The Value for Money Principle in the EU Retail Strategy

by Vincenzo Troiano*

ABSTRACT: The paper explores the value-for-money (VfM) principle within the EU Retail Investment Strategy and the Omnibus Directive Proposal context. It analyses the structure and operation of the proposed pricing process within Product Oversight and Governance (POG) and the function and use of benchmarks compared to the peer group analysis. It also examines the October 2024 EIOPA Methodology for Value-for-Money Benchmarks.

Summary: 1. Introduction. – 2. VfM: concept and the positions of the EU Authorities. – 3. EU Retail Strategy: background and Value for Money. – 4. Rule of conduct and rule of organisation: the pricing process. 5. Benchmarks and Peer Groups. – 6. (continued): differences and analogies. – 7.  The 2024 EIOPA Methodology on Value for Money Benchmarks and final remarks.

1. Introduction.

This paper examines the Value for Money principle (“VfM”) and its interaction with the EC Retail Investment Strategy (“RIS”)[1], specifically the Omnibus Directive Proposal.

One may ask whether VfM is a principle, a method, a rule, and in this case, a rule of conduct or an organisational rule, whether the infringement of such a principle may lead to civil responsibility of the intermediary concerned vis a vis clients and policyholders and/or administrative responsibility towards the competent Authorities.

Within the context of these broad themes, the following analysis will focus on the concept of Value for Money, evaluating whether this principle is already embedded in EU financial regulation and various soft law sources. Attention will then shift to the EC Retail Investment Strategy, emphasizing the pricing process within the Product Oversight and Governance (POG) exercise, as well as the function and use of benchmarks. This will also include a comparison with another potential tool, peer group analysis. In conclusion, a mention of October 2024 EIOPA Methodology for Value for Money Benchmarks will be provided.

2. VfM: concept and use in the position of the EU Authorities.

We don’t find a proper definition of Value for Money in the EU financial regulation.

It is usually considered a given concept borrowed from the financial sphere, which generally refers to the equilibrium between the costs and returns of a specific investment product.   

The 2021 EIOPA’s supervisory statement[2], usually identified as the first soft law source to reference such a principle, states that Value for Money is already embedded, albeit implicitly, in the IDD[3] and, more specifically, in the POG Delegated Regulation[4], which requires manufacturers to conduct ‘fairness testing’ on their products.

Instead of defining Value for Money, EIOPA’s statement – which is limited in scope to the unit-linked products – proceeds by reasoning. It underlines that no target market has as its objective receiving poor value. Consequently, unit-linked products that offer poor value should not be marketed to consumers. When do unit-linked products provide value for money? When costs and charges are proportionate to the benefits in terms of investment performance, guarantees, coverage and services, amongst others, regarding the entire product lifecycle. Intermediaries should include a pricing process based on an internally structured product complexity scale in their POG framework. Scenario analyses benefit the exercise[5].

According to POG Delegated Regulation and EIOPA’s Statement, product performance assessment should not be understood as interference with manufacturers’ freedom to set premiums or as price control in any form. Neither do POG supervisory activities aim to interfere with business decisions; instead, they assess whether the process followed by manufacturers is sufficiently customer-centric.

Another relevant piece of soft law is the 2022 EIOPA’s Methodology to assess value for money in the unit-linked and hybrid products (e.g., products mixing a traditional component with a unit-linked component) market[6]. Apart from the specific content, what is relevant here is that in the EIOPA’s view, such a methodology, primarily intended for support and use by NCAs, can also be helpful for manufacturers and distributors (when implementing their own POG policies and performing their value-for-money assessments)[7]. As we’ll see, the not-so-clear distinction between the two plains (a supervisory-only tool or also an industry tool) will also be present in the RIS regarding benchmarks.

Mention should be made that, while EIOPA addressed the value-for-money issue in specific documents, ESMA focused mainly on the relevance of due and undue costs in the UCITS and AIFs sphere[8]. Undoubtedly, the issue remains in the background, but attention is mainly directed to costs rather than the value itself.

3. EU Retail Strategy: background and Value for Money.

Moving to the RIS, the Omnibus Directive Proposal includes rules to ensure that products distributed to retail investors offer proper Value for Money[9].

