The Brazilian reTail invesTmenT landscape Transforming savers inTo invesTors
Authors
Michael Wagner, Partner
travis hollingsworth, Manager
Jason oh, Consultant
reporT QUalificaTions/assUmpTions & limiTing condiTions
oliver Wyman was commissioned by general atlantic, a shareholder of Xp investimentos, to analyze the future of the Brazilian investment market. This report, which represents a summary of the study, is intended for market participants in the Brazilian asset management industry.
oliver Wyman shall not have any liability to any third party in respect of this report or any actions taken or decisions made as a consequence of the results, advice or recommendations set forth herein.
The opinions expressed herein are valid only for the purpose stated herein and as of the date hereof. information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been verified. no warranty is given as to the accuracy of such information. public information and industry and statistical data are from sources oliver Wyman deems to be reliable; however, oliver Wyman makes no representation as to the accuracy or completeness of such information and has accepted the information without further verification. no responsibility is taken for changes in market conditions or laws or regulations and no obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof.
ExECutivE suMMAry
Warren Buffett once said “the chains of habit are too light to be felt until they are too
heavy to be broken.”1 Brazilian investors have developed a habit of “saving” as opposed to
“investing” – is the country positioned to break the chains of habit?
For years, Brazilians have invested conservatively in basic savings accounts and fixed
income products, but that could change as Brazil undergoes a series of demographic,
macroeconomic, and household wealth changes that encourage diversification. As
interest rates and inflation drop to unprecedented levels and the number of middle class
households surges, “mass” retail investors are likely to start searching for higher yields and
make more medium-term investment plans. this will likely impact the investment market
in Brazil in two ways:
• What investors buy: in search for yields, investors are likely to diversify into a broader
set of asset management products, shifting away from such risk-averse short-term
savings products into more attractive investment vehicles
• How investors buy: As product choice and diversity multiplies, investors are likely to
seek tools and advice in navigating a more complex financial planning landscape
this will have potential implications for the Brazilian retail investor and financial
institutions alike.
ExhiBit 1: ovErviEW oF ChANGEs iN thE BrAZiLiAN iNvEstMENt LANDsCAPE
BRAZILIAN RETAIL INVESTORIS CHANGING…
Demand for more sophisticated investment products
Demand for higher-yielding asset classes
Shift away frombasic savings culture
Develop channels to help investors choose
MACROECONOMICS ARE CHANGING…
…DRIVING PRODUCT DIVERSIFICATION…
… ENCOURAGINGCHANNEL INNOVATION
• Middle/high income households are set to grow rapidly
• Brazilians are getting older
• Investors searching for returns
• Middle class growth holding wider set of products
• New rules that make savings less attractive
• Tax and legal policy channeling investment to housing, infrastructure, etc.
• Need for guidance and advice as choice multiplies
• Need to manage risk more holistically across portfolios
• Need to compare products and investor tools
• Need for “mass advisory” models as middle class grows
• Low interest rates relative tohistorical levels
• Higher degree of macroeconomic stability
Source: oliver Wyman analysis
1 interview at Wharton school Executive series Presentation, April 21, 1999.
Copyright © 2013 oliver Wyman 1
Financial institutions need to be positioned for the coming shift in the retail asset
management market.
• Distribution-centric institutions, such as incumbent retail banks, will need to actively
manage this change by adapting the way customers migrate to new products
− Go beyond a “one size fits all” investment offering in the mass segment by setting
a clear structure for the wealth product offering and client advisor model that fits
divergent investor needs
− Develop tools for navigating a wider array of products, providing product
transparency and investor education to enable choice
− standardize risk methodology to compare products across asset classes
− Manage the migration of customers shifting into alternative asset management
products to prevent margin cannibalization
− invest in alternative distribution platforms that compete with non-bank channels
and lower the cost of distribution
• Non-bank channels (such as wholesalers, brokers, and insurers) will need to build on
their product advantage and create trust in order to gain access to retail investors
− invest in brand, customer awareness and customer experience to compete with
more established incumbent players and garner a higher share of wallet
− Pursue technology that provides more direct access to clients or enables smaller
firms to compete in niche segments
− Consolidate the fragmented non-banking sector through acquisitions or
partnerships to create a broader distribution network or “open platform”
for products
− Link customer access points at life events to enter the wealth management space
(especially true for insurance agents)
• regulators will likely monitor the retail investment space as it matures
− Ensure that products are not misrepresented to retail investors and that adequate
consumer protection levels are maintained
− Ensure adequate amount of controls are put in place and that sellers are
educated continuously
− Channel savings into critical areas that match Brazil’s investment needs
the development of the retail investment market will create opportunities for banks and
non-banking financial institutions alike. Most of all, the Brazilian retail investor will benefit
from more choice, risk management tools, and engagement in how he or she thinks about
his or her financial future.
