"In Switzerland there is a strong trend toward fee-based advice, including at the major banks," says Karl Matthäus Schmidt, Chairman of the German Association of Fee-Based Advisors. "More and more affluent clients now have access, in investment advice too - at UBS and Credit Suisse, for example - to products that no longer include trailing commissions." In asset management, trailing commissions had in any case become an outdated model following a ruling by the highest court. This has prompted financial institutions increasingly to switch their remuneration models to fees in the form of fixed charges.
"But to expect now that these examples will simply catch on and that lawmakers no longer need to take action would be the wrong course," says Schmidt. For one thing, the inertia of the sales channels is very strong; for another, a model of advice independent of commissions must be accessible to the broad mass of the population as well. "It has become clear over the past few years that the power of commission-based sales operations is enormous. All the voluntary commitments to greater transparency or greater client focus have come to nothing," says Schmidt. "The realization, both in the Netherlands and in the UK, was that all the transparency rules and self-imposed commitments of the past ten years had not led to greater consumer friendliness in the financial services market," says Schmidt. That is why the systemic change was set in motion there through regulation; since 2013, commissions have largely disappeared.
In the UK, the ban on commissions in financial advice has led to a professionalization of the advisory market. This is shown by a study commissioned by the British financial regulator, the FCA (Financial Conduct Authority). Nonetheless, there is still room for improvement on the path toward independent, consumer-oriented advice. "This concerns access to advice on the one hand, but also its quality on the other," adds Dieter Rauch, Deputy Chairman of the BVDH. After all, not every fee-based advisor is equally well qualified. "Unlike with lawyers or tax advisors, there are no regulated academic or vocational training paths. That is why it is important to invest in training and continuing education. Fundamentally, though, advice from an independent advisor will always be guided by the client's interest and not by the salesperson's interest in commissions," says Rauch. This is simply because the advisor is paid directly by the client. In Switzerland, this model is clearly going down well. According to media reports, tens of thousands of clients are already using the banks' new offering.
Access to advisory services is becoming ever easier and more affordable. "Until now, clients have often been reeled in by their bank advisors at so-called annual reviews and supplied with more or less suitable, often expensive products," says Schmidt. "The young fintech companies that are currently shaking up the established banking market are changing that rapidly." Here there is genuine transparency, since all providers make their services visible online. "What's more, the barriers to entry are minimal. I am sure that fintechs will make a significant contribution to better advice for the general public on financial matters."
About the German Association of Fee-Based Advisors (BVDH):
The BVDH was founded in October 2010 by quirin bank and VDH GmbH Verbund Deutscher Honorarberater. It represents the interests of fee-based investment advisors and fee-based financial investment advisors (under the Fee-Based Investment Advice Act of August 2014) in Germany, who together manage around €3.5 billion in client assets. The association's goal is to promote and establish fee-based advice as a neutral service in the financial sector. Fee-based advice entails high standards of quality and transparency. Fee-based advisors within the association stand by these principles and by consumer protection, formally acknowledging the code of fee-based advice as binding and allowing themselves to be monitored by independent auditors.
"No matter where you look, the results are not just sobering, they are shocking. Once again it becomes clear that the fund industry's promises when it comes to active management are not worth the paper they are written on. The only question is when this realization will take hold among investors across the board," concludes May.