An impact assessment preceded the Proposal, and the final option has been to impose duties in terms of product governance on manufacturers and distributors by requiring the comparison of the products against relevant benchmarks to achieve the intervention’s goal of leading to “better-quality investment products for retail clients that yield better Value for Money (i.e., better quality and more cost-efficient products).”[10]

Value for money remains a principle or a general rule; it is not the subject of a definition. It is not per se an organisational rule, as for the more general product and oversight governance framework, but rather the desirable result, or the objective, of a technical process (the pricing process) aimed at analysing the features of a product. Such process is to be conducted at the intermediaries, but with possible interaction with the authorities, and should lead to the adoption of a product granting to retail investors a fair benefit from the investment or the subscription of an insurance contract. It is the result of a technical process.  

The Proposal amends MiFID and IDD POG rules for PRIIPs and insurance-based investment products to ensure that undue costs are not charged and that products deliver Value for Money. Similarly, the UCITS and AIFMD Directives have been amended to strengthen the procedures for defining and reviewing the cost structure of UCITS and AIFs.

4. Rule of conduct and rule of organization: the pricing process.

A pricing process is now provided at the legislative level and included in the product governance exercise as a specific phase of the product approval process. It aims to clearly identify and quantify all costs and charges and assess whether such costs and charges do not undermine the value the product is expected to bring[11].   

The process includes a requirement not to approve products that deviate from the relevant benchmarks unless the manufacturer and/or the distributor can establish that costs and charges are justified and proportionate[12].

Along those lines, the Recitals to the Proposal specify that “[t]he level of costs and charges associated with investment and insurance-based investment products can have a significant impact on investment returns, something that may not always be evident for retail investors”[13] and to ensure that products offer Value for Money for retail investors, firms authorised to manufacture or distribute investment products should have clear “pricing processes that enable clear identification and quantification of all costs charged to retail investors and are designed to ensure that the costs and charges that are included in investment products or that are linked to their distribution are justified and proportionate in respect of the characteristics, objectives, strategy and expected performance of the product”[14].

Introducing a price process testifies to a change in approach in the POG exercise, with an obligation on the part of the producers of financial and insurance instruments to ensure a correct Value for Money placed upstream of the marketing of the product. The analysis intends to aliment a ‘customer-centric’ (as opposed to ‘profit-centric’) perspective, which is an integral part of the duty of care of the intermediaries vis a vis retail investors[15].

5. Benchmarks and Peer Groups.

The Omnibus Directive Proposal provides for the use of benchmarks in the pricing process, describing who and how will develop such benchmarks, for whom they are construed, and so on.

ESMA and EIOPA have the authority to develop benchmarks, following their sectoral competence. The aim is to make the pricing process more objective and equip manufacturers, distributors, and competent authorities with a tool for efficient cost comparisons among investment products of the same product type[16].

Benchmarks will be published for financial instruments and insurance products with similar performance levels, risks, strategies, objectives, or other characteristics[17].

Instrumental to developing reliable benchmarks based on reliable data, manufacturers and distributors must report relevant data to national competent authorities for onward transmission to ESMA and EIOPA. The Proposal stresses that the receipt of such data is a crucial aspect of the value-for-money approach, which is grounded on reliable benchmarks (against which value-for-money prospects of investment products can be measured)[18].

Therefore, ESMA and EIOPA will develop regulatory technical standards to determine data sets, data standards, methods, and formats for the information to be reported.

It is unnecessary to say that establishing the relevant set of provisions to be followed before creating relevant benchmarks appears to be a very complex and time-consuming exercise[19].

How will the benchmarks be used? The Proposal indicates that if there is a discrepancy between the intermediary’s comparison and a relevant benchmark, where the costs and performance for investors do not align with the benchmark, the product should not be marketed to retail investors. This is only permissible if further testing and evaluations prove that it provides Value for Money to the intended market. An example of this is a product that includes additional features tailored to a specific group of investors with unique needs and objectives, which are not adequately reflected in the description of the investment product category that the benchmark was designed for[20].

The implementation of benchmarks in the pricing strategy has raised significant concerns within the industry, claiming that it tends to focus attention solely on the product’s price. This approach would overlook that Value for Money cannot be gauged merely by comparing costs to a benchmark. Additionally, the development of a benchmark would fail to account for the considerable variations in pricing among different distributors, influenced by numerous factors such as their geographical location, the scale and range of their distribution network, the nature of the services offered, their ability to utilize digital channels, and the level of expertise of their service personnel[21].

Additional concerns would regard what is often viewed as price intervention, which appears to benefit larger entities with greater scale. On the other hand, a potentially adverse effect could be the simplification and homogenization of product offerings, resulting in a trend toward standardization and passive management[22].

Not surprisingly, use and function of benchmarks attracted particular attention during the legislative process[23].

