The Future of European Investment Distribution

The Future of European Investment Distribution

Introduction

This brief looks at the future of distribution of long-term investment products in Europe. The market for long term investment products is projected to grow strongly in coming years. Demographic change, regulatory developments and the evolution of the pensions landscape is driving a diversification in distribution channels and opening up the markets for new entrants.

Scope

Sizes and forecasts the European market for retail assets and high net worth individuals Examines the key issues facing distributors in these markets Assesses how regulatory changes will impact distribution in these geographies Provides action points for firms operating in these changing markets

Highlights

Datamonitor believes that a significant opportunity exists to develop profitable distribution strategies for long term investment products in Europe over the next five years. The expanding pool of wealth will drive demand both for financial advice and for investment products Although bancassurance has been traditionally dominant in most European markets, shifts in the pensions landscape coupled with regulation to improve the standards adhered to by financial advisors, is opening up the distribution landscape.

Reasons to Purchase

Gain insight into the scale and scope of the European investment distribution market. Understand the nature of the regulatory environment in Europe Obtain invaluable information as to the state of the distribution landscape in Europe, along with potential opportunities for market entry.

DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
EXECUTIVE SUMMARY 2
MARKET SIZE 3
The European market for private investments is robust and growing 3
Market growth is having an important effect on the distribution landscape 3
Liquid assets in Germany and the UK are particularly high 3
Liquid assets across the key European markets are projected to grow strongly in value 4
The growth in the value of long term investment assets is more variable across Europe 5
The UK is home to a proportionally large number of high net worth individuals 7
The number of mass affluent and high net worth individuals is projected to grow steadily 8
Overall growth in the high net worth sector is predicted to be even stronger 9
The sophistication of the financial advisory sector varies widely across Europe 11
The financial intermediary population is often swelled by largely unqualified advisors 11
The regulatory purity of investment markets in Europe varies widely 12
Limited regulation in Germany may open up opportunities for quality investment advice 12
The UK and Switzerland are subject to detailed regulatory guidelines 12
The IFA sector in the UK is particularly well developed 13
Single tied advisors dominate the advisory markets in a majority of European countries 14
Bancassurance is currently the dominant distribution channel in Europe 15
A significant proportion of long term investment assets are distributed via the bancassurance channel 15
France is the largest bancassurance market in Europe 15
The distribution landscape in Germany is slowly diversifying 16
The UK and Switzerland represent exceptions to the rule 16
Data 17
MARKET DRIVERS 22
The bancassurance channel is very strong across most of Europe 22
In continental Europe, the bancassurance channel dominates the distribution of retail investment products 22
Consumers in much of Europe are unused to paying for financial advice 22
The strength of the banking channel is driving the development of bancassurance partnerships 22
Demographic change is stretching state pension schemes to breaking point 23
The support ratio is decreasing in almost all European countries 23
The closure of defined benefit schemes is polarizing the market 23
Mass market consumers are driving demand for long term investments via the bancassurance channel 23
However, as defined benefit schemes close, more affluent consumers are seeking independent advice 23
In turn, this has driven the development of partnerships with firms of financial advisors 24
In the UK, foreign and domestic banks are responding to consumer demand for long term investments 24
Foreign banks have identified an opportunity to compete with the IFA sector in the UK for top end clients 24
Domestic banks are considering developing their own distribution channels 24
REGULATION 25
Regulatory change has had a key impact on the investment and savings landscape in Europe 25
The Financial Services Action Plan was intended to create a unified financial services market in Europe 25
Insurance Mediation Directive 25
Markets in Financial Instruments Directive (MiFID) 25
Other pieces of national legislation are also having an impact on the investment distribution landscape 26
A new financial advice certificate is being developed in Spain 26
The new status of Conseiller en Investissement Financier has been established in France 26
The effects of depolarization in the UK are slowly effecting a shift in the distribution landscape 26
The Treating Customers Fairly initiative in the UK was intended to ensure the quality of financial advice 27
ACTION POINTS 28
European markets offer strong potential for distributing investment products 28
Demand for investment products is growing across Europe 28
Increasing demand combined with the impact of regulation is opening up the distribution landscape 28
Distribution strategies must be tailored to different markets and market segments 28
Each market and consumer segment requires a clearly differentiated strategy 28
In order to develop effective distribution networks, partnerships can be highly effective 28
As the pensions market evolves, opportunities emerge to sell new investment products 29
Variable annuities may become a more prominent feature in the European investment landscape 29
APPENDIX 30
Definitions 30
Further reading 31
Ask the analyst 31
Datamonitor consulting 31
Disclaimer 31
List of Tables
Table 1: Value of liquid assets in Europe in 2006e, EURbn 17
Table 2: Projected value of European liquid assets, 2005 - 2010f, EURbn 17
Table 3: European life and pensions assets, 2006e - 2010f EURbn 18
Table 4: European mutual funds assets, 2006e - 2010f EURbn 19
Table 5: Number of wealthy individuals in Europe, 2006e (000s) 19
Table 6: Number of mass affluent individuals in Europe, 2006e - 2010f 20
Table 7: Number of high net worth individuals in Europe, 2006e - 2010f 20
Table 8: Financial intermediaries in Europe segmented by type, 2005 21
Table 9: Financial intermediaries in Europe segmented by channel (%), 2005 21
List of Figures
Figure 1: Value of liquid assets in Europe in 2006, EURbn 4
Figure 2: Projected value of European liquid assets, 2005 - 2010f, EURbn 5
Figure 3: European life and pensions assets, 2006e - 2010e EURbn 6
Figure 4: European mutual funds assets, 2006e - 2010e EURbn 7
Figure 5: Number of wealthy individuals in Europe, 2006 8
Figure 6: Number of mass affluent individuals in Europe, 2006e - 2010f 9
Figure 7: Number of high net worth individuals in Europe, 2006e - 2010f 10
Figure 8: Individual financial intermediaries in Europe segmented by country, 2005 11
Figure 9: Modified number of Individual financial intermediaries in Europe segmented by country, 2005 12
Figure 10: Comparative size and sophistication of European investment markets 14
Figure 11: Financial intermediaries in Europe segmented by channel (%), 2005 15