As announced in the Communication on the Savings and Investments Union (SIU)1, the European Commission aims to give European citizens broader access to capital markets and companies better financing options. This renewed policy agenda builds on the still incomplete Banking Union (BU) but also, crucially, succeeds and supersedes the largely unsuccessful Capital Market Union (CMU) agenda. It therefore foresees assessments and potential revisions of most of the European Union (EU) legislation governing the tools, products and infrastructure that European citizens use to save and invest their money, including rules governing financial advice. This research will examine how the notion of financial advice is structured in EU law and to what extent it effectively protects individual investors.
Increasing individual investor participation is essential for the growth of EU capital markets and for the long-term financial well-being of European citizens. In today’s context of shifting geopolitical dynamics, rapid technological change, and pressing climate and security challenges, enhancing financial intermediation in the EU is more important than ever: ensuring that EU citizens’ savings are channelled towards sustainably growing firms whose profits, in turn, generate further wealth for EU citizens.
Investment in capital markets remains out of reach for many. People may be wary of losing money, struggle to understand complex financial products, or simply distrust a system that still feels “casino-like.”2 As a result, Europeans often let their savings sit in low-yield accounts, letting others bear the risk but also reap the benefits of investing and, crucially, decide on the future of the European economy. This is a missed opportunity. It prevents retail investors from achieving meaningful returns on their savings, leaving them exposed to inflation, and limits the growth of companies that need diverse, long-term funding.
At the heart of these challenges lies a critical gap: the missed potential of professional advice. Even those who consider themselves financially literate often require guidance to navigate increasingly complex products3. As highlighted by Commissioner Albuquerque, consumers should clearly benefit from investing in capital markets, but today many are offered products that fail to deliver real value, which undermines trust and discourages retail investors from participating.
The value of financial advice lies in its ability to bridge knowledge gaps and reduce complexity for clients45. Good advisers act as intermediaries who translate complex financial information into actionable guidance, especially when data shows that financial knowledge in the EU is, on average, low 6. Recent studies during the COVID-19 pandemic find that clients in long-term advice relationships were better prepared financially to deal with the financial consequences of the pandemic 7. According to the theory of financial intermediation, intermediaries create value when clients face uncertainty and complexity. In theory, advisers simplify financial products, explain their implications, and transfer knowledge to clients. This concerns not only products that regulators label as complex under MIFID II, such as derivatives, structured deposits, as well as mortgages, pensions, or insurance-products, but also those that clients themselves experience as critical. Moreover, research shows that financial advisers play an important role in the growth of SMEs8. For these companies, a good insurance choice can determine business survival.
Put simply, the benefit of appropriate financial advice is clear: it can help consumers manage their portfolios more effectively, reduce the impact of behavioural biases (risk aversion, short-termism, home bias…) and improve their long-term financial well-being while contributing to the growth of the real economy9.
Yet, the way individual investors perceive and use financial markets ultimately depends on the quality and trustworthiness of that financial advice they receive. Seeking financial advice unfortunately offers no certainty of actually receiving sound advice10. After the 2008 financial crisis, and an array of scandals in the past three decades11, the mistrust in these services caught a precedent, with detrimental effects on consumers.
The qualification requirements to become an investment adviser differ across the EU. The EU framework allows Member States a margin of discretion to decide what qualification a professional must have to be certified as a qualified financial adviser. The absence of harmonised high standards among advisers has often been linked to cases where consumers receive unsuitable advice and fall victim to mis-selling12. Raising qualifications requirements would trigger a collective effort of the profession to enhance the knowledge and competence of advisers, potentially improving the quality of advice and reinforce public confidence in seeking advice.
Additionally, third-party payments (i.e., when financial advisers are, at least partly, remunerated by financial firms and not solely by their clients13) can affect their objectivity, creating incentives that may create conflicts of interest and steer their advice away from what is truly in the best interest of the client. 141516 This highlights the need of regulating inducements through a comprehensive legal framework designed to ensure transparency, address conflicts of interests and prevent inducement schemes that are lucrative for advisers precisely because they are invisible to clients17.
While individual investors in the EU still rely primarily on human advice delivered by banks and insurance intermediaries, the rapid growth of alternative distribution channels – such as neo brokers and other fin tech firms – signals growing scepticism, particularly among younger investors, about the value of financial advice18. At the same time, execution-only services and online advisery models are not without risks, especially as regards the suitability of investment decisions and the way information is presented and understood. While this development has contributed to a broader democratization of access to financial markets, it has also contributed to product proliferation, frequently accompanied by promises that exceed actual investor outcomes. There is therefore an urgent need to improve the quality of both traditional and “new” forms of financial advice, in order to ensure that retail investors receive clear, suitable and reliable guidance regardless of the channel through which advice is delivered.
This research examines how financial advice is legally defined and regulated, and to what extent existing frameworks protect retail investors from misinformation and conflicts of interest. The first section reviews the definition of financial advice under European law, distinguishing it from other forms of financial information. The second section analyses the legal safeguards in place to protect investors, with a particular focus on retail investors. The third section offers a critical reflection on the remaining challenges and gaps in investor protection in light of evolving market dynamics, paving the way for a definition of high quality financial advice and further debate. A final section concludes.
This project is intended as part of a broader effort, in which the EU system will be compared with other legal frameworks, offering a reflective perspective on how alternative approaches address similar challenges and what lessons can be drawn for improving investor protection in Europe.