German Financial Advice Market

Table of Contents

OVERVIEW

• Catalyst
• Summary

EXECUTIVE SUMMARY

• Market structure
• Regulatory developments
• Customer demands

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
  • (Untitled sub-section)
  • 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

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

TABLES

• Table: Market share breakdown by type of intermediary: Germany vs. European average*
• Table: Regulatory environment in Germany, August 2007

FIGURES

• Figure: Germany has 300,000 intermediaries with more than 200,000 other financial support intermediaries
• Figure: Agents represent a high proportion of life insurance and pensions product distribution however exhibit little to no influence in the mutual funds market
• Figure: The German financial advice market is dominated by single-tied advisors,
• Figure: German investors are very aware of the effects of market conditions and couple this with a higher risk aversion
• Figure: German investors reveal a low risk of leaving to manage their money alone and a high degree of openness to new ideas
• Figure: German investors display strong demands for inheritance advice
• Figure: German HNWs will be demanding products geared for security in the long run
• Figure: Increased face to face contact is by far the most effective technique for increasing wallet share
• Figure: The provision of a financial planning service and increased communication are the keys to retaining German HNWs
• Figure: Only a third of German consumers responded that they seek professional advice before making financial decisions
• Figure: German investors are more likely to seek advice from their primary bank than elsewhere
• Figure: German customers are showing more bank loyalty and less switching behavior than the global average
• Figure: German consumers are more distrustful of financial advisors/brokers than the global average