exchange-Traded Funds 

674 For the term distributor in the context of insurance see term ‘Insurance distributor’. 

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Execution-only services  

Fee-based model  

Financial instrument  

Insurance  Based 
Product (IBIP)  

Investment 

When a client expressly instructs a financial intermediary to provide a 
service  (e.g.  to  execute  a  trading  order)  without  being  proposed  or 
advised beforehand by the intermediary.  

In a fee-based model, the distributor (advisor) is remunerated directly 
by the client through a fee, generally upfront (see also ‘commission-
based model’, and ‘inducements’).  

Include  a  range  of  instruments  that  are  typically  tradeable  among 
market participants and with the purpose of yielding investment return, 
including  notably  equity  (shares),  bonds,  derivatives,  funds  (UCITs 
and exchange traded funds (ETFs)).  
Legal definition: Article 4(1)(15) (MiFID II)  

Is an investment product consisting of an insurance contract (wrapper) 
that sets out certain parameters for expected investment performance 
depending  on  the  performance  of  the  underlying  financial  assets 
(typically UCITs) contained in the wrapper. The contract can (but does 
not have to) cover biometric risk or provide various guarantees (e.g. 
return of invested capital). IBIPs can be divided into unit linked, profit 
participation and hybrid products. See also ‘Financial instrument’ and 
‘Investment product’. 
Legal definition: ‘[A]n insurance product which offers a maturity or 
surrender value and where that maturity or surrender value is wholly 
or  partially  exposed,  directly  or  indirectly,  to  market  fluctuations.’ 
(PRIIPs)  

IDD  

Directive 2016/97/EU on insurance distribution  

Independent advice  

Inducements  

Insurance distribution  

Investment advice qualifies as independent when the advisor is paid 
only by the client, or another person on behalf of the client. In other 
words,  when  the  advisor  does  not  receive  remunerations  from  third 
parties for the service provided to the client.  

Commissions (monetary or non-monetary, with the exception of minor 
non-monetary  benefits)  paid  by  third  parties,  not  on  behalf  of  the 
client, to the intermediary for providing a certain service to the client 
(e.g.  recommending  a  certain  product).  See  also  ‘commission-based 
model’ 

The activity of distribution of insurance products and, in particular for 
the  purposes  of  this  impact  assessment,  insurance-based  investment 
products (IBIPs).  
Legal definition: ‘The activities of advising on, proposing, or carrying 
out other work preparatory to the conclusion of contracts of insurance, 
of concluding such contracts, or of assisting in the administration and 
performance of  such contracts, in particular in the event of a claim, 
including  the  provision  of  information  concerning  one  or  more 
insurance contracts in accordance with criteria selected by customers 
through a website or other media and the compilation of an insurance 
product  ranking  list,  including  price  and  product  comparison,  or  a 
discount on the price of an insurance contract, when the customer is 
able  to directly  or  indirectly  conclude  an  insurance  contract  using  a 
website or other media.’ (IDD)  

315 

 
 
 
 
 
 
Insurance 
intermediary/distributor 

Insurance undertaking  

Investment product 

Investment advice  

Investment firm  

Investment service/activity/  

Life insurance  

Manufacturer 

Any  person  or  firm  that  distributes  insurance  products  and  for  the 
purposes of this impact assessment in particular IBIPs.     
Legal definition: ‘Any natural or legal person, other than an insurance 
or  reinsurance  undertaking  or  their  employees  and  other  than  an 
ancillary insurance intermediary, who, for remuneration, takes up or 
pursues the activity of insurance distribution.’ (IDD) 

Insurance  companies  that  underwrite  and  cover  risks  in  return  for  a 
premium (a fee paid by the client). Insurance can be divided into life 
insurance (including IBIPs) and non-life insurance.       
Legal  definition:  ‘[A]  direct  life  or  non-life  insurance  undertaking 
which  has  received  authorisation  in  accordance  with  Article  14 
[Solvency II].’ (Solvency II / IDD)  

For  the  purposes  of  this  impact  assessment,  all  products  offered  to 
retail  investors  with  the  purpose  of  achieving  fully  or  primarily  an 
investment return, whether financial instruments or investment-based 
insurance products (IBIPs).   