For savers, it’s time to cast away the chains of habit and explore a new world of investing.
Copyright © 2013 oliver Wyman 2
1. ChANGiNG MACro AND iNvEstor FuNDAMENtALs
historically, Brazilian investing 101 was as follows: Earn, set aside, and contribute to
poupança.2 After all, it was a good deal: stable indexed rates, high yields, government
support, and easy access at your local retail bank. As a result, most Brazilians became
“savers” rather than “investors”.
the poupança structure, along with economic instability, created a relatively conservative
investment culture. today, savings balances remain a high share of assets relative to the size
of the asset management industry. And for those that do invest in managed funds, more
than half choose fixed income funds.
ExhiBit 2: sAviNGs ACCouNt usAGE iN BrAZiL
20%
40%
Ban
kac
cou
nt
Cas
h
Col
lect
able
s
Gol
d je
wel
ry
Life
insu
ran
ce
Mu
tual
fun
d
No
extr
asa
vin
gs
Pro
per
ty
Stoc
k m
arke
t
Trea
sury
bon
d
60%
RESPONDENTS SAVINGBY EACH METHOD
SAVINGS BY DISTRIBUTION CHANNELBRAZILIAN MARKET DEMOGRAPHICS(MM)
BANKABLE POPULATION
SAVINGS ACCOUNTS
BOVESPA INVESTORS
98540,6
0%
Source: Febraban and Bovespa; Credit suisse Emerging Consumer survey 2012, Cs Emerging Markets research institute
2 Private savings accounts whose rates are set by and balances insured by the Federal Government.
Copyright © 2013 oliver Wyman 3
investors’ risk averse behavior has been driven by two historical factors:
1. Macroeconomic stability: Poupança offered high nominal returns (often in excess of
10%), was liquid, and held minimal risk as an indexed rate
2. Financial sophistication: relatively low financial sophistication from retail savers
(i.e. non-high net worth individuals)
But both factors are set to change.
the macroeconomic environment is rapidly adjusting. real interest rates have dropped
to less than 2%, from over 9% in less than four years.3 Many economists are pointing
to a “new normal” with lower base rates. under more predictable macroeconomic
management and growth in income per capita, the economy may be gradually entering a
less volatile environment.
in a more stable and low real interest rate environment, the “poupança advantage” over
other types of investments is eroding: whereas poupança yielded more than 10% over
inflation in the 1990s, its yield dropped to 5% over the last five years, and has now dropped
to only 1% above inflation.
ExhiBit 3: totAL outstANDiNG AssEts uNDEr MANAGEMENt (AuM) AND sAviNGs, 2011
80%
60%
40%
20%
US
Fran
ce
Ger
man
y
Ital
y
Spai
n
S. A
fric
a
Ch
ile
Bra
zil
Balanced/fixed13%
Fixed income55%
Money market6%
Real estate2%
Private equity3%
Hedge Fund3%
Equity18%
0%
100%
AUM
Savings
Source: iMF, oliver Wyman analysis
3 real rates are calculated as the difference between the central bank rate and the last CPi yoy change.
Copyright © 2013 oliver Wyman 4
At the same time, the financial sophistication in the retail market is also set to change as
the middle class expands. As a whole, personal wealth is growing as GDP per capita has
grown more than 50% in 10 years.4 the upper half of income-earning households, with
monthly income above r$ 10,400 is set to grow 3.8 times faster than total households over
the next five years. this trend has already started: between 2007 and 2012, the number of
households with more than r$ 2,500 income per month, or about half of total households,
grew by 13% per year whereas households making below that shrunk by 4% annually over
the last five years. the Brazilian middle class is expanding; the country will add over 3 MM
households with excess savings5 in the next three years alone.
