In July 2025, BETTER FINANCE responded to the European Securities and Markets Authority (ESMA) consultation on the retail investor journey. Our response made one point clear: retail investors are not simply reluctant to invest.
In March 2026, ESMA published its consultation report. The report takes stock of the stakeholders’ reported barriers that can explain limited retail participation in EU capital markets. It confirms many of the long-standing concerns raised by consumer organisations: weak trust in financial services, opaque costs, limited product comparability, and fragmented digital experiences. The fragmented disclosures continue to erode trust and make it difficult to make informed investment decisions.
What ESMA Gets Right
In addressing the report’s outcomes, ESMA acknowledges that retail investor disengagement results from structural barriers embedded across the so-called ‘investor journey’ report, ESMA acknowledges that retail investor disengagement results from structural barriers embedded across the so-called ‘investor journey. This aligns closely with BETTER FINANCE’s points. What is often described as “risk aversion” is, in fact, a rational response to systemic shortcomings, ranging from mistrust in distribution models to poor cost transparency and lack of comparability. In substance, we welcome the report marks an important shift away from a behavioural-only narrative toward recognising the multi-factor nature of investor (dis)engagement.
Encouragingly, ESMA commits to taking steps forward on disclosures and digitalisation, two areas where BETTER FINANCE has called for reform. The focus on layered disclosures, better usability, and digital access underscores the need to move beyond fragmented, legalistic information. As we highlighted, the problem is the structure of the information and its relevance. Thus, ESMA’s commitment to investor testing is a positive step, bringing a more evidence-based approach to see if disclosures are truly understood.
Finally, ESMA’s attention to sustainability-related issues is a notable and positive development. ESMA is right to place greater focus on making sustainability information must be usable and meaningful for retail investors, not just available.
A Technical Roadmap Rather Than Reform
BETTER FINANCE welcomes ESMA’s examination of the consultation feedback. However, we believe most takeaways are preparatory, rather than transformative. By leaving key issues to the Retail Investment Strategy, they confirm that the weaknesses are systemic and extend across several regulatory regimes.
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This is especially true for inducements and advice models, which remain implicitly conditional on the final RIS framework. Though ESMA acknowledges them as critical, it does not yet indicate how these structural issues would be tackled in practice without legislative direction.
The report is technically sound but limited by political constraints. It sets out a credible roadmap for future work but does not commit to the deeper reforms needed to realign market incentives and improve outcomes for investors.
Where the Gaps Remain
Despite its strengths, ESMA’s report leaves several critical issues underdeveloped or inadequately addressed.
Market incentives remain largely untouched.
A key omission is, as we mentioned above, the role of inducements and sales-driven distribution. BETTER FINANCE has repeatedly been vocal on how commission-based advice leads to biased recommendations and undermines trust. ESMA’s report does not clearly say how these incentives will be addressed. This is a major gap. Better disclosures alone will not fix outcomes if market incentives still favour complex, high-margin products over value-for-money options.
Digitalisation is not fully treated as a ‘conduct issue’.
BETTER FINANCE has warned that digital design alongside complex services shape investor behaviour and brings new risks. The report notes the rise of digital interfaces but does not provide clear regulatory direction on how to supervise them. As such, BETTER FINANCE is concerned that ESMA has not addressed the main issue: the need for a stronger conduct-based approach.
Hybrid services and new models lack clarity.
The convergence of investment, payment, and digital platform services introduces new complexities. BETTER FINANCE points to the growing overlap between MiFID and payment rules, as well as the rise of embedded finance and hybrid models. However, ESMA gives little indication of how it will address these changes. This lack of clarity risks leaving gaps in investor protection.
Product neutrality across frameworks is underplayed.
In its response, BETTER FINANCE has highlighted that similar products can be subject to different disclosure and advice standards (specifically MiFID and IBIPs), leading to a lack of comparability and thus inconsistent outcomes for investors. The issue remains insufficiently addressed by ESMA, exposing another major gap.
Cross-border frictions are largely absent.
Key barriers to cross-border investing receive limited attention. BETTER FINANCE has emphasised the impact of tax complexity, withholding tax (WHT) procedures, and limited account portability in discouraging retail participation. BETTER FINANCE believes that these frictions are integral to the investor journey and directly affect market access and competition.
Redress and investor protection gaps.
Finally, ESMA also did not address weaknesses in complaint-handling and redress. BETTER FINANCE has shown that fragmented ADR systems, unclear complaint pathways, and limited cross-border enforcement remain problems. Without effective redress, investor protection is incomplete, and trust in the system will continue to decline.
Simplification Doesn’t Mean Deregulation
While ESMA rightly emphasises simplifying the investor journey, it is essential to clarify that simplification must not be equated with deregulation. As BETTER FINANCE has stressed, the issue is not the quantity of information, but its structure, clarity, and relevance for investors. Effective simplification should therefore lead to better comparability, clearer information, and improved usability, particularly through layered and digitally accessible disclosures.
However, there is a risk that simplification could weaken safeguards or shift responsibility onto consumers, especially if key protections are reduced in the name of streamlining. This risk also applies to sustainability. Simplifying ESG requirements must not dilute meaningful preferences or undermine the comparability and credibility of disclosures. These are essential to avoid greenwashing and support informed decisions.
Compliance Is Not Enough
Ultimately, improving the retail investor journey means moving from procedural compliance to outcome-based supervision. As BETTER FINANCE has highlighted, the current framework focuses too much on formal requirements such as disclosures, suitability checks, and documentation, without ensuring that these lead to better results for investors.
A more investor-centric approach should embed a stronger duty of care. This will ensure that financial services deliver value for money and align with investors’ long-term needs. The EU needs to move towards a system that assesses whether products are understandable, suitable, and able to deliver sustainable outcomes, echoing the logic of the UK’s Consumer Duty.
In this context, ESMA’s focus on investor testing is promising, but it should go further. Firms should be held to fair, clear, and non-misleading standards that support comparability, effective competition, and fair distribution. But procedural compliance alone is not enough. Outcome-based supervision should be the real metric for assessing whether the investors’ best interests are truly being served.
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