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Attracting retail investors to EU capital markets - Financing of the EU economy

The importance of investment advice for developing demand of retail investors

By Schackmann-Fallis Karl-Peter - Executive Member of the Board, Deutscher Sparkassen- und Giroverband (DSGV)

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The current low interest rate environment makes investment planning for retail investors an essential issue. But how can this be done in a well-balanced manner? Term deposits and savings accounts are not even able compensate the inflation rate and might even show negative rates in the future. According to the monthly review of the German Bundesbank, deposits and cash have increased to 2,054.0 bn € in 2015, whereas investments in bonds has plummeted from 200.1 bn € to 144.0 bn €. Investments in shares and funds also remain at an unsatisfactory low level. And this, although German corporates are attractive to capital market investors. Diversification between different asset classes is one of the main issues for retail clients – making investment advice an essential factor before taking investment decisions. This is even more important for investors of smaller amounts given the importance to them of taking the right decisions. Consequently, the European legislators allowed provision-based advice alongside fee-based advice.

Both forms of advice must be possible and it is of fundamental importance that the European Commission considers these aspects when developing the relevant criteria in Level II legislation. On one side, the prospectus regulation will facilitate the issuance of securities enlarges investment opportunities, but also the level of risk an investor can take. The European legislator must avoid that banks stop investment advice in view of complex investor-protection rules. This would be to the detriment of retail clients needing exactly such advice. Negative examples in this context are the absence of an opt-out mechanism in the suitability report under MiFID-II for investments in securities and the obligation for banks to record securities orders placed by phone instead of a written protocol after the call.