April 2010


Juan Alcaraz: "Key challenges include the need to empower consumers further to make the right financial decisions..."
alcaraz.jpgA new report just published by the European Fund and Asset Management Association (Efama) – Revisiting the landscape of European long-term savings: A call for action from the asset management industry – identifies key strategic priorities on which our industry must focus to better serve the long-term needs of tens of millions of investors across Europe and act as the custodian of their retirement savings. It comes about following extraordinary times for all stakeholders of the financial services industry. Investors in particular have been badly shaken and need to be re-inspired with confidence.

In the wake of recent experience, it has been Efama’s ambition, first and foremost, to take a proactive stance towards addressing the key issues faced by our industry. With that goal in mind, last year Efama launched a consultation amongst 23 CEOs from some of the largest European asset management firms, pension funds, investment consultancies and investor associations to identify key practical recommendations and to assist the industry, policy makers, and political representatives in achieving greater transparency, increased investor confidence and efficient savings solutions.

The overall message the interviewees included in this report are sending the industry, regulators and legislators, is that more needs to be done in the field of long-term savings and distribution. Pension solutions in Europe, where demographic and economic challenges make them more and more vital, face numerous challenges. Those include the need to raise investor awareness on long-term savings and develop further incentives; the fragmentation of regulation, resulting in fiscal inconsistencies, limited transferability; and a lack of true cross-border competition. In addition, there is also a continuing lack of transparency, choice and flexibility in many retirement plans and a need to enhance further the attractiveness of long-term savings’ products.

In parallel, the report acknowledges that the successful development of long-term savings and private retirement solutions also relies on the quality of distribution. Key challenges in this area include the need to empower consumers further to make the right financial decisions, ensuring further alignment with their best interests, as well as the need for greater focus from product providers on the end investors’ needs.

In order to respond to these challenges, the report outlines eight detailed recommendations to improve regulations for long-term savings, retail product distribution, financial education and business practices. In the field of long-term savings, the main recommendations include the introduction of compulsory long-term savings schemes by European governments; the introduction of a personal retirement plan with consistent certification standards across Europe, which would include some basic requirements in areas such as transparency, choice, transferability and flexibility; and the granting of equal access to those plans for all product providers in order to foster competition.

Looking at distribution, the report stresses that the quality of advice and transparency at the point of sale should be improved. Potential actions include disclosing the nature of distributors’ services to ensure investors can have a comprehensive view of the advice they receive; ensuring full disclosure of all cost items and principles of remuneration arrangements; and as developing standards for advisor education and competence.

More generally, the harmonisation of distribution standards for packaged retail investment products is key to ensure that investors can compare alternative investment solutions and be empowered to make the best decisions. To that extent, the asset management industry welcomes the EU initiative on these products. In addition to this endorsement, the report highlights that more can be done to promote further confidence in the Ucits vehicle, such as in the field of fund-type classifications through the establishment of a European-wide classification system addressing portfolio holdings.

Alongside those recommendations for high-impact measures to ensure sustainable long-term savings and strengthen distribution, more general actions can be taken by our industry to support the above developments. The first area where our industry can contribute further is the financial education of investors and advisors, notably through the launch of educational initiatives to promote financial literacy and the sharing of best practices across Europe. Another recommended action for our industry is to set its aspirations for improved business conduct and performance amongst advisors.

When it comes to how the report’s recommendations could best be implemented, we recognise that some of them could be put forward by the industry itself, while others could only be initiated in partnership with or be led by European and national legislative bodies and regulators. It is important to note that the recommendations seek to embrace the objectives expressed by the EU Commission of achieving its strategic goal for 2020, ie to increase connectivity throughout the single market to the benefit of European citizens.

In summary, our industry has a collective duty to put the investor back at the heart of its efforts. All of the recommended steps described are conceived with the intention of improving the daily life of European citizens and helping them build their long-term financial security.

• Juan Alcaraz is CEO of Santander Asset Management; CEO of Allfunds Bank; and member of the president advisory council of Efama

©2010 Funds Europe

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