The EU Retail Investment Strategy: navigating the value-for-money benchmarks

This article is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for advice specific to your situation.

What the Retail Investment Strategy actually is

The EU Retail Investment Strategy (RIS) is a legislative package proposed by the European Commission on 24 May 2023 with the stated objective of increasing retail participation in EU capital markets while improving the quality and fairness of investment products and advice available to retail clients. It forms part of the broader Savings and Investments Union agenda.

The package comprises two proposals. The first is an omnibus amending directive that modifies five existing directives simultaneously: the UCITS Directive, Solvency II, AIFMD, MiFID II, and the Insurance Distribution Directive. The second is a regulation amending the PRIIPs Regulation (Regulation (EU) 1286/2014) to modernise the key information document (KID) retail investors receive when purchasing packaged investment products.

The Council and the European Parliament reached a political agreement on the package on 18 December 2025. Formal adoption and publication in the Official Journal have not yet occurred as of July 2026. The European Parliament’s plenary vote is indicatively scheduled for the November 2026 session. Once published, the new rules will apply 30 months after publication for the MiFID II and IDD amendments, and 18 months after publication for the PRIIPs KID changes. Transposition of the directive amendments must be completed within two years of publication.

This means the operative compliance deadline for most RIS obligations sits in the 2028 to 2029 window. For wealth tech firms and boutique asset managers, that window is shorter than it looks, because the structural changes require product reviews, distribution agreement reviews, and system changes that cannot be completed at the last moment.

Why the inducements ban headline is misleading

The Commission’s original May 2023 proposal included a partial ban on inducements: investment firms providing execution-only services would have been prohibited from receiving third-party commissions for those services. For non-independent advice, inducements would have been permitted but subject to significantly tightened conditions.

Neither the European Parliament nor the Council retained this ban in its final form. The Parliament’s ECON Committee report, adopted in March 2024 and voted in plenary in April 2024, removed the partial execution-only ban. The Council’s position, agreed in June 2024, also removed the inducements ban, replacing it with strengthened safeguards and the new value-for-money framework. The December 2025 agreement between the two institutions reflects this outcome: inducements are not banned, but the regulatory environment around them changes materially.

For distribution-dependent business models, the absence of a ban is not the same as the absence of change. The new inducement test, the value-for-money benchmarks, and the enhanced cost transparency requirements together impose substantive obligations that affect how products are selected, priced, and distributed.

The new inducement test

Under the agreed framework, investment firms and insurance distributors receiving inducements must satisfy a strengthened test demonstrating that the payment is in the client’s best interest. This replaces the existing MiFID II test, which has been widely criticised as insufficiently rigorous in practice.

The new test requires firms to demonstrate, for each product where inducements are received, that the product provides value for money to the client and that the inducement does not impair the firm’s ability to act in the client’s best interest. Critically, the test is not satisfied simply by disclosing the inducement to the client and obtaining consent. The obligation runs to the substantive alignment of the product and the advice with the client’s interests, not merely to the transparency of the commercial relationship.

A new concept of distinguishing inducement fees from other fees is introduced, giving retail clients clearer information about how the distribution chain is compensated. Firms must ensure clients can understand what portion of the total cost they pay relates to distribution commissions and what relates to product management costs.

ESMA’s 2025 market report on total costs of investing in UCITS and AIFs provides useful context for why this matters. On average and across distributor channels, when manufacturers pay inducements, 45% of ongoing UCITS costs is paid out as inducements to distributors. This figure is not disclosed as a standalone item in PRIIPs KIDs under the current framework. The RIS amendments are intended to make the distribution cost layer visible and subject to a substantive best-interest test.

Value for money: the supervisory benchmark framework

The most structurally significant new element for asset managers is the value-for-money framework and the supervisory benchmarks that ESMA and EIOPA will develop under it.

What value for money means under the RIS

The agreed framework requires that investment products must offer real value for money to retail clients before they can be marketed to them. Products that do not offer value for money can be prevented from being released onto the market. This is a product governance obligation imposed on manufacturers, not merely a distribution disclosure requirement.