For the purpose of this impact assessment, the provision of personal 
recommendations  to  a  retail  client,  either  upon  its  request  or  at  the 
initiative of the financial provider, in respect investment products.  
Legal definition: ‘[T]he provision of personal recommendations to a 
client, either upon its request or at the initiative of the investment firm, 
in respect of one or more transactions relating to financial instruments’ 
(MiFID II) 

Firms that provide investment services to investors. Banks operate as 
such when providing such services.  
Legal  definition:  ‘[A]ny  legal  person  whose  regular  occupation  or 
business is the provision of one or more investment services to third 
parties and/or the performance of one or more investment activities on 
a professional basis.’ (MiFID II)  

For the purposes of this impact assessment, the main investment and 
ancillary  services  that  are  referred  to  are  portfolio  management, 
advice, and execution of orders– only.  
Legal definition: ‘[Any of] (1) Reception and transmission of orders 
in  relation  to  one  or  more  financial  instruments;  (2)  Execution  of 
orders on behalf of clients; (3) Dealing on own account; (4) Portfolio 
management;  (5)  Investment  advice;  (6)  Underwriting  of  financial 
instruments  and/or  placing  of  financial  instruments  on  a  firm 
commitment basis; (7)  Placing of financial instruments without a firm 
commitment  basis;  (8)  Operation  of  an  MTF;  (9)  Operation  of  an 
OTF.’ (MiFID II) 

An insurance contract where the benefit is paid out to the beneficiaries 
when the insured person dies or in respect of incapacity due to injury, 
sickness or disability 

An  insurance  undertaking,  or  intermediary  which  manufacture  any 
insurance product for sale to customers. 
An  investment  firm  which  manufactures  (i.e.  creates,  develops,  issues 
and/or designs) financial instruments for sale to clients. 
Or any entity that manufactures PRIIPs or makes changes to them. 

316 

 
 
 
 
 
 
MiFID  

NCAs  

Open architecture 

Payment for order flow (PFOF) 

PEPP KID  

PEPP  

Portfolio management  

PRIIPs KID  

PRIIPs  

Professional client  

Robo-advice/or 

Remuneration  

Retail client  

Directive 2014/65/EU on markets in financial instruments  

National Competent Authorities  

A  financial  institution's  ability  to  offer  clients  both  proprietary  (or 
captive)  and  external  products  and  services  (see  opposite,  ‘closed 
architecture’) 

Remunerations  (inducements)  paid  by  operators  of  order  execution 
venues (e.g. market makers) to a broker for directing transaction orders 
to the execution values. 

PEPP Key information document  

Regulation  (EU)  2019/1238  on  a  pan-European  Personal  Pension 
Product  

Often  also  referred  to  as  ‘private  banking’  where  the  financial 
intermediary manages the investment portfolio on behalf of the client 
on the basis of a general mandate setting out the investment objectives 
and other parameters.   
Legal definition: ‘[M]anaging portfolios in accordance with mandates 
given by clients on a discretionary client-by-client basis where such 
portfolios include one or more financial instrument.’ (MiFID II)  

PRIIPs Key information document  

Regulation  (EU)  No  1286/2014  on  key  information  documents  for 
packaged retail and insurance-based investment products  

Refers  to  clients  that  invest  in  a  professional  capacity  such  as 
institutional investors, something legally defined by reference to the 
type, scope and purpose of the investment activity.  
Legal definition: Article 4(1)(10) (MiFID II) 

Robo-advisors, at times also referred to as (semi) automated portfolio 
management, are digital platforms that provide automated, algorithm-
driven financial planning services with little to no human supervision. 
A  typical  robo-advisor  asks  questions  about  your  financial  situation 
and future goals through an online survey; it then uses the data to offer 
advice  or  portfolio  management  and  automatically  invest  for  you. 
Legally such services fall in the same authorisation and supervision as 
traditional physical advice or portfolio management.    

Any commission, fee, charge or other payment, including an economic 
benefit of any kind or any other financial or non-financial advantage 
or  incentive  offered  or  given  in  respect  of  insurance  distribution 
activities  

Refers to all investors who do not invest in a professional capacity.  
Legal definition: ‘[A] client who is not a professional client.’ (MiFID 
II) 

317 

 
 
 
 
 
 
Self-directed investment 

Self-directed  or  do-it-yourself  investing  is  where  individual  retail 
investors  build  and  manage  their  own  investment  and  only  use 
to 
intermediaries  for 
investments  built  and  managed  on  the  basis  of  advice  or  portfolio 
management).    

transactions  (contrary 

the  execution  of 

Solvency II  

Directive 2009/138/EC on the taking-up and pursuit of the business of 
Insurance and Reinsurance  

SRPs/structured products 

Trailing inducements  

UCITS  

UCITS funds 

 VfM 

Structured  products  are  investments  whose  return  is  linked  to  the 
performance  of  one  or  more  reference  indices,  prices  or  rates 
(reference values). Such reference values may include stock  indices, 
the prices of individual equities or other assets, and interest rates. The 
return of a structured product is determined by a prespecified formula, 
which sets out how the product performs in different scenarios defined 
with respect to the reference value(s). 

