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German Financial Advice Market

Datamonitor
September 18, 2009
SKU: DFMN2445024

Abstract Table of Contents Search inside this report Related Reports

Countries covered: Germany

Introduction

The recession is causing investors to seek advice, and FS providers are focusing their attention on their advisory models.

Scope

Structure of the German advisory market including distribution data
Retail investors' use of financial advice based on our proprietary survey
HNW investors' views of, and use of, financial advice based on our proprietary survey
Regulatory environment for financial advice in Germany

Highlights

Germany's retail customers remain undecided about professional financial advice, however signs point towards a movement to independent financial advisors (IFAs) in the future.

Germany's financial advisors have not been held in high regard in recent years, initially through lack of training but more recently due to misaligned incentives. High court developments have highlighted the conflict between consumers' best interests and commission-based remuneration, and damaged consumer confidence in tied advisors.

Insurance intermediaries are now forced to declare the distribution and administration costs per transaction. This is a solid step forward and price transparency can only help to remove the negative connotations attached to the mystique of the kickback system.

Reasons to Purchase

Understand the structure of the financial advice market, and the broader financial services distribution channels
Understand what customers are demanding from their financial advisors, both now and in the future
Understand the impact that regulation has had on the financial advice market landscape

Overview
Catalyst
Summary
Executive Summary
Market structure
Regulatory developments
Customer demands
Table of Contents
Table of figures
Table of tables
Market structure: The financial advisory distribution channel in Germany is very large but truly independent advice remains marginal though showing potential; Germany's financial advisors have not been held in high regard in recent years, initially through lack of training but more recently due to misaligned incentives; Large financial advisory firms and networks are accused of being product pushers; German Federal Court rulings have highlighted damaged consumer sentiment and the 'kickback' system; Demand for independent financial advice is expected to rise due to the complexity of pension products; The German insurance sector is experiencing a move towards a more intermediated market and an anticipated decline in tied agents; Germany's financial intermediary market is the most developed in Europe; Germany has a very large financial intermediary market, involving 300,000 financial advisors and 200,000 other financial support intermediaries.; Intermediaries account for more than a third of distribution in Germany; The single-tied advisor model dominates in Germany but the beginning of its decline may be in sight; German consumers are not without blame for the misuse of some investment products; Regulatory developments; The Central Bank and the Federal Financial Supervisory Authority regulate the German financial services industry; Membership in the Financial Planning Standards Board is regarded as a stamp of quality for financial advisors; HNW advisors are organized in the Association of Independent Wealth Managers; The European Commission has introduced a number of regulatory reforms affecting the financial advice distribution channel in Germany in recent years; Insurance Mediation Directive allows cross borders advice; MiFID increases the suitability of advice; The FSAP combines with EU brokerage guidelines and changes to German insurance contract law to create a much more rigorous system for insurance advice, but with little impact; A regulatory bias exists between different investment products; Customer Demands; German HNWs are sophisticated investors, open to new product innovations, who want their money handled by professionals; German HNWs show more risk aversion than the European average, perhaps driven by a better understanding of potential dangers within the marketplace; German HNWs are very open to new investment products and have no interest in managing their money personally; German HNWs demand inheritance advice from advisors; HNW demands for the future revolve around longer term investments with more guaranteed returns.; In two years German HNWs will want advice concerning deposits and savings products to safeguard their futures; German HNWs will also show tastes for capital protected funds; German HNWs are also open to more exotic products such as exchange traded funds, however advisors should keep in mind the risk appetites of their clients and as such handle these products with care; Financial planning facilities and increased communication are essential to both customer retention and increasing wallet share; Advice from wealth managers: increased face to face contact is by far the most important ingredient for increasing an advisor's share of wallet in Germany; Financial planning services are essential to client retention in Germany; Germany's retail customers remain undecided about professional financial advice, however signs point towards a movement to IFAs in the future; Key Findings: in general, it is female, older, wealthier, and more risk-averse investors who are more likely to receive financial advice in Germany
APPENDIX
Definitions
Methodology
Further reading
References
Ask the analyst
Datamonitor consulting
Disclaimer
List of Tables: Table 1: Market share breakdown by type of intermediary: Germany vs. European average*; Table 2: Regulatory environment in Germany, August 2007
List of Figures: Figure 1: Germany has 300,000 intermediaries with more than 200,000 other financial support intermediaries; Figure 2: Agents represent a high proportion of life insurance and pensions product distribution however exhibit little to no influence in the mutual funds market; Figure 3: The German financial advice market is dominated by single-tied advisors,; Figure 4: German investors are very aware of the effects of market conditions and couple this with a higher risk aversion; Figure 5: German investors reveal a low risk of leaving to manage their money alone and a high degree of openness to new ideas; Figure 6: German investors display strong demands for inheritance advice; Figure 7: German HNWs will be demanding products geared for security in the long run; Figure 8: Increased face to face contact is by far the most effective technique for increasing wallet share; Figure 9: The provision of a financial planning service and increased communication are the keys to retaining German HNWs; Figure 10: Only a third of German consumers responded that they seek professional advice before making financial decisions; Figure 11: German investors are more likely to seek advice from their primary bank than elsewhere; Figure 12: German customers are showing more bank loyalty and less switching behavior than the global average; Figure 13: German consumers are more distrustful of financial advisors/brokers than the global average

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