This summer, the European Securities and Markets Authority (ESMA) launched a consultation on the “retail investor journey” with the ambition to understand how citizens engage with capital markets and what prevents them from doing so.
As the independent voice of individual investors and financial services users, BETTER FINANCE welcomes this step. For too long, retail investors have faced a system that is fragmented, opaque, and often biased against their interests.
In our consultation response to ESMA, we draw on insights from our national members and independent research to show how the current investor journey is failing citizens, and what must be done to rebuild confidence. At its core, this means re-designing the financial ecosystem around people, not products; ensuring transparency, fairness, and value for money at every step.
A Broken Investor Journey
For everyday Europeans, the "journey" into the capital markets is far from being straightforward. Instead of a clear and empowering path, investors face a maze of fragmented rules, opaque products, and inconsistent safeguards. This leads to a crossroad with two outcomes: discouraging citizens from investing in capital markets or locking them into low-yield savings accounts or costly, underperforming products.
Misaligned advice
A central issue in Europe is the misalignment of distribution models. Too often, what is presented as financial “advice” is in practice a sales process shaped by inducements and commissions which distort recommendations.
Retail investors often struggle to determine whether they are dealing with an advisor or a seller, or whether the advice they receive is influenced by third-party payments. Simpler, low-cost options like ETFs and bonds are rarely suggested in these settings. This fuels mistrust and drives many towards unregulated online sources such as social media or “finfluencers”
Hidden costs and fees
This lack of trust in professional financial advice, alongside fees and charges, is among the strongest deterrents to retail participation. Products like insurance-based investment products (IBIPs) and actively managed funds often exceed 3% in annual costs, silently eroding long-term returns by more than 30% over 20 years.
These costs are rarely transparent at the point of sale, while ex-post cost disclosures are often buried or poorly timed. European investors are left questioning value for money, and many disengage altogether.
Lack of transparency
At the same time, disclosure frameworks fail to deliver on their promise of transparency. First, investment products remain unnecessarily complicated. Even mainstream instruments such as UCITS funds or ETFs can be difficult to navigate, depending on how they are disclosed and distributed.
Second, most of the time, key documents fail to answer simple questions, such as What am I buying? At what cost? With what risk of loss? And how does it compare to alternatives? Instead of answering these questions, the current system overwhelms individual investors with jargon and paperwork. The result: discouraged retail investors who give up on capital markets.
Weak redress mechanism
Years of mis-selling and exposure to unsuitable products have deeply eroded trust in financial providers. In an effort to fight back, European investors have frequently reported biased advice, contractual lock-ins, and opaque penalty structures. However, complaint and redress channels are slow, fragmented, or ineffective. The removal of the EU’s Online Dispute Resolution platform and the patchy application of ADR schemes across Member States have left many citizens with little confidence in remedies.
Misleading nudges
While digital platforms have made investing more accessible, they are not risk-free. Gamification, push notifications, “trending product” lists, and hybrid models blur the lines between saving, investing, and payments. Retail clients are often nudged toward frequent trading or speculative products without adequate safeguards. Complex risk disclosures are hidden or delayed, and finfluencers frequently promote products without transparency or accountability.
Cross-border barriers
What further compounds the problem is the tax and cross-border barriers Europeans face during their investing journey. Withholding tax procedures, divergent national rules, and account transfer frictions make it difficult — and often costly — for citizens to diversify across EU markets.
These obstacles, in turn, discourage investors from diversifying across borders, which reinforces “home bias”, limits competition, and prevents individual investors from accessing the full benefits of a single market.
When all these factors come together, they create a vicious cycle: poor advice and opaque products erode trust, weak comparability prevents informed choices, and regulatory fragmentation discourages engagement.
BETTER FINANCE's Main Recommendations for the Way Forward
Fixing the retail investor journey requires more than minor adjustments. It demands a structural shift toward fairness, transparency, and accountability across the entire investment chain. BETTER FINANCE recommends a series of reforms to put citizens back at the centre.
Taken together, these reforms outline a path to rebuild trust, enhance transparency, and create an environment where retail investors are empowered rather than disadvantaged.
Fairer advice and distribution
At the core of this transformation is the need for fairer advice and distribution models. To restore trust, BETTER FINANCE calls for a reinforced duty of care for all providers alongside a clear and visible distinction between independent advisors and tied product sellers.
Simpler, cost-effective products
Another aspect of simplification that BETTER FINANCE recommends is ensuring cost-effective products are given the priority they deserve. Low-cost ETFs, index funds, and transparent securities should be readily accessible and actively recommended.
Complex and high-fee instruments should be restricted to a new class of qualified retail investors, while simple, high-quality products must become the default.
The PEPP should be supported with clear labelling and harmonised tax treatment to increase uptake, while the development of an EU-wide total market index fund could broaden diversification and channel much-needed retail capital into EU SMEs.
Smarter disclosures
To tackle the confusion of the current disclosure frameworks, BETTER FINANCE proposes a redesign of disclosures so that they are layered, digital-first, and tested for user comprehension. Key indicators such as total costs, net returns after inflation, and liquidity constraints must be made central. The PRIIPs Key Information Document in particular requires reform: past performance and benchmark data should be reinstated, while promotional forward-looking scenarios should be removed.
To ensure comparability across all instruments, BETTER FINANCE further recommends introducing KID-like fact sheets for listed shares and bonds and aligning disclosures across sectors, including pensions and the Pan-European Personal Pension (PEPP).
Tax and portability reforms
Another critical step is addressing tax and portability barriers, which remain among the most powerful disincentives to retail participation. BETTER FINANCE calls for streamlined and standardised withholding tax relief procedures, improved account portability to avoid forced liquidation and exit tax penalties, and the creation of a harmonised European Savings & Investment Account (ESIA) that offers neutrality across products, low fees, and portability across Member States.
EU-wide initiatives and comparability tools
Beyond product and tax reforms, EU-wide initiatives could dramatically increase comparability and trust. A publicly available EU product comparison tool, built on standardised metrics such as cost-performance ratios and net returns, would allow citizens to compare options side by side.
Investors would also benefit from standardised execution-time warnings, particularly for leveraged or complex products, so that risks are understood at the moment of decision rather than hidden in pre-contractual paperwork.
Digital protections
As more citizens engage digitally, BETTER FINANCE believes the EU must also strengthen digital protections. Online platforms should operate under a binding duty of care, preventing manipulative nudges, gamification, and design features that encourage risky behaviour. Hybrid payment-investment services, which blur the line between savings, payments, and investments, must be brought clearly within MiFID II and PSD2/PSR protections.
Importantly, risk warnings for complex products such as leverage must appear at the moment of execution. Alongside, promotional content by finfluencers should also fall under enforceable obligations to ensure transparency and accountability.
Stronger redress and enforcement
Finally, the investor journey will not regain credibility without effective redress mechanisms. Current systems are fragmented and often inaccessible. BETTER FINANCE urges the establishment of a single EU complaints portal and mandatory participation of all providers in Alternative Dispute Resolution schemes.
Collective redress should be strengthened through opt-out class actions and broader standing for consumer organisations, while shareholders must have the ability to pursue cross-border representative actions. These changes must be backed by outcome-based supervision that assesses whether products and platforms deliver genuine value and fair treatment in practice.
Conclusion
The evidence is clear: retail investors are not disengaged due to inherent “risk aversion,” but rather because the system remains stacked against them. BETTER FINANCE's response to ESMA calls for reimaging the retail investor journey around people, not products, as the only way forward for a deeper participation in European capital markets.