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How Do We Safeguard the interests of the
Individual Consumer in Financial Advice?
Niels-Ulrik Mousten
22 March 2017
Financial Advice - Safeguarding the interests of the consumer
The Problem
No free lunch
The root causes
• Financial advice creates value
• Financial institutions hugely more
competent than the consumer
= imbalance
• Need for specialised competencies
• Individual advice is costly to produce
(yet)
• Financial institutions are often both
advisor, seller and producer
= opaque roles
Leading to too many examples of
Consequence
• Excessive (and hidden) costs
• Lack of trust!
• Promotions of products in the
interest of the advisor – not the
customer:
• excessively costly (risky) products
• own products
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Financial Advice - Safeguarding the interests of the consumer
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Solutions?
Three forces
Market discipline
• Ethics of the advisor
• Meat in the game (“hånden på
kogepladen”)
• Market discipline
• Valuable brands
• Regulation
• Independent advisors / private banks
Reactions from the industry
Regulation
• Transparency – easily to understand?
• Open architecture
• MiFID II – stimulating:
• Understandable pricing/costs
• Direct payment for advice
• Digital advice
• Governance inside financial groups?
• Advice inherent in the product
• “MiFID” for pensions?
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Conclusions
Comments
Within the current business models:
• Paying for advice directly
• Open architecture
• MiFID II + market-driven:
• Focus: understandable
pricing/costs + payment for advice
• Communication of value-added
• Financial groups: an issue
New business models:
• Cheaper delivery of advice
• Digital
• Advice inherent in the product
• Index-products – not necessarily
Pensions:
• “MiFID” for pensions
• Suitability-testing
• Simple communication of risk-levels
• Common risk-language
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