These are remunerations (commissions, kickbacks, rebates, etc.) paid 
continuously  and  as  long  as  the  retail  client  holds  the  security  or 
investment.  

Directive  2009/65/EC  on  the  coordination  of  laws,  regulations  and 
administrative  provisions  relating  to  undertakings  for  collective 
investment in transferable securities (UCITS)  

Units in funds regulated by UCITS Directive 

Value for Money 

318 

 
 
 
 
 
 
 
 
 
ANNEX 14: VALUE FOR MONEY - BENEFITS AND COSTS   

The policy measure labelled “Value for Money” envisages the introduction of a cost and performance 
benchmark to help determine that the offer of financial instruments for investment or insurance-based 
investment products provides value to the market. An obligation to assess value for money of financial 
instruments against specific criteria and benchmarks would force inferior providers to adjust, either by 
reducing costs, offering higher returns or exiting the market. This would lift average returns that retail 
investors can earn and reduce their likelihood of encountering frustrating investment experiences.  

To complement the assessment of impacts of this measure, this annex aims to undertake a quantitative 
assessment  of  the  benefits  and  costs  of  the  measures.  This  assessment  can  provide  only  a  first 
orientation, since both benefits and costs will ultimately depend on a number of factors, including how 
granular benchmarks will be (which supervisors will determine in a further step that includes further 
analysis and consultation with stakeholders) and the extent to which the rules will be adhered to and 
enforced.  There  are  also  certain  limitations  with  respect  to  the  availability  of  quantitative  data,  in 
particular the lack of information on the dispersion of costs across the numerous providers active on 
EU retail investment markets and the centralisation of data reporting to supervisors within financial 
firms (i.e. firms are likely to decide on how to organise internally their data compilation and reporting 
depending on how granular the requirements are, with impacts on their compliance costs).  

1. Estimating the benefits 

To  measure  the  benefits,  it  is  assumed  that  the  net  returns  on  investments  in  funds  and  insurance 
products  that  underperformed  will  improve  and  converge  closer  to  the  EU  average.  An  alternative 
assumption would be that they converge to the best performers, which would however introduce a risk 
that the implied target level depends on outliers and specifically favourable framework conditions that 
cannot be replicated in other Member States or markets. Since there is no basis to determine how fast 
any  such  convergence  could  occur,  the  calculations  below  focus  on  the  benefits  that  accrue  once 
convergence has been achieved. Since full convergence of returns of financial products towards the EU 
average is unlikely to occur, the calculations assume that only a share of the gap to the EU average will 
be closed. Calculations are made for scenarios that assume that 10%, 20% or 50% of the gap is closed. 
This would mean broadly that the 5%, 10% or 25% of the most common investment products would no 
longer  be  offered  to  retail  investors  and  replaced  with  products  that  yield  the  average  net  return.  It 
implicitly takes into account that some manufacturers and distributors of financial products continue to 
offer products that underperform in terms of monetary yields, but have other compensating features. 
Whether the trajectory to convergence will be towards the EU average or the top performers, whether 
it will stop at the proportions specified above, as assumed in the calculations below, or go further, would 
ultimately depend on various factors. Chief among them are the design of the benchmarks, their use by 
firms and supervisors, the increase in competitive pressure they generate and how suppliers react to 
more intense competition. There is no historical precedent that can provide guidance on this. 

It is also assumed that the convergence process neither leads to a change in the benchmark (i.e. that 
market exit of underperformers increases the average returns used for the calculation of the benchmark), 
nor that the supply of products declines. This second assumption is made on the basis that operators 
that  offer  products  above  the  Value-for-Money  benchmark  may  expand  their  offer  (it  may  also  be 
assumed that providers that offer underperforming products would prefer to adjust their product offer 
rather than exit the market altogether, hence not reducing the number of products on offer). Given the 

319 

 
 
 
 
 
 
limited impact of production constraints in financial services and the possibility to offer products across 
borders,  this  assumption  may  not  be  unrealistic. The calculations  also  do  not  make  assumptions  on 
whether  higher  Value  for  Money  would  attract  additional  retail  investors,  keeping  the  amount  of 
investments constant at the current level.  

