The main routes
Most private investors in Europe use one of four routes. A brokerage account buys shares, bonds and exchange-traded funds on an exchange. A fund account buys units in a managed fund. Peer-to-peer platforms lend your money to consumers or small businesses. Real-estate platforms and funds pool money into property. Each has its own rules, its own costs and its own way of going wrong.
The rules that apply
A broker or investment firm needs a licence under MiFID II from its home regulator, for example the AFM in the Netherlands, the AMF in France, BaFin in Germany or the FIN-FSA in Finland, and can then serve clients across the EU. Before selling you a complex product it must test whether you understand it. Every packaged product sold to retail investors must come with a three-page key information document that states the risk class, the costs and what you could get back in different scenarios.
If the firm itself fails and cannot return your assets, the investor compensation scheme of its home country covers at least €20,000 per investor. It does not cover a fall in the value of what you bought. That is the risk you take.
ETFs and UCITS
UCITS is the EU standard for retail funds: rules on diversification, liquidity, custody and disclosure that a fund must meet to be sold to the public across the EU. Almost every ETF sold to European retail investors is a UCITS fund, usually domiciled in Ireland or Luxembourg. US-listed ETFs are generally not available to EU retail investors because they lack the required key information document.
An accumulating ETF reinvests dividends inside the fund; a distributing ETF pays them out. Which is better depends on how your country taxes fund income and gains. The total expense ratio is the annual cost; on a broad index fund it is now often below 0.2 percent, and the difference between 0.1 and 0.5 percent compounds to a meaningful sum over twenty years.
How to choose a broker
Start with the licence: which regulator, which compensation scheme, and whether the firm you sign with is the licensed entity or a branch. Then the costs, which come in five kinds: order commission, custody or account fee, currency conversion, inactivity fee, and the spread on execution. Then the details that decide the experience: which exchanges and products, whether your shares are lent out, and how the firm handles tax reporting for your country.
P2P lending and real-estate platforms
Crowdfunding platforms that raise up to €5 million per project for businesses are regulated EU-wide under the crowdfunding regulation, with a licence, a key investment information sheet and a right of withdrawal. Platforms that lend to consumers, and many real-estate income products, fall outside it and are regulated nationally or not at all. Returns are quoted before defaults; your money is usually locked until the loan is repaid; and there is no guarantee and no compensation scheme. Treat these as high-risk, illiquid investments and size them accordingly.
“The regulator checks the seller. Only you check whether the investment fits.”
How to compare
For brokers: total annual cost for the way you actually invest, licence and compensation scheme, product range, tax reporting. For funds: total expense ratio, replication method, domicile, accumulating or distributing. For platforms: regulation, historical default rate, liquidity, and what happens to your loans if the platform fails.
Where to compare in your country
Brokers and platforms are licensed EU-wide but priced and taxed nationally. Nordsek's country sites compare the providers that serve residents of that country, with fees and tax treatment for that market. Choose your country above. Nordsek does not give investment advice.
