EU Retail Investment Strategy
A package of proposals presented by the European Commission in 2023 to better protect savers, by regulating distributors' remuneration, requiring value for money of products and amending the insurance distribution directive.
European households invest little in financial markets, and part of the explanation lies in the cost of savings products and the conflicts of interest in their distribution, paid through commissions from product manufacturers. In May 2023, the European Commission presented a retail investment strategy that amends several texts, including the insurance distribution directive for insurance-based investment products, which in practice means unit-linked life insurance. Its main thrusts are a ban on commissions in certain non-advised sales, an obligation for manufacturers and distributors to demonstrate the value for money of their products by comparing them with benchmarks published by the European authorities, stronger cost disclosure and a simplified suitability test. The project was substantially reworked during negotiations, the general commission ban having been dropped in the face of opposition from several states, including France, where life insurance distribution relies heavily on commissioned networks. For life insurers, the stake is the distribution business model and pressure on fees: a product whose costs clearly exceed the benchmarks will have to be justified or revised.
Textbook case: a life insurer compares the total costs of its unit-linked contracts with the cost benchmarks published for comparable products. Two funds are clearly above: it must show what extra they bring savers, or cut their fees before the next product governance review.
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