A correct calculation would rely on the benchmarks that the Value-for-Money initiative aims to create. 
In  the  absence  of  such  benchmarks,  the  calculations  use  data  on  funds  and  insurance  investments 
reported by ESMA and EIOPA respectively in their cost and performance reports. For investment funds, 
the starting point was the net performance indicators for the EU aggregate for equity, bonds and mixed 
UCITS, weighted by their share in total outstanding assets.675 Since EIOPA does not publish an EU 
aggregate,  the  Member  State  data  was  weighted  with  the  share  of  their  households’  holdings  of 
investment funds in the EU-27 aggregate.  The purpose of the supervisory reports is to compile statistics 
for comparable asset classes in various Member States. In the absence of suitable data regarding within-
country differences, the present calculations were made at the Member State level, assuming that cross-
country differences are a good substitute for the within-country differences that the Value-for-Money 
benchmarks would ultimately address. 

The available statistics cover 13 and 24 Member States for different types of UCITS and unit-linked 
insurance products, respectively. Data are in both cases from 2021. Both ESMA and EIOPA present 
the  detailed  methodology  behind  the  calculations  in  annexes  to  their  reports  and  caution  about  the 
comparability of results across Member States. These underlying methodological differences could not 
be considered when calculating a convergence scenario.  

Despite the methodological caveat, the advantage of the ESMA data is that it provides the best possible 
comparison of returns on funds currently possible. The report covers data for different products. The 
net returns used for the calculations are those on bond UCITS, equity UCITS and mixed UCITS, being 
the most popular asset classes for retail investors, with a holding period of 5 years. UCITS represent 
85% of the EU market and it is implicitly assumed that the convergence scenario would occur similarly 
for the 15% other fund products. The relative share of these three asset classes was derived from the 
total assets of these types of investment funds in the euro area in 2021, as reported in the ECB Statistical 
data warehouse. They show a market share of 41% for equity UCITS and 29.5% for both bond and 
mixed UCITS.  

Neither ESMA nor EIOPA data show how much retail investors invested in these products. Information 
on  households’  aggregate  holdings  of  funds  and  insurance  products  is  however  available  from 
Eurostat’s  national  accounts.  The  non-financial  sectoral  accounts  report  the  investment  income  of 
households from collective investment products, i.e. funds, and from insurance policies for 25 Member 
States676. Insurance products cover life-insurance and annuities, which is a broader aggregate than the 
insurance-based investment products targeted by “Value for Money”. EIOPA data on gross premiums 
is  used  to  calculate  the  share  of  unit  -linked  products,  which  differ  across  Member  States.677  This 
approach  excludes  the  share  of  investment  products  that  cover  profit  participations,  which  seems 

675 Using data from the ECB statistics. This assumes that retail investors and institutional investors hold the 
same proportion of these three types of UCITS. 
676 The statistical label for this property income are D.443 for investment funds, and D.441 for insurance 
policies. 
677 In 2020, the life insurance Gross Written Premium (GWP) was 670.6 bn €, of which 206.1 bn € represent 
unit-linked type of IBIPs. 

320 

 
 
 
 
 
 
                                                           
justifiable  as  the  return  on  these  products  is  dependent  on  future  economic  developments.  ESMA’s 
country-specific performance data of investment funds is limited to UCITS investing in bonds, equity 
or mixed. Retail investors hold investment funds in products for which there is as yet no performance 
data that could be used for cross-country comparisons, for example AIFs, ETFs or real estate UCITs.678 
The implicit assumption behind the use of supervisory data is that all households would accomplish the 
yields that were calculated for benchmark products in the asset class. In reality, their actual portfolio 
may be more biased towards products with a lower return than calculated for the benchmark products.  

In practical terms, the first step was to calculate the difference between each Member States’ net return 
of  investment  funds  and  insurance  products  and  the  EU  average.  Second,  if  the  return  on  these 
investments was lower for a Member State than for the average of available EU Member States, the 
difference  was  taken  as  the  extra  return  to  households  that  convergence  to  the  EU  average  could 
generate. Third, to express the assumed increase in the yield in monetary terms, the yield difference 
was multiplied with households’ holdings of investment funds (F.511) and life insurance and annuities 
(F.62) in 2021679. The insurance position was multiplied with the share of the gross written premium of 
unit linked and index linked insurance products in life insurance premiums.680 

