German Financial Advice Market

• 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

• 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