“Here’s what we heard in Europe”, he comments.

1. Global Ageing
Global ageing is second only to global climate change as a driver of systemic change. In Europe, increasing life expectancy and declining fertility are conspiring to collapse the “support ratio” – roughly the ratio of current workers to current retirees. This in turn places pressure on retirement systems, particularly publicly-funded pensions that have played such a critical role in Europe over recent generations.

This unalterable fact means that governments must not only contend with increased numbers of retirees, but deficits in the labour force. After years of “parametric adjustment” – raising retirement ages, altering inflation assumptions, increasing contribution rates – governments are looking for new solutions.

2. The Four Horsemen of the Middle-Class Apocalypse
All over the world we find endorsement of our Jasper Forum concept of the “Four Horsemen” – housing, healthcare, education and retirement. In countries all over Europe (and the world), increasing longevity and monetary policy have conspired to push all four toward becoming “luxury goods”. Workplace savings programs help to mitigate stress on all four priorities, ensuring that they don’t compete with each other.

3. Pooled Retirement Risk
Europe has long taken a collective approach to retirement security. In countries like Germany, France, Italy and Spain, pay-as-you-go government social insurance schemes dominate. In the Nordics, mandatory workplace contributions to defined benefit (DB), defined contribution (DC) or collective defined contribution (CDC) schemes cover nearly all the labor force. The big idea: everyone in the society should be able to achieve financial security in retirement. The problem: global aging is making this more expensive by the year. Whether the solutions are public or private, they should “pool” benefits and risks …and they must be sustainably funded.

4. Stakeholder Engagement
Effective retirement systems emerge from deep collaboration between multiple stakeholders – elected officials, regulators, employers, employees, trustees and financial services firms. Governments set policies and provide safety nets; employers offer pension funds and DC savings plans; financial institutions manage funds, trustees oversee governance; and employees fund the system from their wages. Celebrated and well-funded retirement finance systems do not rise by spontaneous combustion – they are forged in shared responsibility and aligned incentives.

5. Control & Responsibility
There is a growing trend towards shifting the responsibility for retirement finance from governments and employers to individuals. This shift is seen in the move from defined benefit (DB) pension plans, where employers guarantee a specific retirement benefit (but retirees own no assets), to defined contribution (DC) plans, in which individuals share investment risk and responsibility for “owned” assets. Collective Defined Contribution (CDC), long-established in Denmark and emerging in the Netherlands lies between the two, at the DB end of the spectrum.

European retirement systems are pushing hard in the direction of participant responsibility, but while the best systems (notably the Nordics) are superbly managed, they have no experience with retail consumer engagement that is the center of gravity with DC systems. The new individual-centric systems will turn on auto-enrollment, auto-allocation and interactive fintech for account management and retirement income projection.

6. Fintech & Personalization
New technologies are transforming the management and delivery of retirement services. Mobile-based platforms allow individuals to manage their retirement savings. Artificial intelligence (AI) and personalization technologies can provide tailored advice, automate investment decisions, and improve user engagement. These innovations can increase accessibility, reduce costs, and improve the overall efficiency of retirement systems. European retail retire-tech lags behind the United States for the moment; it will catch up fast.

7. Public & Private Markets
Modern Portfolio Theory (MPT) holds that a broad array of investment assets is essential to the optimization of returns and risk. Funded retirement systems in the Nordic countries have a full array of publicly traded stocks, bonds and indices, together with private equity, private credit, infrastructure, real estate, and other assets. The US DC savings complex is almost entirely allocated to stocks and bonds, posing substantial concentration risk. In coming years, US allocation will increasingly mirror the Nordics.

8. ESG is Here to Stay
In the US, ESG seems to have fallen out of fashion due to a blend of political pressures, a renewed focus on returns and general portfolio rebalancing. But in Europe, the principles of sustainable investment seem permanently embedded into the DNA of pension funds. The “Green Transition” and the “Digital Transition” are central to European strategic thinking and likely to stay that way.

9. Capital Markets Union (CMU)
For some years, European policymakers have unsuccessfully pursued Capital Markets Union (CMU) that would establish a unitary, deep and liquid pool of capital on the scale of the United States. The US has a vast capital market that reduces systemic cost cost-of-capital; the country’s $40 trillion retirement finance complex is the heart of this market. But European CMU remains elusive. The member states of the European Union still reserve for themselves the right to legislate and regulate on matters of pensions, tax and finance. European governments well-understand the potential benefits of funded retirement finance and CMU. But for the moment this goal remains politically out of reach.

