EU Retail Investment Strategy

For each instrument on your product shelf, you will have to be able to justify that such instrument has a value, meaning that all costs can be justified and are proportionate. This is done via a peer review across the market with comparable instruments. As such, assuming two funds with the same characteristics (horizon, risk, strategy, etc.), the fund with high costs and low return will be considered to provide less value to a client than the other fund with less costs, yet higher returns. Here it is to be highlighted that according to ESMA, on average, 60% of a fund's cost base is linked to distribution - retrocessions in other words. Such analysis will be necessary across the entire product shelf, at product approval, but also on-going. Any product on your shelf that has a lower value-for-money than its peers, requires a dedicated justification.

Business impact: (front office, product approval, data and systems, on-going monitoring) for the front office, relationship managers will need to be equipped to explain and defend the cost structure of every recommended product — a significant shift in client conversation dynamics. At the product governance level, the Product governance process must be upgraded to embed systematic VfM benchmarking at product approval and on an ongoing basis, requiring dedicated analytical tooling or vendor solutions capable of peer comparisons across risk, horizon, and strategy dimensions. Compliance and the product committee will bear responsibility for maintaining a live register of products flagged as below-peer VfM, each requiring documented justification. Given ESMA's finding that distribution costs represent approximately 60% of a fund's total cost base, this framework structurally scrutinises retrocession-based revenue models and will force institutions to reassess the commercial viability of certain shelf products.

The ex-post quality enhancement justification is abolished. A new ex-ante inducement test has been introduced. It applies at the product approval level. The logic of existing "add-on service" and "proportionality" remain the same (now referred to as "tangible benefits"), yet it has to be done at ex-ante level, and the inducement has to be linked to the value that such instrument provides to the client (please see above). As such, there is a clear interaction between the value-for-money and the inducement test. Put clearly, distributors will have issues justifying the receipt of on-going inducements for instruments that perform below the market (and that thus do not provide value to their clients).

Business impact: (compliance, front office, product approval) the core concepts of tangible benefits and proportionality survive, must now be assessed upfront and directly linked to the value the product delivers to the end client. This creates an immediate, structural interaction with the VfM framework: if a product cannot demonstrate value, justifying ongoing retrocessions for that product becomes legally untenable. For distribution-led businesses, this is a revenue model challenge as much as a compliance one — requiring coordinated action between legal, compliance, front office, and product teams.

Another important feature is the new client classification rules, which simplify the professional opt-up process. Hence, while RIS defines new rules for retail clients, it also defines new rules to exit the retail status.

Business impact: (front office, on-boarding systems, compliance, operations) for institutions, this represents both an operational redesign challenge and a genuine commercial opportunity. KYC workflows, suitability engines, documentation templates, and onboarding journeys must be updated to reflect the new rules. On the upside, a broader pool of clients may qualify for professional status — expanding the product universe available to them and potentially improving shelf utilisation while reducing the regulatory burden associated with full retail protections.

Other topics include (i) updated PRIIPs template, (ii) new staff qualification requirements, (iii) cross-border activity reporting, or (iv) standard warnings or wordings. However, these topics are minor and will not be treated in the upcoming presentation.

Business impact: the above-mentioned updates will require a documentation and procedure and policy updates, but the operational impact will be lower compared to the three mentioned before.