The Parliament’s position[24] differs from the Commission Proposal specifically regarding the requirement for producers to conduct an ‘external analysis’ to evaluate the consistency of their products’ costs and returns. Echoing the industry’s concerns, the fear is expressed that the supervisory authorities’ publication of benchmarks would lead to price standardisation, harming competition. To mitigate the risk of benchmarks resulting in price regulation, the Parliament proposes that they should serve solely as tools for national authorities to supervise products in the market better[25]. They should aim to identify potential outliers and ensure necessary corrections for the benefit of consumers[26]. Where necessary, national supervisory authorities could share the benchmarks for a specific product with the companies involved in the supervisory process to allow them to provide adequate explanations for deviations from the benchmarks[27].

Instead of assessing the product’s price against benchmarks, according to the Parliament’s position, intermediaries should perform a ‘peer-group’ assessment, which involves a comparative analysis of the product’s historical costs and returns alongside those of similar products in the market[28]. Manufacturers and distributors would be required to define their ‘peer group’ (i.e., a group of competitor products with which they will compare their offerings) providing specific written justification for their choices[29].

The EU Council’s position is a middle ground between the two approaches[30]. It supports conducting a ‘peer’ evaluation of the costs and returns of products in relation to a homogeneous group of products in the market. However, it also acknowledges the Commission’s proposal to make the Supervisory Benchmarks public[31].

6. (continued): differences and analogies.

The Commission, Parliament, and Council adopt different approaches in structuring the measures, yet they are united in their overarching objective to establish clear criteria and methodologies that ensure the objective and standardised application of Value for Money throughout the EU. The goal is to reduce subjectivity in assessment exercises and create a balanced evaluation of both quantitative and qualitative factors, seeking to minimize inconsistent and non-comparable outcomes while enhancing the supervision of compliance. And thus, ensuring that clients receive an equitable cost-benefit ratio[32].

The bottom line is that two methods of verifying the internal evaluations carried out by intermediaries in the pricing process are proposed: comparing them with an external benchmark or a peer group. No substantial differences emerge in the potential reduction in competition amongst manufacturers (or distributors); in both cases, an urge to flatten out or not diverge too much from the benchmark or the control group may emerge.

Shifting the analysis to the relevance of authoritative intervention, benchmarks present a substantial, more incisive role of the sector authorities (compared to the other method) in data collection, aggregation and the construction of the benchmark.

While it is true that the intermediaries themselves provide the basic data, no doubt creating the data sets and reworking the information received opens the way to an authority-led definition of the benchmark. The possibility that benchmarks should consider differences in geographic area, reference sector, and product characteristics does not seem at first glance easy to implement unless one intends to fragment the benchmark indices to such an extent that they effectively lose the immediate indicative value they are supposed to have.

The other comparison method, peer group analysis, presents, in turn, some deficiencies. On the one hand, authorities’ intervention is still present, if only to mitigate opportunistic choices made by intermediaries in the selection of the comparison group, with the consequence that the more pervasive the authorities’ control in this perspective, the less autonomous the intermediary’s choice would be. On the other hand, the excessive parcelling out of comparison groups may again fragment the tool, rendering its value and functionality less effective.

For sure, considering that benchmarks are a tool only at the authorities’ disposal and not as a parameter against which intermediaries compare the price-return ratio, is not convincing. The season of supervisory expectations that, although not mandatory, nevertheless, in practice, condition operator’s behaviours suggests that the authorities’ recourse to benchmarks would, in any case, implicitly push operators to internalise the use of the same benchmarks in their processes. It is preferable not to have grey areas but a straightforward solution: benchmarks exist, are public, and are used by authorities and intermediaries, or they are out of the picture.

7. The 2024 EIOPA Methodology on Value for Money Benchmarks and final remarks.

Regarding grey areas, it should be noted that, in the insurance sector, EIOPA is making further efforts to build methodologies for appropriate benchmarks, particularly for unit-linked and hybrid insurance products.

In October 2024, EIOPA issued a new Methodology on Value for Money Benchmarks[33]. In the EIOPA view, “the benchmarks methodology is meant as a supervisory tool to enable EIOPA and NCAs to adopt a more informed and risk-based approach to the supervision of value for money, support customer centricity in the product testing, development, and review phases, and bring more clarity to supervisors and manufacturers on the approach to the identification of products which may not offer value for money”[34].

EIOPA states it does “not plan to share the benchmarks with insurance product manufacturers and/or publish them before dialogue with NCAs and only when the methodology is sufficiently tested and stable. Instead, EIOPA will circulate the benchmarks to NCAs for supervisory purposes such as the identification of products with higher value for money risks”[35]. In addition, EIOPA specifies that, in any case, manufacturers should not consider benchmarks as a safe harbour; benchmarks should not be seen and used as price regulation or cost-capping or as a consumer disclosure tool[36].

