Financial adviser networks in the private banking sector in Spain have been undergoing a process of transformation in recent years. This evolution is consolidating the role of this channel, which is increasingly strategic for most institutions that for years have been firmly committed to this business model as one of the main vectors of growth and customer loyalty.
Generally speaking, financial advisers are professionals with extensive experience in the area of wealth advisory and private banking. This gives them a broad and qualified portfolio of clients, enabling them to offer quality advice according to the profile and specific investment needs of each client.
In recent times, the advisory channel has been seeing a process of regulatory standardisation that is helping to consolidate the role of these professionals and their remuneration system, taking account of the particularities of a model in which remuneration is completely variable, depending on the volume of business they generate.
This reality could give rise to possible conflicts of interest, a great challenge for private banking institutions, which must work to integrate qualitative criteria based on the advisers’ achievement of targets, to ensure remuneration is not purely based on quantitative variables. Overcoming conflicts of interest is undoubtedly one of the major challenges for institutions with adviser networks. Indeed, just a year ago the CNMV warned of possible conflicts of interest between advisers and institutions, calling for an adviser remuneration model based on the principle of neutrality, so as not to favour certain products over others of the same type.
In this scenario of adjusting the adviser model to the reality of private banking institutions and boutique asset managers, another of the major challenges facing advisers is regulatory adaptation. A good example is the adaptation to the Retail Investment Strategy (RIS), which in its first draft published this year provided for a ban on the charging of incentives on execution-only or commercialisation services, so-called inducements. The initial proposal involved a shift from a model based on these inducements, commissions on the margins from product providers, to a system based on explicit charging for advice. This ban on inducements would mean a change in the way advisers are remunerated towards an explicit, advisory remuneration model.
However, the European Parliament Committee on Economic and Monetary Affairs (ECON) recently voted on the report containing amendments to the Retail Investment Strategy (RIS), which removes the proposed ban on incentives in the reception and transmission of orders. This essentially reverses the European Commission’s initial idea of establishing a ban on charging incentives on execution-only and commercialisation services.
The next step is for it to be taken to the European Parliament for approval of these amendments. The text must then be subject to debate between the Commission, the Council and the Parliament, which will have to consider whether or not to incorporate these amendments. In the case of Spain, it affects a significant percentage of the fee and commission income that the asset management industry receives from inducements.
In addition to overcoming conflicts of interest and adapting the remuneration system, the future of financial advice will be driven by technology. When, a few years ago, robo-advisors emerged, it soon became apparent that they alone failed to capitalise on a large interest and market share. Among other things, this is because private banking is a people-to-people business, where technology can serve to complement the personalised service, simplify and streamline transactions and cut down on bureaucracy, but it can in no way replace the work of professionals when it comes to planning a personalised investment strategy.
Undoubtedly, the digital environment favours the progressive incorporation of tools that make the work of financial advisers more efficient, but always bearing in mind the fundamental importance of the relationship of trust established between the adviser and the client, as a key element in establishing a lasting relationship. At the same time, artificial intelligence poses new challenges, not only to the financial industry, but in all kinds of sectors, in relation to the way we work. The work of the financial adviser will continue to be irreplaceable, but institutions and professionals will have to make an effort to invest time and money to adapt this reality to their daily work and continue offering efficient, flexible and valuable services. The use of technology will serve to streamline decision-making, as a complement to and not a replacement for the skills a professional must have, combining their knowledge of the market with their experience when it comes to minimising any emotional attitude about an investment that might lead a customer to make the wrong decision.
The adviser network is just one more channel for institutions, so it must be integrated with the rest of the channels. Banking institutions must always place the customer at the core of their business model, with management by the adviser but ensuring customers know that they can count on the rest of the bank’s channels (branches, mobile banking, specialised services, remote channels, etc.) to receive the best overall service.
Published in Funds People, 14.06.24