The practical implication is that product approval processes must now include a formal value-for-money assessment before launch. For existing products, manufacturers need to assess whether the product meets the standard on an ongoing basis.

The ESMA and EIOPA supervisory benchmarks

ESMA and EIOPA will develop supervisory benchmarks for groups of financial instruments manufactured and distributed in more than one member state. These benchmarks serve as a supervisory tool: they establish reference points against which national competent authorities assess whether products in a given category offer value for money relative to comparable products available in the market.

The benchmarks are explicitly scoped to cross-border products. Products sold in a single member state only are outside the benchmark scope, though national competent authorities may develop their own comparisons.

The specific methodology, data inputs, and cost thresholds for the benchmarks will be specified by ESMA and EIOPA in the technical standards developed after the directive enters into force. Until those standards are published, manufacturers cannot know precisely where the benchmark lines will fall. What they can do now is assess their products against the cost data that already exists.

ESMA’s March 2026 market report on costs and performance of EU retail investment products provides the most current picture of where EU fund costs actually sit. For the 2020 to 2024 period at a one-year investment horizon, equity UCITS ongoing costs averaged 1.32%, bond UCITS averaged 0.81%, and mixed UCITS averaged 1.44%. Passive equity non-ETF UCITS averaged 0.22% ongoing costs. Active equity ETFs averaged 0.21%. These figures are not the benchmark thresholds, but they represent the empirical cost landscape that ESMA will use as an input when developing the benchmarks.

The same report documents that active equity funds significantly underperformed passive and ETF equivalents in 2024: net annual returns of 17.0% for active equity UCITS against 21.3% for passive non-ETFs and 21.4% for ETFs. For boutique active managers, the cost-adjusted performance question that supervisory benchmarks will formalise is already visible in publicly available data.

What this means for product governance

A boutique asset manager or wealth tech firm that runs active strategies with ongoing costs above the category average needs to be able to demonstrate, under the new framework, that the additional cost is justified by the product’s characteristics, investment strategy, or non-financial benefits. That justification needs to be documented at the product approval stage and reviewed periodically.

This is not a new concept. MiFID II already imposes product governance obligations on manufacturers and distributors under Articles 16(3) and 24(2) of the directive and the associated delegated regulation. What the RIS does is raise the evidentiary standard. The existing product approval process asks whether the product is designed with a target market in mind. The new framework asks whether the product provides value relative to alternatives available to that target market, assessed against ESMA-defined benchmarks.

For distributors, the same logic applies in reverse. Under the new inducement test, distributing a product that fails the value-for-money assessment is not simply a disclosure gap: it is a substantive compliance failure, because the test requires the firm to demonstrate that the inducement does not impair its ability to act in the client’s best interest. A product failing the ESMA benchmark is evidence of exactly that impairment.

Cost disclosure and the revised PRIIPs KID

The RIS amendments to the PRIIPs Regulation are intended to make cost information in the KID more comparable, more meaningful, and more accessible digitally. The KID changes apply on the shorter 18-month timeline after publication, making them the earliest operative deadline in the package.

The agreed framework introduces a standard presentation and terminology for costs across all PRIIPs. Subscription fees, ongoing management fees, transaction costs, and performance fees must be presented in a consistent format that allows retail investors to compare products across manufacturers and product types.

The practical compliance problem for asset managers is not the disclosure format itself but the data quality underlying it. ESMA’s 2025 report notes that significant data issues persist in cost reporting: for UCITS, entry and exit costs reported in PRIIPs KIDs are still subject to limitations, with actual one-off costs charged to investors often between 38% and 96% lower than the maximum levels disclosed in KIDs. The standardised disclosure framework assumes that the inputs are accurate. Manufacturers that have relied on maximum fee disclosure rather than actual cost reporting will need to review their KID production processes before the new format applies.

Distribution costs remain a structural gap. The ESMA report notes that the current PRIIPs KID framework reports distribution costs only as part of aggregate cost figures, without disclosing their exact level. Distribution costs represented 48% of UCITS total costs in ESMA’s November 2025 market report on total costs of investing in UCITS and AIFs. The RIS framework requires clients to be able to distinguish inducement fees from other fees, which means the KID or accompanying disclosure must surface the distribution cost layer that has historically been embedded in ongoing charges.

