Lessons from the Dutch market on good financial advice

23 mei 2015

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.

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