ExhiBit 4: iNtErEst rAtEs AND PouPANçA rAtEs ovEr tiME
5%
10%
15%
-5%
20%
1996 1999 2002 2005 2008 2011
Poupança
Inflation
0%
Real return*
* the return of Poupança in excess of inflation
Source: iBGE and ABECiP
4 GDP per capita at purchasing power parity has grown from us$7,930 to $12,570 in the last 10 years to 2012 (Eiu).
5 Based on disposable income calculations; number of households earning more than r$ 2,500 income per month.
Copyright © 2013 oliver Wyman 5
Brazil’s population is still young and
growing. however, as the birth rate falls,
the rate of aging increases. in 2006, the
median age was 27 – it will pass 30 in
2013 before reaching 38 in 2030. over the
next 10 years, Brazil for the first time will
have substantial elderly and middle-aged
populations, both of which are likely to
demand wealth management products.
rising income per capita and a large
middle-aged population will create new
demand for financial planning. As poupança
becomes less attractive and a middle class
emerges, the conservatism of Brazil’s
investments could change significantly.
ExhiBit 5: GroWth rAtE oF housEhoLDs By iNCoME sEGMENt
70
60
50
40
30
20
10
2007 2008 2009 2010 2011 2012 2013 2014 2015
CAGR(07-12)
+15%
+8%
-4%
+37%
+2%
< R$ 2,5
R$ 2,5-6,2
R$ 6,2-10,4
> R$ 10,4
NUMBER OF HOUSEHOLDMM
0
Source: Eiu, iBGE, Febraban, oliver Wyman analysis
ExhiBit 6: AGE DistriButioN oF thE BrAZiLiAN PoPuLAtioN ovEr tiME
2
4
0 20 40 60 80
MM
2010
2030
AGE
0
Population aged 30+
will be largerin 2030
Source: Euromonitor international
Copyright © 2013 oliver Wyman 6
2. ProDuCt DivErsiFiCAtioN
investment culture is undoubtedly shaped by a complex set of factors including cultural
values, public perceptions, fiscal and tax structures, and demographic needs. While
Brazilians have developed relatively conservative investment patterns, the changing
macroeconomic and investor demographics may start to encourage Brazilians to become
more risk-tolerant or encourage product diversification across a greater number of
investment products.
Based on our international research, we observe a few distinct patterns of investment.
Anglo saxon countries, which are known for their high tolerance for risk and economic
stability, have a well-developed equity investment culture. investors tend to have a high
degree of financial engagement with a large share of their portfolio in equities. Access to
financial information and independent wealth advisors are more developed than in other
countries and the internet is a widespread tool for targeting and serving clients.
in contrast, emerging markets hold a larger share of “alternative” products such as real
estate, money markets, and private equity. Given that many of these markets have less
mature financial markets, investors may be “experimenting” with various products as
returns and economic track records are gradually established, or the core equity and fixed
income markets are less developed on a relative basis. Culturally, many of these countries
are in transition, i.e. the economies are more dynamic and growing at faster rates.
A third set of continental European countries invest the majority of their portfolios in fixed
income and other risk-averse products.
ExhiBit 7: AssEt ALLoCAtioN By iNvEstMENt CuLturE, 2011
40%
20%
60%
80%
Equity culture Diversified culture Fixed Income culture
Equity
Fixed Income
Others*
0%
100%
* others include money market funds, real estate funds, private equity and hedge funds
Source: oliver Wyman analysis
Copyright © 2013 oliver Wyman 7
Brazilians’ high usage of savings accounts
and high share of assets under management
(AuM) invested in fixed income products
places it on the conservative end of the
investment spectrum, especially when
compared to other emerging markets. in the
near term, Brazilians are more likely to invest
in a more diversified set of products.
For the retail “mass” (i.e. non-high net worth)
investor, the diversification of investment
products has already occurred over the last
five years (refer to Exhibit 10), and we expect
this to continue.