What changes for advice and distribution models

Non-independent advice

For firms providing non-independent investment advice, the RIS framework does not eliminate inducements but imposes the strengthened inducement test described above. The most significant operational change is the requirement to document, for each advised product where inducements are received, that the product passes the value-for-money assessment and that the inducement does not impair the best-interest obligation.

For wealth tech firms operating non-independent advice models at scale, this documentation requirement has system implications. A firm advising thousands of retail clients across a range of products needs a systematic process for assessing and recording value-for-money compliance, not a case-by-case manual review. The architecture of that process needs to be built before the 30-month deadline.

Execution-only services

The partial inducements ban for execution-only services was removed from the final text. Firms receiving commissions from fund manufacturers for placing clients in specific products without advice can continue to do so, subject to the existing MiFID II framework and the new cost transparency requirements.

However, the new requirement for clients to be able to distinguish inducement fees from other fees applies across distribution models. For execution-only platforms that receive trailer fees or distribution commissions, those payments will need to be identified and disclosed separately from platform service fees. The business model does not change, but the disclosure architecture does.

Financial literacy and marketing

The agreed package includes provisions requiring member states to support financial literacy and education. It also introduces supervision of financial influencers: where investment firms use the services of financial influencers to promote financial products, they must have a written agreement with the influencer, hold the influencer’s contact details, and maintain control over their activities. Firms are fully responsible for marketing communications distributed through third-party channels including social media, regardless of whether the firm produced the content directly.

The legislative pipeline that follows

The December 2025 political agreement is a trilogue outcome, not final law. The formal adoption process requires the text to be approved in its finalised form by both the European Parliament and the Council, published in the Official Journal, and then transposed into national law within the two-year transposition deadline.

The technical standards that will specify the precise value-for-money benchmark methodology, the cost disclosure templates, and the inducement test criteria do not yet exist. ESMA and EIOPA will be mandated to develop those standards after the directive enters into force. The level 2 standards are where the specific threshold numbers, comparison methodologies, and documentation requirements will live. A firm that builds its compliance programme around the level 1 text alone will be incomplete.

The plenary vote indicatively scheduled for November 2026 is the next formal milestone. Boutique asset managers and wealth tech firms should monitor the legislative process through to formal publication, then track the technical standards mandates as they are issued to ESMA and EIOPA.

For a structured view of how EU directives, their technical standards, and the gap between political agreement and operative compliance interact, see how EU financial regulation actually works.

What firms should be doing now

The 30-month application window is not a reason to defer action. It is the reason to act now, because the changes require product reviews, distribution agreement renegotiations, and system builds that cannot be completed in the final months before the deadline.

The most productive use of the preparation period for boutique asset managers is a product cost review benchmarked against current ESMA data. The supervisory benchmarks will be built on datasets like the ESMA 2025 costs and performance report. Identifying products that would be exposed to a benchmark challenge under plausible benchmark methodologies is a factual exercise that can be completed today.

For distributors operating on inducement-based models, the preparation task is a distribution agreement review: identifying which products carry inducements, what the inducement level is relative to total ongoing costs, and whether the product satisfies a value-for-money assessment against current market comparables. That review needs to happen before the technical standards land, not after, because the technical standards will set the threshold above which non-compliance is formally established.

For wealth tech firms operating at scale, the documentation architecture for the strengthened inducement test needs to be scoped and built before the deadline. The test is substantive, not declaratory: it requires firm-level evidence that each product where inducements are received genuinely serves the client’s best interest. That evidence needs to be produced systematically, not reconstructed retroactively.

For the broader EU financial regulatory environment in which the RIS sits, including AIFMD II compliance requirements that are already in force and SFDR disclosure obligations that apply now, see EU regulatory intelligence for boutique fund managers.

Forseti monitors the Retail Investment Strategy legislative process continuously, including the plenary vote timeline, the technical standards mandates as they are issued, and ESMA and EIOPA consultation papers on value-for-money benchmarks, anchored to verified official sources. Start for free.