The overlap between the different plans of intervention (the RIS and the EIOPA Methodology) is evident.

In the 2023 consultation paper[37], EIOPA specified that the paper was to be considered independent from the RIS and only based on existing IDD requirements. EIOPA was of the view that its preliminary work could inform the RIS providing real practical expertise on how to develop benchmarks. However, EIOPA’s work and approach differed from the RIS as it would develop benchmarks based on a sample of products, which would be used for supervisory purposes (i.e., to inform a more risk-based approach).

On contrary, the 2024 Methodology notes that “the developments in the area of value for money within the RIS Retail Investment Strategy (RIS) may inform future reviews of the VfM and/or benchmarks methodologies; however, EIOPA’s ongoing work on benchmarks is to be considered as independent”[38].

The change of tone is very relevant and testifies to the persistent, unclear distinction between the different sources of intervention.

More than this, it is important to consider the possibility that some national authorities adopt, for instance, through supervisory expectations or other soft law provisions, any guidance from EIOPA on this matter (before RIS is in place) and what effect this may have on the competitiveness of those markets.

In this respect, the discrepancies in terms of timing between the final adoption of the European discipline and the possible advancement of national legal frameworks are evident. The latter create regulatory environments that are not necessarily uniform in the European area and, above all, lead to conforming national systems to models that might not be aligned to the European regulation, once definitively adopted.

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Vincenzo Troiano is Full professor of Financial Markets and Intermediaries Regulation in the Department of Economics of the University of Perugia.

This paper is based on two speeches delivered at the Conference on The EU Retail Investment Strategy, organised by Luiss University-Rome, Tor Vergata University-Rome, University of Luxembourg, and hosted by Luiss University of Rome, on 12-13 September, 2024 and at the Conference on The impact of EU Regulation on models of banking and finance, organised by the Università Marconi-Rome and Luiss University-Rome and hosted by the University Marconi of Rome, on 13-14 January, 2025. Unless otherwise stated, the paper is current as of that last date.

[1] See European Commission, Capital Markets Union: Commission proposes new rules to protect and empower retail investors in the EU, Press release, May 23, 2023. The strategy’s goal is to ensure a modernised and simplified framework for retail investment that is aligned and coherent across the different sectors. It is proposed as a package including a proposal for a new Directive (European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules, Brussels, 24.5.2023 COM(2023) 279 final: the “Omnibus Directive Proposal”, or the “Proposal”) and a proposal for a new Regulation (European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document, Brussels, 24.5.2025, COM(2023) 278 final).

[2] See EIOPA, Supervisory Statement. On assessment of value for money of unit-linked insurance products under product oversight and governance, EIOPA(2021)0045739, 30 November 2021 (the “EIOPA’s Statement”). See, Marano, Il Value for Money come regola organizzativa nella produzione e distribuzione assicurativa, speech held at the Conference on “Il principio del value for money dalle indicazioni dell’EIOPA all’ordinamento interno”, University La Sapienza, Rome, 23 February, 2023.

[3] See, Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution.

[4] See, Commission Delegated Regulation (EU) 2017/2358 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to product oversight and governance requirements for insurance undertakings and insurance distributors.

[5] See EIOPA’s Statement, 3.13 and 3.14.

[6] See EIOPA, Methodology to assess value for money in the unit-linked market, 31 October 2022, EIOPA BOS-22/482.

[7] See EIOPA, Methodology to assess value for money in the unit-linked market, p. 3.

[8] See ESMA, Opinion. On undue costs of UCITS and AIFs, 17 May 2023, ESA34-45-1747.

[9] See Omnibus Directive Proposal, p. 2-3.

[10] See Omnibus Directive Proposal, p. 7.

[11] Consequently, Recital 12 states that “[t]he pricing process, conducted at both the level of manufacturer and distributor should, as part of the product governance framework, enhance the existing concept that investment products aimed at a particular target market should be designed to bring value to that target market”. Article 16-a (1)(e) MiFID, in relation to financial instruments falling under the definition of packaged retail investment products in accordance with Article 4(1) of Regulation (EU) No 1286/2014 of the European Parliament and of the Council, provides that the product approval process must contain “a clear identification and quantification of all costs and charges related to the financial instrument and an assessment of whether those costs and charges are justified and proportionate, having regard to the characteristics, objectives and, if relevant, strategy of the financial instrument, and its performance (‘pricing process’)”.

