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Going Dutch

While the UK market is considering the impact of the likely loss of polarisation in its financial services market, it is important to remember that some other countries have never had this regime. The Netherlands is a good example of an efficient and effective market that flourishes in a non-polarised financial world.

Four different distribution channels exist in the Nether-lands – direct sales, tied salesforces, bancassurers and independent financial advisers. Of these, direct sales and independent advisers make up the biggest share of market. Dir-ect sales account for around 25 per cent while independent advisers account for some 60 per cent of new business.

The independent sector has always had the biggest slice of the market and, des-pite threats from new distributors, has maintained its share of new business.

Like the UK, the bancassurers have particularly suffered at the hands of the independent sector. In the last few years, Dutch banks have focused primarily on the very affluent client, to the detriment of their less well-off customers. The latter have proved a particularly successful target for the independent adviser.

The independent sector is made up primarily of small companies, some of which have been in the market for 70 years or more. Although fees and commission both exist as remuneration in the Nether-lands, commission is by far the most common method.

But while Dutch advisers may be described as independent, the concept of independence is not as vehemently adhered to as in the UK. For starters, although independent advisers can deal with any of the 100 or so life insurance companies in the market, it is common for them to have relationships with just five life companies and five non-life companies. These are not necessarily the companies offering the best products in the market and subsequently the concept of best advice is unheard of.

Second, it is common for insurance companies to own these independent advisers. For example, Axa currently owns 25 broker offices in Holl-and they will still be treated as independent. There are not yet requirements for the advisers to state they are owned by an insurer.

This phenomenon, which is just starting to take hold in the UK, has been common practice in the Nether-lands for many years. While some companies will have tied salesforces, these tend to be insignificant compared with the size of the broker offices they own.

In the Netherlands, insurance companies have found that owning an adviser is no guarantee of distribution and it is not uncommon for the parent company not to be among those recommended by their independent adviser. Instead, a reason for owning an adviser is often the investment return rather than as a means to ext-end product distribution.

Responsibility for the sale of products lies firmly with the insurance company whose product is being recomm-ended. Under statutory regulation, before a sale is completed, an insurer must provide the consumer with clear information on the risk associated with a product and its surrender value. These rules have been tightened up with the introduction on January 1 of the “financial information leaflet”, which comes into practical effect on July 1.

Although the present system is effective, change is happening in the Dutch financial services market. The insur-ance intermediaries directive, which will enable advisers to sell cross-border, comes into effect in 2004 and, like the UK, the Netherlands is pre-paring for the inevitable tougher standards.

The main focus of the change is greater transpar-ency. Financial awareness is low among consumers in the Netherlands and the regulators and the government are keen to make things easier.

Revealing an insurance company parent is not especially problematic for Dutch advisers, but there has been resistance to changes in commission structure, largely because of the cashflow problems it can cause.

The Dutch, like the British, do not like to pay fees for their financial advice and they are extremely uncommon. However, as in the UK, this is gradually changing as a growing number of advisers switch to this form of remuneration. A driver for this was a change in legislation in 1999, which allowed advisers the flexibility to rebate commission.

The prospect of this upheaval has already meant change in the adviser market. As in the UK, financial advisers are merging or looking for new owners in the shape of insurance companies or banks.

Ultimately, the Dutch fin-ancial services market is keen that its style of self-regulation works well and saves it from the level of regulation seen in the UK and, in particular, the 1 per cent culture that has reduced profit both for insurers and advisers. In conclusion, what lessons can be drawn from the Netherlands that may assist us in developing a non-polarised reg-ime in the UK?

In practice, so-called Dutch independent advisers do not practise best advice as they distribute products from a limited range of providers.

Arguably, Dutch IFAs are similar to the proposed authorised advisers in the FSA&#39s proposals. However, this does not affect their popularity among consumers. Strong competition between product providers to be pla-ced on an adviser&#39s short list means that products are keenly priced.

If the UK follows the trend in the Netherlands for product providers to invest in adviser firms, the decision needs to be based on the economics of the deal rather than as a means to extend the providers&#39 product distribution. The opposition expressed by Dutch independent advisers moving from commission-based to fee-based remuneration mirrors that of UK advisers.

This has forced many independent advisers to look for new owners in the shape of insurance companies or banks – a trend many see as being a consequence of depolarisation in the UK.

Consolidation in the Neth-erlands has led to a trend for better educated and younger advisers. It is likely that depolarisation may lead to a similar development in the UK.


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