10. Culture & Trust
Culture – historic, social, political, economic – is the DNA of the global retirement finance system. Culture’s cousin “trust” is similarly determinative. And while these concepts can’t be rendered on a spreadsheet, they are all-important. In Europe, a history of military conflict and serial capital destruction, described memorably in Thomas Piketty’s “Capital in the 21st Century” has left a lingering deficit on both fronts.

The Nordic countries are “all-in” on funded retirement finance. Workers seem well-content to defer substantial portions of their wages to local pension funds. And Nordic retirement systems are routinely cited as the best in the world. In large European countries like Germany, France, Italy and Spain, governments ask that workers make equally significant retirement contributions – in the form of social security tax payments.

In addition to these retirement finance contributions, European personal savings rates hover around 10% as compared with 5-7% in the United States. But Europeans tend to allocate to low-return, guaranteed instruments like insurance products and bank deposits and in real estate. By some estimates EU “assets for retirement” (as opposed to “retirement assets”) may top €10 trillion. Truth be told, Europeans don’t have many other options. American style brokerage accounts, DC savings and fund supermarkets are not deeply imbedded in financial practice.

There is no “European” financial culture, to say nothing of a unitary investment market. Instead, Europe has 27 different financial cultures. Many cite this as a semi-permanent barrier to retirement finance evolution. Others believe that preoccupation over Europe’s under-developed financial culture may be a stalling tactic designed to delay long-overdue changes

From Crisis to Opportunity

European policy-makers often frame demographic and financial challenges as a “retirement crisis”. But in Europe today, there is also a growing recognition that retirement finance represents an opportunity for innovation and economic development. An older generation of Europeans seems intent on preserving the status quo, (even as they recognize its looming unsustainability). Younger Europeans seem eager to engage whatever private savings mechanisms are available to them.
The European Union has a GDP of $20 trillion. Regional funded retirement finance assets comprise some $4 trillion – over 90% of which are in the Nordic countries. Were the EU as a whole to achieve a retirement-assets-to-GDP ratio of 100% (the Nordics are already closing in on 200%), Europe would be showered with a $16 trillion windfall of retirement investment, across a wide diversity of financial assets, with a 40-year investment horizon.

Retirement finance could be a primary capital source for Europe’s “green transition” and “technology transition”. Funded retirement finance would do far more than shore up the continent’s social benefit programs. It could re-define the EU economy for the 21st Century.

By John Mitchem, co-founder of Jasper Forum

The role has been taken over by Simon Colboc which was done as part of a managed succession plan at FECIF.

Stanfield will continue to work with Colboc to ensure a smooth handover.

The change was ratified at a recent FECIF board meeting.

To read more on this topic, visit: Dynamic Planner eyes Europe expansion

Stanfield said: “I initially accepted the role back in 2014, intending to do one full term of 3 years. I have actually done a little over three terms, meaning more than nine and a half years in total – I thus felt that it was time for me to step down, not least to enable Simon’s new ideas and energy to take FECIF forward.

“Having worked with him for many years, I am sure that he will be perfect for both the role and the development of FECIF over the next few years.”

Stanfield will still remain on the board but will have reduced duties to allow him to focus further on this role as chief executive of FEIFA.

Colboc added: “I am honoured and excited to take on this role, as our industry is facing unprecedented change. I will look to inject my experience as best I can and bring together various viewpoints.”

During a European Federation of Financial Advisers and Financial Intermediaries (Fecif) editorial for July 2023, Frank Rottenbacher wrote a piece called The future of financial advice in Europe: why a commission ban is not the answer. AWF is a member of Fecif.

This comes after the European Commission published its retail investment package in a bid to “empower” retail investors.

The proposals aim to allow retail investors to make investment decisions that are aligned with their needs and preferences, ensuring that they are “treated fairly and duly protected”, as the EU looks to trust and confidence into the financial industry.

As part of the package, the EU will be banning inducements for “execution-only” sales, where no advice is provided, to ensure that financial advice is “aligned with retail investors’ best interests”. It u-turned on its bid to ban asset managers and insurers from paying financial advisers for recommending their investment products.