[12] See Article 16-a (1) MiFID and new Article 25(2) IDD. For UCITS, see new paragraphs (1a) to (1e) of new Article 14, and for AIFMD, new paragraphs (1a) to (1e) of new Article 12.

[13] See Recital 10.

[14] See Recital 10. According to Recital 11, “[s]ince the manufacturer designs the charging structure of the packaged retail investment product, it is for the manufacturer to assess whether the costs and charges that are included in investment products are justified and proportionate. Building on those assessments, distributors should make similar assessments, so that the costs of distribution and other costs not already included in the manufacturer’s assessment are additionally taken into account”.

[15] See EIOPA, Methodology to assess value for money in the unit-linked market, p. 19; Di Carlo and Gobbo, Retail investment package: il confronto su product governance, value for money e inducements, in Diritto Bancario. Approfondimenti, July 2024, p. 9; De Polis – Bellizzi, Il Principio del value for money dalle indicazioni dell’EIOPA all’ordinamento interno, speech at the Conference “Il Principio del value for money dalle indicazioni dell’EIOPA all’ordinamento interno“, Rome, 23 febbraio 2023.

[16] See Recital 13. According to Recital 17,  “[i]n view of the extent of diversity of retail investment product offerings, the development of benchmarks by ESMA and EIOPA should be an evolutionary process, beginning with the investment products most commonly purchased by retail investors and progressively building on the experience gathered over time in order to broaden coverage and refine their quality”.

[17] And this, to help investment and insurance firms perform a comparative assessment of the cost and performance of the relevant instruments and products, both at the manufacturing and distribution stages: see Omnibus Directive Proposal, Article 16-a (9) MiFID. 

[18] To limit, to the greatest extent possible, costs related to the new reporting obligations and to avoid unnecessary duplication, data sets should, as far as possible, be based on existing disclosure obligations.

[19] See Omnibus Directive Proposal: Article 16-a MiFID provides that the Commission is empowered to adopt delegated acts to specify the methodology used by ESMA to develop benchmarks and provide the criteria to determine whether costs and charges are justified and proportionate (paragraph 11). In turn,  ESMA shall develop draft regulatory technical standards specifying content and type of data and details of costs and charges to be reported to the competent authorities. Similar provisions are contained in the new Article 25 IDD.

[20] See Recital 13.

[21] Ana Palomares, Value for Money: che cos’è e perchè preoccupa tanto l’industria del risparmio gestito, FundsPeople, 23 February 2024.

[22] Ana Palomares, Value for Money, ibid.

[23] See European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions, Savings and Investments Union. A Strategy to Foster Citizens’ Wealth and Economic Competitiveness in the EU, Brussels, 19.3.2025, COM(2025) 124 final (the “EC SIU Communication”). See Lorenzi, Retail Investment Strategy, la riforma degli inducement e del value for money, in Diritto Bancario. Approfondimenti, August 2023; Di Carlo and Gobbo, Retail investment package: il confronto su product governance, value for money e inducements, July 2024 p. 4.  

[24] Report on the proposal for a directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules | A9-0162/2024 | European Parliament (europa.eu) (the “EP Report”).

[25] See EP Report, Recital 13.

[26] See EP Report, Recital 13(aa).

[27] See EP Report, Recital 13(a).

[28] See EP Report, Recital 13(ab).

[29] According to the EP Report, ESMA and EIOPA are mandated to develop guidelines on the process and criteria companies must adopt to conduct the peer review: see Recital 13(ab).

[30] See Retail investment package: Council agrees on its position – Consilium (europa.eu): the “Council Mandate”.

[31] See Council Mandate, Recital 13(a); see, also, Di Carlo and Gobbo, Retail investment package: il confronto su product governance, value for money e inducements, p. 8.

[32] Di Carlo and Gobbo, ibid., p. 9.

[33] See EIOPA, Methodology on Value for MoneyBenchmarks, EIOPA-BoS-24-332, 27 August 2024.

[34] See EIOPA, Methodology on Value for MoneyBenchmarks, p. 4, 1.4.

[35] See EIOPA, Methodology on Value for MoneyBenchmarks, p. 5, 1.6.

[36] See EIOPA, Methodology on Value for MoneyBenchmarks, p. 8.

[37] See EIOPA, Consultation Paper on Methodology on Value for MoneyBenchmarks, 15 December 2023.

[38] See EIOPA, Methodology on Value for MoneyBenchmarks, p. 5.