Gerhard Caldewey of William Mercer in Frankfurt believes that it is a cultural phenomenon that is hampering consultants in Germany. “The Germans still love to do things their own way.” This is a matter of pride coupled with a distrust of outside influence.
Stephen Sander of Aon Jauch & Hübener in Mülheim an der Ruhr thinks that the pension fund industry in Germany is moving slowly because of political reasons. “This is an area which is hampered by regulation and unfavourable tax laws,” he says. However, he anticipates growth in consultancy as a result of regulatory changes brought about by EU directives designed to stimulate activity in the pensions industry in light of the far reaching implications of an ageing population. But nobody in Germany quite knows yet what these changes will comprise. “We are unsure what form these changes will take but the new directives will definitely mean greater need for consultants.”
“Why use a consultant?” asks Sander, explaining that established funds have traditionally taken care of their own assets and thus see no need for consultants. The Germans are also “cost shy”. “People are unsure of the value of the advice they are receiving nor what they should be charged for.” Generally consultants are seen as bringing added value by offering market overviews and different ways in which assets can be managed. “There is no right solution or one way to manage money, it’s a lucky dip and this is where consultants become useful.”
Growth in the German consultancy market has come mainly form small local companies. Hans Jürgen Reinhart from RMC in Frankfurt says foreign consultants are still not very successful in Germany. “Many clients like to work in-house or locally. Language can be a problem whilst locals understand the restrictions and specifications of the German legal system.” Caldewey supports this view. “On the benefits side it is mostly local players. Big players have yet to make their presence felt.”
Sander believes that large financial institutions are restructuring now in anticipation of future growth. “There has been a rush by German banks and insurance companies to set up consultancy divisions or joint ventures with existing consultanty firms.”
New laws to reduce state-controlled social security pensions and to encourage the shift towards voluntary private schemes will open up the consultants’ sphere of influence. “We could consider our government as our employers,” he suggests. There will also be a massive shift from defined benefit (DB) schemes to defined contribution (DC) ones, even though the current tax system does not favour DC schemes.
“The social security system is now too expensive”. To combat this, Caldewey believes that employees will have to begin making contributions of 4% to company managed pension schemes. This process will further open up the consultants’ market.
Sander believes regulatory changes will stimulate the need for consultancy but the lack of international players will stifle this growth. “ The market will need help quickly and this could prove a problem as the right advice may not always get through.”
The development of strategic asset allocation and the creation of risk controls consistent with this are other growth areas as identified by Reinhart. This, coupled with regulatory changes, means that the future looks “very optimistic”. “Current demand for consultants is beginning to exceed supply,” he says.