It is not possible to distinguish, on the basis of the aggregate data, to what extent lower returns in some 
Member  States  are  due  to  either  fees  charged  by  distributors  or  those  charged  by  manufacturers. 
Analysis  by  ESMA  about  distribution  channels  in  2020  showed  that  the  breakdown  of  costs  for 
manufacturers and distributors is heterogenous across products, providers and Member States. ESMA 
reported that distribution costs are more than 50 % of costs in several Member States and that they 
ranged between 50% and 80% for UCITS. EIOPA also highlighted the heterogeneity of distribution 
costs in its latest report, documenting that the majority of observations are clustered in the range of 10-
30% of total costs in the case of unit linked products681. It therefore seems a reasonable assumption that 
convergence will cover fewer financial products if benchmarking applies only to manufacturers. The 
share of distribution costs above can be used as an indication that, with the more limited option 2, at 
best half of the convergence for investment funds and at best 90% convergence for insurance products 
can be accomplished, with both ratios relative to the broader option 3.  

Table A8.1 Increase in households’ income in billion EUR in scenarios of yields close 10%, 20% or 
50% of the gap to the average of available Member States in those Member States where they were 
below average in 2021+ 

EU benchmark in % 
Option 2 
10% scenario 
20% scenario 
50% scenario 
Option 3 
10% scenario 
20% scenario 
50% scenario 

investment  funds 
(UCITS) 
5.6 

insurance-based investment products 
(IBIPs) 
3.2 

1.4 
2.8 
6.9 

2.8 
5.5 
13.8 

1.5 
3.0 
7.6 

1.7 
3.4 
8.4 

total 

2.9 
5.8 
14.5 

4.4 
8.9 
22.2 

678 ESMA reports in its cost and performance report that the products used in this annex, i.e. equity UCITS, 
bond UCITS and mixed UCITS, account for more than 90% of the retail market. 
679 Sector S.14, i.e. households without NPISH. 
680 Table 6 of EIOPA’s European insurance overview 2022 with data for end-2021. 
681 See EIOPA, ‘Cost and past performance report 2022’, figure 24. 

321 

 
 
 
 
 
 
 
 
                                                           
+ for a 5 year holding period, derived via households’ holdings of investment funds in 2021 respectively of life 
insurance  and  annuities  in  2021  corrected  for  the  share  of  unit  linked  products  in  life  insurers’  gross  written 
premium in 2021. 

The calculations suggest that convergence to the EU average of the net returns of investment funds held 
by households in those Member States where they were below the EU average in 2021 could generate 
between  3  and  almost  EUR  14  billion  additional  investment  income  to  households  per  annum, 
depending  on  how  strong  the  convergence  pressure  is,  i.e.  closing  10  to  50%  of  the  gap  to  the  EU 
average. The same approach applied on insurance products suggests that households could earn between 
1.7 and more than EUR 8 billion more in investment income per annum from a similar convergence of 
net  returns  to  the  EU  average.  It  is  not  possible  to  make  statements  about  the  strength  of  the 
convergence, nor to predict how long it would take. If markets are competitive and well-integrated, 
however,  the  convergence  could  be  even  stronger  and  not  stop  at  half  of  the  difference.  The  other 
measures discussed in this impact assessment, especially those that improve transparency and address 
conflicts  of  interest,  are  likely  to  increase  convergence  pressure  on  weak  performers.  The  estimate 
presented here therefore includes sizeable parts of the benefits of other policy measures. 

2. Estimating the costs 

The IA proposes broad structures for the reporting of VfM data to supervisors and will leave the details 
on how VfM will be made operational to further analysis by the ESAs. Therefore, any estimate can only 
produce  broad  orientations.  Well-run  financial  firms  should  already  have  the  data  they  need  to 
demonstrate their compliance with the new rules readily available. They are required to produce such 
numbers either for their own calculation of the profitability of the products they offer and/or for the 
production of the Key Information Documents required by PRIIPS.  

For a micro approach, one would need to be able to quantify the time required to validate the data for 
submission to authorities and their actual transmission, the labour costs of the persons involved, IT costs 
to automate the submission and the number of financial products covered. Such information will only 
be known once the reporting obligation is in place. Experience with the 2019 compliance cost study 
shows  that,  even  ex  post,  it  is  not  straightforward  for  many  firms  to  provide  quantification  of  their 
reporting costs.682. In the absence of reliable estimates of each of these components, the following text 
suggests a macro approach that translates the indication of the average cost of supervisory  reporting 
from  the  2019  compliance  cost  study    into  economy-wide  estimates  for  banks,  asset  managers  and 
insurance. This study asked financial firms to report their costs of compliance with different pieces of 
financial  legislation,  broken  down  by  type  of  financial  institution  and  type  of  cost.  Although  the 
reporting firms represented a mere 0.5% of the population of financial firms, they accounted for 10 to 
15% of market activity measured by total assets or expenditures in the various market segments, which 
indicates that large firms were overrepresented in the panel.  

