Our final article featuring leading executives from some of Germany’s largest asset managers and the trade body BVI looks at fund commissions and market data costs.
The debate surrounding whether commissions paid to financial advisers should be banned, as has been done in the UK, led to a consensus that banning commissions would have adverse effects on the financial advisory landscape in Germany, particularly for average investors.
Hans Joachim Reinke of Union Investment was vocal about the need to maintain both commission-based and fee-based advice models, emphasising that the majority of Germans are unwilling to pay for fee-based advice.
He said research had indicated that 74% of fund investors in Germany do not want to pay for such services. For most investors, the average fund holding is around €6,000, far below the €25,000 threshold where fee-based advice becomes attractive.
“If the EU Commission’s goal is to encourage people to invest their assets, there must be a parallelism between fees and commission advice,” the Union Investment CEO said, citing the UK as an example of how a ban on commissions has excluded many from receiving financial advice.
“Devastating results of commission bans”
Thomas Richter of the BVI echoed this sentiment, criticising the EU Commission’s approach as counterproductive to its goal of fostering a Capital Markets Union.
He highlighted that MiFID II – an EU directive that covers fund distribution and many other aspects of financial markets practices – already made it difficult for private investors to acquire securities, and a commission ban would only exacerbate this problem.
“It is a misconception that people don’t invest in funds because they’re too expensive due to high sales commissions,” he said, dismissing the idea that removing commissions would lead to increased fund purchases.
He referenced the UK’s Retail Distribution Review (RDR) of 2013, noting that the results had been “devastating”, with many investors locked out of financial advice due to the high thresholds of minimum investments required by financial planners to make fee-based services viable.
“What we euphemistically call the advice gap is not a gap but an ocean,” he said, highlighting that in the UK, only those with £50,000 or more can afford advice, while the average financial assets in Germany is just some €25,000.
Ingo Mainert, at Allianz GI, addressed the potential unintended consequences of such regulatory changes. He warned that eliminating commission-based advice could increase the entry thresholds into capital markets, directly opposing the intended goal of EU policymakers of making markets more accessible. He also emphasised the importance of maintaining a complementary system where both fee-based and commission-based models can coexist, allowing consumers to choose the option that best suits their needs.
“To cast doubt on this option or to abolish it is an intervention in a liberal market economy that raises serious concerns,” he said.
“It is a misconception that people don’t invest in funds because they’re too expensive due to high sales commissions”
Thomas Richter, CEO, BVI
Moreover, the Allianz GI executive pointed out that over-regulation on commissions, particularly through MiFID II, has already had negative spillover effects on the market. Since asset managers could no longer acquire stock research as part of the trading commissions they paid brokers, there had been a reduction in research coverage, particularly of small and mid-cap companies.
“Today, we are having discussions about why smaller companies no longer go public,” he noted, linking this issue to the lack of investor information available about these companies as an unwanted side effect of the regulations. As a positive he mentioned that this has been partially acknowledged in the meantime.
The overall sentiment among these leaders is one of caution against adopting a UK-style ban on commissions in Germany and the EU. They argue that such a move would not only limit access to financial advice for many investors but also contradict the EU’s broader goals of promoting a more integrated and accessible capital market. Instead, they advocate for a balanced approach that allows for both fee-based and commission-based advice, ensuring that all investors, regardless of their financial means, have access to the guidance they need to make informed investment decisions.
Legally forced to buy data
German asset management leaders expressed significant concern about the rising costs of market data. Dr Matthias Liermann at DWS highlighted the steep price increases and that costs continue to climb due to the monopolistic positions of many data providers.
Thomas Richter said asset managers were in a difficult position. “We are legally forced to use benchmarks, sustainability data, stock market prices, and other data from third-party provider. We can’t say no. We have to contract them.”
This compulsion to contract oligopolistic providers of data, he argued, leads to a “competition law problem” that is difficult to address due to the relatively small scale of the issues in comparison to larger antitrust cases involving companies like Google or Amazon.
Dirk Degenhardt of Deka added that the problem extends beyond just market data, citing the intertwined nature of data and terminal providers. He described the contractual terms as “very one-sided,” which can lead to costly and complicated renegotiations.
Finally, Thomas Richter suggested that a data vendor act might be necessary to curb these oligopolistic practices.
The BVI chief said: “Sooner or later we won’t be able to get past the need for a data vendor act. Providers don’t like to hear that, that’s for sure. But if we don’t, the situation will always go on like this and the proportion of data costs in our total costs – which was negligible ten years ago – will become ever higher, exacerbating the already significant cost pressures facing the industry.”
*This article was produced by Nick Fitzpatrick, editor, Funds Europe, and Markus Hill, a Frankfurt-based freelance journalist.
