The European Union should take the lead in reorienting capital into sustainable projects and ESG-factored investments to protect individual investors.
In recent years, retail financial services users have been at the centre of policy strategies and regulatory efforts, but the practical implementation thereof seems to have missed their objectives by a length.
Consumer trust in financial services is still low, with investors more often opting for non-financial assets and SMEs drifting away from capital markets.
This raises questions about the way in which retail investors and SMEs can be better attracted to capital markets and what professionals should be delivering to achieve sustainable value for money.
With this in mind, BETTER FINANCE and CFA Institute embarked on a project to analyse what industry and consumer stakeholders understand by sustainable value for money and how this can be achieved.
This paper examines the results of a survey that took into consideration both consumers and professionals in capital markets. We aim to address six main factors that make up sustainable value for money: stewardship and the duty of care; investor protection; matching offer and product intervention (supervision); shareholder activism; and sustainable finance and ESG.
Findings From The Survey
It was interesting to observe that a large number of responses from industry and investor stakeholders were aligned. Although the number of respondents differed, thus affecting the percentages presented, finance professionals and retail investors seem to agree that:
- Investment managers should have a mandatory duty of care, of which the client should be informed from the beginning;
- Only simple information on the total cost figure and past performance (in comparison with a benchmark) should be disclosed in the key pre-contractual documents;
- The European Supervisory Authorities (ESAs) should be given more powers and competencies in terms of enforcement and product intervention; in addition, the CMU as a whole would benefit from a dispute resolution mechanism (such as arbitrage) under the competence of a European authority (such as ESMA);
- Investment managers should disclose how they address ESG factors in their products or investments, whether through mandatory regulation or as they see fit, eventually directed by the end investors;
- More suitable, tailor-made investment advice should be provided to retail investors;
- Lack of liquidity in, and research coverage of, SME markets constitute an obstacle preventing savers from investing more in SMEs.
Policy Recommendations
- Address the issues related to investment advice
- Disclose standardised information on actual costs and past performance in all retail investment products
- Transform the ESAs into true supervisors
- Address short-termism and shareholder engagement barriers in corporate governance
- Address obstacles to retail investor and SME participation in capital markets