AWF’s Rottenbacher said: “Europe has formulated ambitious goals in many areas to protect the interests of consumers as well. The latest goal is to make the capital market more accessible to citizens. To this end, the Retail Investment Strategy was launched, which aims to encourage and enable consumers to invest more in the capital market. These goals are undoubtedly important, correct and deserve recognition.

“However, we also need to be honest about the challenges that come with implementing such goals. Often, the best intentions are torpedoed by proposals that ultimately make it impossible to achieve the goals. An example of this is the proposed commission ban in the retail investment strategy, which would ultimately exclude large parts of the population from qualified financial advice.

“It is important to emphasise that commission-based remuneration does not automatically lead to conflicts of interest. Financial advisors provide high-quality advice and suitable solutions to their clients regardless of how they are remunerated. However, a ban on commissions would lead to a one-sided solution and limit the diversity of advisory models.”

Balanced approach

He believes that the advice industry should “take a balanced approach that focuses on both consumer protection and access to qualified financial advice”.

“It is important that consumers can make informed choices and have a wide range of advice services available,” Rottenbacher added. “This requires flexible and differentiated solutions that meet consumers’ needs and preferences. As long as consumers are not willing to pay adequate hourly rates for qualified fee-based advice, a commission ban will lead to them doing even less for their old-age provision or investing less or not at all in the capital market. This cannot be in the interest of politics and certainly not in the interests of consumers.

“Dialogue between policymakers, regulators and the financial services industry is crucial to find the best ways to achieve the goals set. Together we can work on practical regulation that strengthens consumer protection, enables innovation and at the same time ensures that all citizens have access to qualified financial advice.

“Let’s not lose sight of the positive goals, but also address the potential dangers of overly restrictive and patronising implementation. If the political will is there, if prejudices are broken down, we can find solutions together that strengthen consumer protection, preserve the diversity of advisory services and encourage European citizens to participate in the capital market.

“At Fecif, we are very much ready for such a constructive dialogue.”

The media report said that the EU is going to bow to intense lobbying after it received backlash from industry figures such as Efpa chairman Emanuele Maria Carluccio.

An analysis by the European Commission last year concluded that an EU-wide full ban on incentive payments made by investment product manufacturers to financial advisers would be the most effective way to remove conflicts of interest and improve results for end-investors.

But according to the FT, the EU has now retreated from this position and will limit the ban on inducement payments to “execution-only” sales of investment products where no financial advice is delivered.

The European Commission said in a document seen by the FT: “A full ban on inducements would entail significant and sudden impacts on existing distribution systems, with consequences that are hard to predict.”

The media report said that the finalised version of the EU’s retail investment strategy will be published on May 24 but alterations to the plans appear unlikely at this late stage.

International Adviser has contacted the EU and EC for comment but there was no reply in time for publication.

Industry reaction

The financial advice world did not think highly of the ban prior to the u-turn.

In February 2023, the CFA Institute issued a survey that found 34% of investment professionals based in the EU think that inducement payments should be banned. It also found most respondents think a ban is unlikely to prevent mis-selling of investment products and cited concerns that the ban could negatively impact on the variety of products offered to clients.

IA spoke with a number of firms involved in the European advice industry to discuss the potential u-turn on commissions.

David Vacani, principal at Beacon Global Wealth Management, said: “I think that this shows the power and strength of the banks and insurers in the EU and let us hope that no advice gap does develop. As we have said for a long time, let us hope that we at least see a progression to greater transparency and clarity for clients.

“Clients are increasingly sophisticated with complex cross border issues and needs and it is only right that they receive sound long-term financial planning solutions at a proper price and with transparency on what they are paying by way of fees or commission.”

Alex Ingrim, senior investment analyst at Chase Buchanan, said: “The existing distribution network for investment products and advice in Europe only serves to strengthen the position of the largest banks and financial institutions. The backtracking by the EU on inducement payments will continue to benefit banks at the expense of consumers looking for independent advice.

“Many consumers throughout the EU are unaware of how their advisers, be it independent advisers or advisers at banks, are paid, and they do not understand the misaligned incentives that exist. Furthermore, many investors are not receiving whole of market advice, and are only being advised on in-house products that pay advisers and brokers inducements. This ruling by the EU will put Europe even further behind the US and UK in promoting fair outcomes for investors.”

