Pension Reform in Continental Europe: A Major Opportunity for Funds and Financial Advisors


Pension reform in Europe should encourage more private retirement savings. Specifically, there has been a global shift from defined benefit (DB) plans (be they public or private) to defined contribution (DC) plans - which are becoming increasingly important in continental Europe. In some countries, such as Germany and the Netherlands, DC plans have already begun to play a more important role.

A shift to DC plans will augment demand for financial advisory services, creating an opportunity for funds and financial advisors. This increase in demand will be modest if policy changes are restrained to, for example, gradual increases in the retirement age. There is likely to be a surge in demand, however, if there are more wide-reaching changes, like the introduction of workplace DC plans. There are also downstream implications for household asset allocations.

Currently, banks are the main provider of financial advice on the Continent, but will they be able to keep up? Many have been shuttering physical branches for years, betting that their clients will be satisfied with digital channels. While a digital-first strategy might be appropriate for basic retail banking services, it is unlikely to satisfy client needs with regards to financial planning. As we have seen when examining the market for roboadvice, when it comes to their financial well-being, individual investors still largely prefer to consult with human advisors. Digitization could be a losing bet.

If the reduction in bank branches continues, whilst pension reforms shift the management of retirement savings from the institutional investor to the retail investor, banks on the continent may risk missing out on a large opportunity. The question is: who will step in to take their place?

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