Compliance costs with PRIIPS were found to be relatively small compared to other financial legislation 
and  the study  documents that the  lion’s  share  of  compliance costs are  one-off,  such  as  for  training, 
consultancy fees, legal advice, adjusting IT development and infrastructure. They amount to up to 0.2% 
of the reporting firms’ operating expenses. Ongoing costs are small relative to both one-off costs and 
operating expenditures.   

682 ICF/CEPS, ‘Study  on the cost of compliance for the financial sector’, Final Report, July 2019, 
https://op.europa.eu/en/publication-detail/-/publication/4b62e682-4e0f-11ea-aece-01aa75ed71a1/language-
en. 

322 

 
 
 
 
 
 
                                                           
Table A8.2: Average compliance costs per firm for compliance with PRIIPS683 

banks 

investment 
banks 

asset managers 

insurers 

One-off costs 
average in 1000 EUR 
% of operating costs 
Median in 1000 EUR 
% of operating costs 
Ongoing costs 
average in1000 EUR 

% of operating costs 
Median in 1000 EUR 
% of operating costs 

2473 
0.12 
115 
0.05 

158 

0.03 
10 
0.02 

4794 
0.05 
1508 
0.18 

471 

0.01 
99 
0.10% 

1145 
0.18 
115 
0.05 

123 

0.14 
10 
0.02 

1473 
0.15 
1508 
0.18 

71 

0.02 
99 
0.1 

Source: ICF/CEPS, ‘Study on the costs of compliance for the financial sector’,  Final Report for the 
European Commission, DG FISMA, July 2019. 

The compliance cost study furthermore detailed that supervisory reporting costs amount to a mere 3% 
of the costs of compliance with PRIIPS.684 Translating these reporting costs for PRIIPs into compliance 
costs  for  VfM  is  however  not  straightforward.  One-off  costs  should  be  smaller  than  those  in  the 
compliance cost study because firms do not have to create a new reporting infrastructure, but can build 
on  already  existing  structures.  Moreover,  the  reporting  obligations  for  UCITS  and  AIF  managers 
proposed under the AIFMD review already cover part of the data that would be required to produce 
VfM  benchmarks685.  More  granular  data  reporting  should  thus  be  implementable  through  existing 
reporting systems with only minor administrative costs to add the new data fields. At a later stage, there 
may be some costs associated with more granularity, but the additional burden should be still minor. It 
will  be  for  supervisors  to  weigh  the  benefits  of  more  granular  data  for  the  effectiveness  of  VfM 
benchmarks against the costs of higher reporting burden to the industry. 

Since  central  parameters  for  an  estimate  of  compliance  costs  are  unknown  and  depend  on  the 
specification of reporting, there can only be a rough illustration that uses different assumptions. 
Scenario analysis suggests that supervisory reporting costs, which are the key component targeted 
by VfM and at the same time amount to 3% of PRIIPS compliance costs, could be at around EUR 
60 million or in a range EUR 13 to 252 million for one-off costs. Ongoing costs could be in a range 
of EUR 2.3 to 22.6 million per annum.686 These estimates do not take into account the synergies 

683 Table 186, 18, 190 and 192 of the compliance cost study: ICF/CEPS, ‘Study  on the cost of compliance for the 
financial sector’, Final Report, July 2019, https://op.europa.eu/en/publication-detail/-/publication/4b62e682-
4e0f-11ea-aece-01aa75ed71a1/language-en . 
684 Figure 56 of the compliance cost study. 
685 Proposal for a directive of the European Parliament and of the Council amending Directives 2011/61/EU 
and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, 
provision of depositary and custody services and loan origination by alternative investment funds, 
COM/2021/721 final  
686 The bottom range uses the average of % of operating costs multiplied by aggregate costs in the financial 
industry, the latter the median absolute costs multiplied by the number of firms. 

323 

 
 
 
 
 
 
 
 
                                                           
between the supervisory  reporting  introduced  with  the  AIFMD  review  and VfM  reporting.  The 
broadness of the range illustrates the uncertainty the estimates are subject to.  

324