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EU strategy for retail investors: Aiming for more citizen participation in the capital markets

The EU's planned retail investment strategy is designed to encourage investment by private individuals in the capital markets. GDV supports this goal and is contributing to the debate on the various building blocks of the strategy.

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The aim of the EU retail investment strategy is to provide access to capital market products for as broad a section of the population as possible.

Although Europe has one of the highest individual savings rates in the world, retail investor participation in capital markets is low by international standards. For this reason, the EU Commission is preparing a strategy to promote retail investment (the “Retail Investment Strategy”; RIS).

As far as is known today, the EU Commission will not decide until the beginning of May which concrete proposals the Commission will submit and which measures will be taken to implement them.

Improving consumer financial education

The EU Commission sees financial literacy among the population as a prerequisite for more participation of Europeans in the capital markets. GDV fully supports this objective.

Streamlining and modernising information and disclosure requirements

Only information that is clear and understandable helps people make informed financial decisions. GDV expressly supports the fact that the EU Commission is concerned with eliminating overlap and inconsistencies and has been intensively and constructively involved in the preparatory work of EIOPA and the EU Commission. The new standard should be to provide information digitally, flanked by the option to request paper records. The EU Commission also wants to ensure that the information makes it possible to compare different investment products with each other. In GDV's view, comparisons must make certain that the special features of insurance products are reasonably taken into account.

Compensation models should ensure fair and independent advice

To achieve this goal, the responsible EU Commissioner has introduced into the debate a ban on commissions for the brokerage of investment products, including capital-forming life insurance policies. In contrast, GDV advocates the coexistence of different forms of compensation. Currently, insurance customers have the choice of buying insurance directly from the insurer, paying fees to an advisor, or letting the insurer pay the agent. This choice should not be restricted.

The insurance industry believes it is important for customers to understand the interests of the person advising them or offering them products. For this purpose, it must be transparent how people are compensated and how the costs for advice and concluding contracts influence the performances associated with the recommended product. The existing European and national guidelines already ensure this today. They also stipulate that further information is to be provided upon request. What information and how this is to be provided - are up for debate.

Facilitating dealings with qualified investors

Practical experience in dealing with the regulations under MiFID II has shown that facilitating the distribution regime can be helpful for professional clients. Provided the criteria for categorisation are objective and clearly recognisable, GDV considers this to be a comprehensible approach on the part of the EU Commission.

New concept for suitability assessments

The EU Commission is considering revising the existing rules on suitability assessments. The assessment should be related to the customer, not to the product. The results should be standardised and portable. The EU Commission deliberated on a corresponding concept in the summer of 2022. The Association rejects what was specifically presented then, as it does not fit the specifics of insurance products. GDV also rejects the idea of making an intermediary's individual ratings and recommendations portable so that they can be made available to competitors.

Obligation to inform consumers about the existence of third party products

Intermediaries are to be required to provide information about products from other providers. The Association rejects this for direct sales personnel, salaried field sales representatives and sales via bound agents. Consumers are free to choose whether to contact insurers directly, representatives of a single insurer, or someone who can offer products from multiple insurers. During the initial contact, it will be disclosed which product range is associated with this choice.

Introduction of mandatory certification for financial advisors

The EU Commission's considerations also include the introduction of a certification requirement combined with a new EU label for financial advisors. However, since there are already European initiatives that make education and training comparable, GDV believes that another EU label is superfluous.

Specifications on the price-performance ratio of products

It goes without saying that products must bring benefits to their customers ("value for money"). Current product oversight and governance regulations require insurers to offer only products that meet the needs and goals of consumers. The benefits of insurance investment products go beyond generating returns. It is therefore necessary to take into account the special features associated with insurance products, such as risk protection and collective savings. Moreover, details of price formation should continue to be left to competition among providers.

Product complexity

The possibly intended differentiation between simple and complex investment products is problematic from the insurance industry's point of view. Compared with strict investment products, insurance investment products have a more extensive range of benefits, especially in terms of guarantees, risk mitigation techniques and coverage of biometric risks. However, this does not mean that these products are more difficult for consumers to understand or even more dangerous, because their effect is beneficial and simple for them. The insurer assumes the risk management and provides lifelong pension payments, for example. This makes it easier to plan for retirement and protects consumers from investment risks.

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