Good financial advice
Lessons from the Dutch market
The markets
in financial advice in The Netherlands have failed over the last decades.
Research showed that the main reason for this failure is the tight connection
between banks / insurers and brokers through the commission system. Research
also shows that the quality of (independent) advice increases as commissions
are lowered or banned. As of 2013 all commissions are banned for so called
complex financial products (life insurance, investment, mortgage, funeral,
inability, death risk). Also the expertise requirements are being increased to
secure a proper competence level of financial advisors.
The
commission ban has not yet led tot a big decrease of independent financial
advisors. The first experiences are that fees for financial advice have
decreased, that new business models of financial advice are being invented
(advice only, service subscription, digital intermediary, commission free (also
in non-life)) and that conflicts of interest are more transparent. But there is
also a downside: consumers are not always prepared to pay for directly for
independent financial advice because they do not experience the added value.
Consumers tend to choose the cheapest form of advice instead of the best
advice.
But overall
I conclude that the advantages of the commission ban in The Netherlands are
greater than the disadvantages. The quality of advice and customer service is
rising and the independent financial advisors are becoming now more and more
the representative of the customer instead of the salesmen for the bank or
insurer.
Statement
for the panel discussion:
Good
financial advice is essential for the wellbeing of consumers (and businesses)
and independent financial advisors should act in the best interest of the
customer. To ensure that, negative incentives like commissions and bonuses
should be banned. Starting with commissions on investment products, mortgages
and life insurance. That was the conclusion of the Dutch government a few years
ago, and also mine in my dissertation in 2010. The first experiences with the
commission ban in The Netherlands are more positive than negative. The quality
of advice is rising, prices decrease and independent advisors are becoming more
and more representatives of the customer instead of the bank or insurer. But
some customers are not willing to pay directly for financial advice, because
they dot not experience enough added value.
The
question is now relevant whether the Dutch regulation and supervision model
should be blindly copied to other countries, like Germany? My suggestion would
be to first carefully examine the domestic market on possible misselling with
financial products. So that new regulation and supervision can provide a
solution to an actual, proven problem.