The current approach to the EU’s retail investment strategy may not adequately address broader issues such as the retirement savings gap, reflecting a need for a more holistic approach to financial education and pension policies, a leading European industry representative argues.
In an interview with Investment Officer, Tanguy van de Werve, director general of the European Fund and Asset Management Association (Efama), voiced his concerns about the EU’s Retail Investment Strategy, suggesting it falls short of its intended goals. He argued that the strategy, while focusing on investor protection and market practices, missed a crucial opportunity to address broader issues affecting European investors, especially the relatively low level of retirement savings.
“Frankly, the debate around the retail investment strategy should be on more than just commissions and costs,” he said. ”The original intention was to increase retail participation in capital markets. Instead, what it’s actually doing, at best, is attempting to provide better outcomes to existing investors.”
Retirement savings gap
Discussing the need to reframe the discourse around retail investment, van de Werve highlighted a disconnect between industry jargon and public understanding. Instead, he suggests focusing the discussion more towards the retirement savings gap that is plaguing many EU member states.
“This will be key and honestly - and this is more of a personal statement - if I mention ‘increasing retail participation’ to my friends outside of financial services, they don’t know what we are talking about. What we should be talking about is the increasing retirement savings gap. That is the core issue and something people can easily relate to.”
Van de Werve expressed scepticism about the strategy’s narrow focus on current investors, underscoring the need for measures that would encourage a broader base of new investors. “If you want to encourage people who have never invested in markets before to start investing, to move away from cash deposits, then what is on the table today in the Retail Investment Strategy will not really help.”
Identifying the key drivers that could stimulate more retail market participation, van de Werve pointed to areas beyond the immediate scope of the current strategy. “The key drivers are taxation, as we know, it’s pension policies. It is financial education. While there is a clear reference to financial education in the proposal, I think that we need to do far more in the pension space.”
He emphasised the potential impact of comprehensive pension reforms, such as auto-enrolment across the EU, and the development of additional pension pillars, in bridging the retirement savings gap.
European Retirement Week
To raise awareness, Efama, in collaboration with Pensions Europe and Insurance Europe, has launched the European Retirement Week initiative. Scheduled for the last week of November, this event aims to increase public awareness about the growing retirement savings gap in many European countries and to promote a dialogue between policymakers and relevant stakeholders on the solutions to address the pension challenge.
Regarding the Retail Investment Strategy’s focus on investment product value, van de Werve believes a more holistic approach is needed. He criticised the strategy’s sole emphasis on costs and the partial ban on inducements for execution-only services, which he said could adversely affect the distribution of ETFs to retail investors, especially when accessed via digital platforms.
“So there might be unintended consequences that could run completely contrary to the objective of the European Commission,” he warned.
Van de Werve’s comments underscore a broader debate within the EU about how to best promote financial participation and secure future financial stability for its citizens. While the Retail Investment Strategy aims to protect investors and improve market practices, EFAMA’s perspective suggests a need for a more comprehensive approach, one that addresses underlying issues like the retirement savings gap and financial literacy, to truly enhance retail participation in the EU’s capital markets.
‘Huge potential’ for Eltif 2.0
In the interview, Van de Weve also commented on two other pieces of EU legislation that have booked significant progress recently. The updated regulation for European Long Term Investment Funds is seen as encouraging, he said, even though the final hurdles of the ‘level two’ discussions among supervisors on the regulatory standards remain to be completed.
“We do see huge potential in Eltif 2.0,” he said, “although it will depend on the level two measures, especially as regards redemption policies. There are many projects in the pipeline. The ELTIF 2.0 ticks so many boxes. It is about the financing of infrastructure. It is about private debt, private equity. It is about retailisation of private markets. It is about sustainability, because it is long term. There is really a huge interest in this new investment vehicle.”
The EU also is close to completing the review of the AIFM and UCITS Directives, which govern the use of traditional mutual funds and alternative investment funds in Europe. A final deal is expected to be agreed under the current Spanish presidency of the European Council.
“When I look at the end product, we are pleased with what has now been adopted, especially when it comes to liquidity management tools, as the full toolkit will be made available to asset managers across the EU. That is good news,” he said. “There were concerns about possible limitations to delegation practices. This we have not seen. All in all the industry is pleased with where this review has landed, which should maintain the attractiveness of European Ucits and Aifs for global investors.”