Retail Investment Strategy – What Fund Managers Should Know

On 18 December 2025, the European Parliament and the Council of the European Union reached a provisional political agreement on a set of measures aimed at boosting retail participation in capital markets also known as the Retail Investment Strategy (RIS).

The RIS is part of the EU's savings and investments union (SIU) and simplifies investor protection and as a result boost the availability of private capital for, particularly, small and medium-sized enterprises (SMEs). The RIS comprises of a draft Directive amending the EU retail investor protection framework set out in, amongst others, the Markets in Financial Instruments Directive II (2014/65/EU, MiFID II); the Alternative Investment Fund Manager Directive (Directive 2011/61/EU, the AIFMD) and the Undertakings for Collective Investment in Transferable Securities Directive (Directive 2009/65/EC, the UCITS Directive).

Accompanying the Directive is a proposed Regulation which amends the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs, (EU) No 1286/2014).

The RIS will be of interest to various financial market participants. In this article, we will highlight the most important elements for alternative investment fund managers (AIFMs) and UCITS managers (i.e. fund managers) pursuant to the RIS.

Value-for-money and product comparability

To ensure that retail investors can compare investment products and get real "value for money" from their investments, retail investment firms will be required to identify and quantify all costs and charges borne by investors. The RIS seeks to prevent the sale of products that do not offer "value for money", requiring firms to assess products against peer-group benchmarks, enabling investors to compare products more easily across categories. Pursuant to the changes proposed to MiFID II, AIFMD and the UCITS Directive the investment firm must also assess whether total costs and charges are justified and proportionate. Products that do not meet this test should not be approved for sale to retail investors. As such fund managers must take note of these changes when they want to remain able to sell their funds to retail investors.

To enable better product comparability, the RIS also aims to improve standardised information about investment products, including the Key Information Documents (KID) pursuant to PRIIPS. To that end changes are proposed to make sure that information on costs, risk and expected returns will be easier to read for retail investors. The European Supervisory Authorities (ESAs) will publish updated templates in due course.

Client journey and client categorisation

Under the RIS the suitability requirements pursuant to MiFID will be largely maintained. However, investment firms providing advice will no longer be required to assess a client's investment knowledge and experience for non-complex and cost-efficient products. The RIS does not specify what these products entail. However, we assume products without additional, non‑essential features that add cost (e.g., guarantees, hedging elements, complex strategies), largely in line with the current definition of "complex" products under MiFID II. We expect money market funds, non structured UCITS and AIFs with straight-forward strategies to qualify as non-complex.

In addition, the RIS expands the conditions under which retail investors may opt to be treated as professional clients. Retail investors can opt-up to be categorised as professional client where they meet two out of the following three criteria:

1. Investment experience: one of (i) at least 15 significant transactions over the past three years, (ii) 30 transactions in the preceding year, or (iii) 10 transactions exceeding €30,000 in unlisted companies over the past five years (replacing the current requirement of 10 transactions per quarter over the previous four quarters).
2. Portfolio size: an average portfolio value exceeding €250,000 over the past three years, instead of €500,000 assessed at the time of the opt-up request.
3. Professional knowledge: at least one year of relevant experience in the financial sector, or - as a newly introduced alternative - appropriate education or training combined with the ability to assess investment risks. Please note that the education criterion may not be combined with the portfolio criterion.

In addition, managers and directors of regulated financial entities which have been assessed on suitability and integrity, as well as employees of AIFMs) with relevant fund expertise, will automatically be treated as professional clients. The latter will prove to be a helpful extension for private equity professionals in particular.

Inducements

The agreed package strengthens the obligation on investment firms to act honestly, fairly and professionally in accordance with the best interest of its clients in mind. They must ensure that any inducement received will lead to a benefit for their client and that the inducement cost is published clearly and separately from other fees and commissions borne by the investor. As such, no big changes to the inducement requirements under MiFID II as it currently stands. In addition, Member States will retain the ability to impose stricter inducement rules / inducements bans.

Undue costs

Under the RIS, "undue costs" are costs that cannot be justified as necessary, proportionate, or competitive when benchmarked. The concept of undue costs under the RIS is used for various requirements set forth in the RIS. The key concept being that products with undue costs should not reach retail investors, tightening product/cost governance requirements under MiFID II, AIFMD and the UCITS Directive. Under the RIS, AIFMs and UCITS managers must adopt a structured pricing process that assesses whether every cost charged to investors is due (i.e. eligible, necessary, proportionate, and backed by clear value for investors).

The European Parliament and the Council have opted to for the Commission's definition of due costs being in line with disclosures in the prospectus and the PRIIPs (KID): i.e. "necessary costs". This obligation stems from ESMA's work on "undue costs".

PRIIPS KID

The key changes to the KID pursuant to the Regulation that revises the EU PRIIPs Regulation is the fact that the KID will need to become "Machine readable" and have a prominent 'Product at a glance' section, which is aimed at highlighting the information on an investment product type, its costs and the level of riskiness, recommended holding period and presence of insurance benefit. Earlier proposals to include a sustainability section are removed from RIS, these will be addressed through SFDR 2.0.

Next steps

The provisional agreement now needs to be approved by both the European Parliament and the Council before the RIS can enter into force. Technical trilogues will continue into 2026. It is anticipated that the official RIS texts will be published in the Official Journal of the European Union early 2026. Member states will have to transpose the new rules 24 months following their publication in the Official Journal. As such, the RIS will likely apply by the end of 2028, except for the new requirements under PRIIPs which apply 18 months following publication.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.