Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Market structure 2
Regulatory developments 2
Customer demands 2
Table of Contents 3
Table of figures 4
Table of tables 5
Market structure 6
The financial advisory distribution channel in Germany is very large but truly independent advice remains marginal though showing potential 6
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 6
Large financial advisory firms and networks are accused of being product pushers 7
German Federal Court rulings have highlighted damaged consumer sentiment and the 'kickback' system 7
Demand for independent financial advice is expected to rise due to the complexity of pension products 7
The German insurance sector is experiencing a move towards a more intermediated market and an anticipated decline in tied agents 8
Germany's financial intermediary market is the most developed in Europe 8
Germany has a very large financial intermediary market, involving 300,000 financial advisors and 200,000 other financial support intermediaries. 8
Intermediaries account for more than a third of distribution in Germany 9
The single-tied advisor model dominates in Germany but the beginning of its decline may be in sight 10
German consumers are not without blame for the misuse of some investment products 12
Regulatory developments 13
The Central Bank and the Federal Financial Supervisory Authority regulate the German financial services industry 13
Membership in the Financial Planning Standards Board is regarded as a stamp of quality for financial advisors 13
HNW advisors are organized in the Association of Independent Wealth Managers 14
The European Commission has introduced a number of regulatory reforms affecting the financial advice distribution channel in Germany in recent years 14
Insurance Mediation Directive allows cross borders advice 14
MiFID increases the suitability of advice 14
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 15
A regulatory bias exists between different investment products 15
Customer Demands 17
German HNWs are sophisticated investors, open to new product innovations, who want their money handled by professionals 17
German HNWs show more risk aversion than the European average, perhaps driven by a better understanding of potential dangers within the marketplace 17
German HNWs are very open to new investment products and have no interest in managing their money personally 18
German HNWs demand inheritance advice from advisors 19
HNW demands for the future revolve around longer term investments with more guaranteed returns. 20
In two years German HNWs will want advice concerning deposits and savings products to safeguard their futures 20
German HNWs will also show tastes for capital protected funds 20
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 21
Financial planning facilities and increased communication are essential to both customer retention and increasing wallet share 22
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 22
Financial planning services are essential to client retention in Germany 23
Germany's retail customers remain undecided about professional financial advice, however signs point towards a movement to IFAs in the future 24
Key Findings: in general, it is female, older, wealthier, and more risk-averse investors who are more likely to receive financial advice in Germany 27
APPENDIX 29
Definitions 29
Methodology 29
Further reading 30
References 31
Ask the analyst 31
Datamonitor consulting 31
Disclaimer 31
List of Tables
Table 1: Market share breakdown by type of intermediary: Germany vs. European average* 10
Table 2: Regulatory environment in Germany, August 2007 29
List of Figures
Figure 1: Germany has 300,000 intermediaries with more than 200,000 other financial support intermediaries 9
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 10
Figure 3: The German financial advice market is dominated by single-tied advisors, 11
Figure 4: German investors are very aware of the effects of market conditions and couple this with a higher risk aversion 17
Figure 5: German investors reveal a low risk of leaving to manage their money alone and a high degree of openness to new ideas 18
Figure 6: German investors display strong demands for inheritance advice 19
Figure 7: German HNWs will be demanding products geared for security in the long run 21
Figure 8: Increased face to face contact is by far the most effective technique for increasing wallet share 22
Figure 9: The provision of a financial planning service and increased communication are the keys to retaining German HNWs 23
Figure 10: Only a third of German consumers responded that they seek professional advice before making financial decisions 24
Figure 11: German investors are more likely to seek advice from their primary bank than elsewhere 25
Figure 12: German customers are showing more bank loyalty and less switching behavior than the global average 26
Figure 13: German consumers are more distrustful of financial advisors/brokers than the global average 27