Over a third of European investors who say they deal with their investments entirely by themselves are actually paying for advice. This is a striking finding from our latest report European Consumer Insights: Behaviours, Propositions and Digital Engagement.
Our research shows that 45% of European investors claim to deal with their investments entirely by themselves without any expert help, but in fact only 29% are actually fully self‐directed. So there is a mismatch of more than one third (37%) of investors who claim to be self-directed but are actually receiving in-branch advice from a bank – or at least paying for it. This mismatch is by far the greatest in Spain and Italy, where banks virtually control all the retail distribution flows.
Percentage of investors saying they deal with their investments themselves who have used an adviser at a local bank in the past year:
The mismatch suggests that many investors don’t value the advice they receive in their local bank. It also suggests that the advice is of low quality and intensity of advice, and lacks the rigorous (and memorable) fact finds that advised investors typically undergo in the UK.
In continental Europe – with the exception of the Netherlands – retail banks typically provide in-branch advice, but don’t disclose the cost of providing this advice to investors. The cost is covered by the product charge which includes a fund manager commission to the bank in question.
What’s more, the advice given in bank branches is very basic – mostly because there is very little regulatory framework. Only private banking clients get a better advice service that may include financial planning. However, another 9% of those investors who claim to be self-directed have actually received advice from a private banking adviser, according to our research.
MiFID II is bringing a new framework for the provision of financial advice but it is unlikely to be game changing in the short term. Most banks will provide tied or restricted (non-independent according to the MiFID II jargon) mass-market advice because independent advice carries stricter requirements and a complete ban on commission payments.
However, most European regulators are taking the opportunity to try to enhance the quality of financial advice and some like BaFin in Germany are doing this with a focus on independent advice. After all, the RDR in the UK wasn’t only about the end of commission, it also encouraged a higher level of professionalism among financial advisers, as many in our industry increasingly recognise.
We look to see if MiFID II will actually deliver all that much needed transparency to European investors.