John Westwood, chairman at Blacktower, added: “We believe in and fully support transparency on showing fees, whether that be a fixed sum or a percentage. We also fully support a highly regulated approach. The one question remaining is whether any proposed changes to the present distribution system in Europe has been tested appropriately to ensure they are in the best interests of investors, and not simply a reaction to pressure from consumer groups or industry lobbying.”

Andy Oliver, chief executive of Private Client Consultancy, said: “I think this is a sensible move by the Commission to review the changes to the distribution model in the EU. A wholesale change would have disrupted a tried and tested process. While there is an absolute need for transparency, this could be enforced by the regulators to show 100% disclosure regarding the total expense ratio of the investment product chosen and any other wrapper used would at least allow the consumer to make an informed decision to either accept the proposition based on fees or not.”

Education

Within the CFA Institute survey, there was another idea mooted which could help change the advice world.

As opposed to an outright ban, investment professionals in the EU favoured increasing efforts on financial literacy and investor education (59%) and mandating clear disclosure of all commission payments received by distributors before investments are made (55%) as more effective methods of preventing mis-selling.

The European Federation of Financial Advisers and Intermediaries (Fecif) has not been in favour of a widespread ban on commissions. It believes that the decision made by the Commission is “correct and very significant”.

Vania Franceschelli, Fecif chairperson, said: “European consumers need advice that guarantees transparency and clarity. But they also need access to that advice. The present structure of the industry enables accessibility for all citizens. A general ban on commissions would destabilise the current distribution channels of savings products, hamper the provision of investment advice where it is most needed, and potentially bring the EU capital market to a halt, by limiting consumers’ choice.”

However, the Federation believes that it will be very important to also work to improve financial education, through a European-level plan too, if possible.

Franceschelli added: “We believe the decision to eliminate commissions on execution-only transactions is correct. Thankfully, the number of these operations has decreased since the introduction of Mifid, but further consumer protection in this regard is sensible.

“The changes that will be introduced by the European Commission could be a starting point for making the market even more efficient, including the improvement of business models of intermediaries, which may evolve in the coming years.”

Vania Franceschelli has been elected chair of the European Federation of Financial Advisers and Intermediaries.

Franceschelli has been on the board of the federation for several years and held the role of vice chair since 2019.

Previous chair Martin Klein has been elected as vice chair, with Paul Stanfield, secretary general, and Marta Gellova, treasurer, have been re-elected to their existing roles.

Candriam

The global multi-asset manager has promoted Nicolas Forest to chief investment officer.

He was previously global head of fixed income.

Philippe Noyard, currently global head of credit and deputy global head of fixed income, will succeed Forest as global head of fixed income.

Kingswood

Paul Hammick has been named as chief risk officer at the wealth manager.

He has over 26 years of experience in financial services having worked at Lloyds Banking Group, 11 years of which were at executive level leading risk, operational and sales teams.

Nucleus Financial

The wrap platform has named Justin Tovey as interim chief risk officer.

He replaces Martin Ettles, who has left the group to seek a new challenge.

Tovey joins from River and Mercantile Group, where he was chief risk officer for four years.

ThomasLloyd

The investment firm has appointed Nadir Maruf as chief investment officer.

Prior to joining ThomasLloyd, Nadir held the role of head of private markets at Tesco Pension Investment, where he was responsible for the private markets business and underlying portfolios, including overseeing all direct and indirect unlisted strategies.

Ocorian

The financial services provider has promoted Tania Mohacs to chief commercial officer.

Tania, who joined Ocorian in 2019, is based in London and was previously head of regulatory, legal and compliance at Ocorian.

Old Mill

The financial services group has named Amanda Browning as partner and head of wealth management.

She joins from Evelyn Partners, where she was managing partner.

London & Capital

The wealth manager has appointed Kristin Schaefer as head of relationship management for its US Family Office operation.

She will have a focus on cross-border Americans.

Schaefer joins from JP Morgan, where she led the private bank in Utah and Idaho. She will be based in London.

AssetCo

Head of distribution at the wealth and asset manager, Gary Collins, has left the company.

Collins has joined Door as head of clients for global ex-North America.

Foster Denovo

The IFA group has named Jacqui Irvine and Rosemarie Paul as independent non-executive directors.

The appointments follow the retirement of Alan Taylor, ex-non-executive director of Foster Denovo, after 14 years in the role.

Irvine is a qualified solicitor and adds over 25 years’ experience in the financial services industry. Paul is a qualified lawyer and the trustee of Trust for London.