FECIF - The European Federation of Financial Advisers and Financial Intermediaries

Editorial - August 2023

Vania FranceschelliVania Franceschelli

Increasing retail investors participation in capital markets

One of the points within the agenda of the European Commission focuses on increasing retail investors’ participation in the capital markets.

To this end, Mrs. Mairead McGuinness, the European Commissioner for Financial Stability, Financial Services and the Capital Markets Union organised a round table in Brussels on Wednesday 18th July 2023, with the aim of starting a constructive dialogue between the main associations of the financial and insurance sector.

FECIF was also invited to participate by the Commissioner. The Chairperson, Vania Franceschelli, the Deputy Chairman, Martin Klein, and the FECIF Executive Committee member representing EFPA Europe, Josep Soler Albertì, took part in the event, expressing the point of view of the European Federation of Financial Advisors and Financial Intermediaries.

During the opening debate, FECIF pointed out that several aspects of the Retail Investment Strategy (RIS) proposal are surely positive for the distribution of retail financial products. At the same time, the RIS proposal triggered a lively debate on specific issues.

When talking about commissions, it is important to consider the relationship between the cost of participating in financial markets and the expertise needed to do so. In fact, retail investors’ participation necessarily entails costs and charges, especially when investors require support or specialised advice in navigating financial markets.

In turn, such expertise implies a level of remuneration that matches the competences of financial advisors, who are called to continuously keep up to date with the latest regulations.

In this respect, there is no such thing as a free lunch when it comes to financial advice, and the two models that we compare most often – the commission-based system and the fee-based system – equally build on fair remuneration of financial professions, albeit from different sources, further proving this point. 

Against this background, a total ban on commissions might not be the effective solution to the problem of the low participation of retail investors in capital markets and it could have disruptive effects on national markets, in particular for small investors’ participation.

Building on this point, it is important to point out the importance of financial advisors to retail investors’ participation in capital markets. It is essential to shift the focus of the debate to the role of financial advisors as we are indeed experiencing the end of a simple world, a world in which we did not need to plan our existence with a strong financial focus.

Regarding digitalisation, fintech and automated advice can look scary or confusing to the average retail investor, and thus prevent their participation in financial markets. Instead, financial advisors provide that human touch and connection to the clients, which can improve the confidence and trust of retail investors in the financial markets. The RIS goes in the right direction across several dimensions in this regard, particularly with the provisions to monitor and assess online marketing and to interrupt harmful channels of marketing, such as the possibly detrimental activities of “Finfluencers”. Against this background, the role of financial advisers has proven to be essential for investors’ trust and confidence.

Finally, a point that requires attention is the existing gap between the knowledge needed to operate in financial markets and the financial literacy of retail investors. In light of the insufficient financial literacy of the average EU citizen, and of the limited possibilities of financial education, it appears clear that more work can be done to increase the financial literacy of retail investors, while easing the classification of professional clients and strengthening supervisory tools.

To date, financial education is a need that still goes unfulfilled at the global level. Therefore, it remains a very important social mission, because it is the answer to a changing world.

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