Attracting investors: the keys to a thriving investment landscape in Europe

By Ivan Pascual, Head of EMEA Wealth Client Business at BlackRock

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

I had the pleasure to participate recently in discussions with industry members, policymakers, and various stakeholders on how to bolster the attractiveness of European financial markets to fund the continent’s long-term growth and empower retail investors to build their financial future. Asset management and collective investment vehicles are fundamental tools that have allowed individuals to deploy their savings efficiently to achieve their financial goals. Europeans, however, have on average lower participation in financial markets, compared to more mature markets like the US.¹ This might affect, over the long-term, their financial well-being and overall economic stability.

Yet for citizens to invest, it is key that the European investment landscape remains attractive and conducive to increased participation, across both healthy supply and demand dynamics.

On the supply side, a vital strength of the European fund market is its broad offering of a very diverse set of products, instruments and providers. Preserving choice and encouraging product innovation are two essential traits of a thriving investment sector.

The EU’s regulatory framework plays an important role in ensuring these two attributes. For example, the UCITS regulatory framework serves as a world-class model of a legal vehicle that enables access to a diverse funds universe for retail investors across and beyond Europe, whilst aiming to preserve a high level of investor protection.

Similarly, in the alternative investments space, the evolution of the European Long-Term Investment Fund (ELTIF) Regulation – and all the accompanying technical standards – will be essential to channel much needed long-term capital to Europe’s small and mid-sized unlisted companies and democratise retail investors’ access to a new asset class with attractive long-term returns that is mainly being offered to institutional investors today. The rollout of the ELTIF 2.0 framework² in 2024 is a positive step. To make sure its potential is fully realised, leaving room for future product innovation, technical standards on redemption terms will need to adequately balance investor expectations and sound liquidity risk management solutions.

Building investors’ confidence, encouraging their participation and stimulating the demand side is equally crucial. Transparency, ease of access and education are the keys to a thriving retail investment market.

There are different levers to support a transparent, easily accessible funds market. Beyond regulation, which has certainly helped create cost transparency and reduce barriers to investing, Wealth Managers and financial advisors play a fundamental role. They support the retail investor journey and help savers find investment solutions to address their immediate needs, but also to help them achieve their long-term goals and financial wellbeing.

Additionally, digital investment platforms have played a pivotal role in encouraging European investors' participation in recent years. They offer a broad range of products with low barriers to entry, intuitive interfaces, and a low cost³, democratising access to products and portfolio solutions. These platforms also encourage regular and long-term investment programmes that benefit not just citizens but also contribute to the economic resilience of Europe. For example, in recent years, Exchange-Traded Funds (ETFs) and ETF savings plans have catalysed the interest of new investors, facilitating the shift from saving to investments. Often, such platforms also provide end investors with educational materials to help them make more informed choices. In September 2023, an estimated 7,6 million ETFs savings plans had been subscribed to in Europe – an encouraging number that is expected to quadruple by 2028.⁴

Another important development is related to Financial Planning-Based Advisory – an approach focused on delivering holistic financial planning tailored to end clients’ needs and time horizons. It may represent one of the most significant opportunities in the EMEA Wealth market. This approach can play a crucial role in unlocking the next wave of investors thanks to better offerings and service models adapted to mass-affluent retail clients.

This client-centric advisory practice entails a shift in value propositions from Wealth Managers and necessitates an evolved regulatory framework that places financial planning at the core of the client profiling process, prioritising the client first and products second. It’s a transition from products to portfolios - shifting from offering specific products to providing holistic financial planning delivered as a portfolio designed to meet the client’s long-term financial objectives.

For these propositions to grow and attract new investors, it is crucial to have a client-centric regulatory framework that continues to preserve and support their economic viability, while preventing conflicts of interest in proposing solutions to end investors.

In conclusion, fostering an ecosystem that supports innovation in the investment industry is crucial for positioning Europe as an attractive destination. The regulatory framework must enable innovation and contribute to increasing the attractiveness of the European funds market. ELTIF serves as an example of how regulation, technology, and product design can align successfully. It is important therefore that existing and upcoming regulatory frameworks focus on supporting scalability and the use of technology so that investment vehicles can be adopted increasingly by investors, at a lower cost. As investor participation grows, maintaining a broad offering with ease of access will be vital for the sustained attractiveness of European investment vehicles.

Disclaimer

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of February 2024 and may change as subsequent conditions vary. There is no guarantee that any forecasts made will come to pass.