New Era of Retail Investment—European Commission Publishes Its Proposal for a Retail Investment Strategy

21 June 2023
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Key Takeaways:
  • On 24 May, the European Commission published its legislative proposal of a Retail Investment Strategy (“RIS”). Key objectives of the RIS are to protect retail investors from so called “undue costs” and from misleading marketing practices, reduce conflicts of interests at the level of distributors and simplify disclosures addressed to retail investors. The RIS also proposes relaxed requirements for investors to qualify as “professional clients” under MiFID.
  • However, several of the proposed changes would also affect managers of professional funds and distributors who only market funds to professional clients. One example is the establishment of a “value for money” test, which requires fund managers to establish a pricing process for every managed fund, including professional funds, and imposes restrictions on fund managers with regard to costs charged to the fund/the investors.
  • On the inducement topic, which was heavily discussed in advance, the proposal imposes a ban on inducements granted from manufacturers to distributors where distributors market funds to retail investors through non-advised services (i.e., through reception and transmission of orders or execution of orders). For investment advisors, the proposal does not impose a complete ban on inducements, but introduces a new “best interest” test that advisors will have to comply with.