Wealth: Study on Quality of Financial Advice in Germany
Increasing Demand for Independent Advice on Financial Services
Twenty percent of private investors in Germany are willing to pay for independent advice on wealth management. This figure was a result of a recent survey of 1100 private investors conducted by TNS Infratest on behalf of the German DZ Bank.
While different interests groups could now argue if this figure is high or low and if fee-based wealth advice has a bright future or not - Our opinion is on this is quite clear: Fee-based wealth advice will gain in importance and the survey results only strengthen these predictions.
Unlike the U.S., offers for a pure fee-based wealth management are still very rare in Germany. No established bank has rolled out this pricing model yet and less than two billion euro is countrywide managed in this manner. If in spite of the limited availability of these services one-fifth of the surveyed investors indicate that they would pay for independent advice, then this is a significant number.
It is fair to assume that a substantial part of the respondents is not fully aware about the indirect costs they pay for their presumably “free” advice from banks and wealth managers - Costs mainly hidden in front loads and management fees for funds and structured products. If these “hidden” costs would become more transparent to the clients, then their willingness to pay directly for independent advice, instead of indirectly for possibly biased advice, will certainly grow.
Irrespective of whether the banks or wealth adviser like it or not: On a political and legal level a strong movements exists to improve the transparency for the client and to force wealth managers in disclosing the real costs a client pays for advice received. Spearheaded in Europe by the “Markets in Financial Instruments Directive (MiFID)” several member states such as Germany have already embodied the right of full disclosure of costs and kickbacks in their jurisdiction.
Therefore we have no doubt that within the next five years we will see a surge of fee-bases wealth advice all across Europe. Existing players will start to broaden their offers and pricing schemes, new players solely based on the principle of fee-based advice will emerge and the providers unable to adopt fast enough to the new rules will come under increasing pressure.
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(by Francis Groves, Senior Analyst)