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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 22/03/17 Financial Advice - Safeguarding the interests of the consumer 2 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? 22/03/17 Financial Advice - Safeguarding the interests of the consumer 3 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 22/03/17 Financial Advice - Safeguarding the interests of the consumer 4