The European Commission is to undertake an examination of the hurdles that prevent retail investors from becoming involved in greater numbers in the capital markets of the EU.
Many factors contribute to the unwillingness of Europeans to invest in capital markets, but cost and a lack of information and transparency to help compare investments are recurring complaints. UK regulator the Financial Conduct Authority has warned that the asset management industry must work harder to address concerns about transaction cost methodology.
Overall, just 43 percent of eurozone households own any kind of investment, according to BlackRock. According to the European Securities and Markets Authority (Esma), on a country-by-country level, the structure of household financial assets is described as ‘heterogeneous’.
On average, currencies and deposits account for around 30 percent of assets, ranging from 14 percent in Sweden to 61 percent in Greece, notes Esma. There are other member states with a share of deposits above 50 percent, including the Czech Republic and Ireland; countries such as Denmark, Finland and France, meanwhile, report a low share of deposits.
‘These statistics underline the potential for an increase in capital market participation by retail investors,’ notes Esma. As a result, the EC confirmed to IR Magazine it is to look at fund fee comparison tools and fund entry and exit fees in the sale of investment products.
Already the EU’s Packaged Retail and Insurance-based Investment Products regulation aims at helping retail investors better understand and more easily compare the key features, risks, rewards and costs of different products through a short key information document – a stand-alone, standardized document prepared for each investment.
Highlighting the desire for the EU to push for greater retail investment, an Esma report states: ‘A key theme of the Capital Markets Union (CMU) is to foster the participation of retail investors in EU capital markets. Increased participation of retail investors in capital markets serves several purposes in a wider economic context.
‘First, capital market-based products tend to provide higher returns than deposits and thus can help meet the challenges posed by population ageing and low interest rates. Second, the last financial and sovereign crises highlighted the need for more diversified funding channels in the EU. This in turn can lead to a more balanced and improved allocation of capital.
‘A key element to achieve the goal of stronger participation of retail investors in capital markets is to provide them with clear, comprehensive and comparable information on retail investment products.’
The EU has potentially much work to do: retail investors pulled £6 bn ($8 bn) from funds amid stock market falls in the last three months of 2018 – the biggest quarterly redemption on record, according to the UK’s Investment Association.