the growth in demand for alternative asset
classes among retail investors will be driven
by several factors already in motion:
1. search for higher yields in alternative but familiar products such as real estate
2. Growing middle income segment with needs for “mass investing”
3. Changes in poupança policy resulting in even lower overall rates
4. Legal and tax exemptions making alternative investment products more attractive
ExhiBit 9: totAL voLuME By AssEt CLAss For iNDiviDuAL iNvEstors
150
300
450
Mutualfunds
Directequities
Real estate
EXCLUDES UHNW/HNWR$ BN
CAGR08-12 12-17
+>20%+83%
+9%+24%
+12%+17%
+16%+6%
2008 2012
Directfixed income
0
Source: oliver Wyman analysis and industry interviews
ExhiBit 8: AssEt ALLoCAtioN By CouNtry, 2012
60%
80%
40%
20%
S. A
fric
a
US
Ru
ssia UK
Ch
ile
Fran
ce
Ind
ia
Turk
ey
Ch
ina
Bra
zil
Mex
ico
Ital
y
Ger
man
y
Equity
Fixed income
Balanced/Mixed
Money market
Real estate
Private equity
Hedge fund
100%
0%
Source: World Bank, iMF, ABECiP, CEtiP, ANBiMA, oliver Wyman analysis
Copyright © 2013 oliver Wyman 8
in the macroeconomic context, lower base rates will generally encourage investors to
consider taking more risk to compensate for declining yields. What’s more, the “return
tradeoff” or differential between savings returns and long-term asset returns has increased,
creating a greater disparity among asset classes.
second, the growing segment of middle class investors are more likely to have a more
diversified set of financial products, likely due to a larger pool of disposable income which
allows them to have a higher risk tolerance when investing.
ExhiBit 11: ProDuCts hELD By housEhoLD iNCoME sEGMENt
10%
50%
40%
30%
20%
Poupança Lowinterestpayingbonds
FixedIncomeFunds
DIFunds
CDB EquitiesFunds
Directequities
Others
More thanR$ 4.000
R$ 800 to R$ 4.000
Monthly income:
0%
Source: Época research, based on a survey of 13,600 respondents http://colunas.revistaepocanegocios.globo.com/financasdebolso/2012/05/21/onde-os-brasileiros-preferem-investir/
ExhiBit 10: ANNuALiZED rEturNs By AssEt CLAss
5%
25%
20%
15%
10%
Interbanklending rate
(risk free rate)
Savings Non-indexedgovernment bonds
(nominal rates)
Real estate(4 year
returns)
Mutual Funds(10 yearreturns)
Equity(10 yearreturns)
2007
2012
0%
Note: First 3 are 1 year; real estate is 3 year average; last 2 are 10 year averages
Source: BM&FBovespa, ANBiMA, iBGE, JP Morgan, Bloomberg, MsCi and oliver Wyman analysis
Copyright © 2013 oliver Wyman 9
third, government policy is making savings less attractive, encouraging investors to explore new products. New rules from the government dictate that when the selic6 is equal to or lower than 8.5% per year, savings accounts will yield 70% of the selic plus the tr reference rate. At values above that trigger, poupança will pay a stable 6.17% per year over the reference rate.
A historically volatile macroeconomic environment has limited the development of alternative investment funds for retail investors. But this, too, is changing as the Brazilian government increasingly taps the private sector to fund key areas of public interest such as infrastructure and real estate. through its legal and tax reform, the Brazilian government has created attractive, albeit still small, investment alternatives to Brazilian savings.
ExhiBit 12: rELAtivE AttrACtivENEss oF AssEt CLAssEs For rEtAiL iNvEstors
ProductS AttrActiveNeSS commeNtS
1. DirECt EquitiEs
• in the long term, the Brazilian equity market will likely grow as Brazil’s economic growth continues
− More attractive iBov returns would likely generate investor momentum, as retail investors are generally pro-cyclical
− international investors are likely to continue to search for yields as the us maintains loose monetary policy
• While there is long term potential for capital markets growth as savings accumulate, there are headwinds in the near term
• the current performance of the equities markets makes it difficult to attract investors (on the basis of relative returns)
2. MutuAL FuNDs
• As the largest beneficiary of diversification, mutual funds offer relatively low transaction costs for retail investor
• the mutual fund industry has historically been weighted toward fixed income, but the asset mix is shifting gradually diversifying into other products – which may make mutual funds more attractive
3. PENsioN FuNDs
• Pension funds allow investors to deduct up to 12% of their taxable income
• voluntary pension funds have been one of the fastest growing segments of the managed funds industry
4. rEAL EstAtE
• real estate is growing rapidly through both rEits (FiDiCs) and MBs (Cris)
• Both instruments have generated attractive returns in excess of 20% per year, drawing interest from the investor community
• Many investors view real estate as a familiar asset class, that is “simple to understand” with stable cash flows indexed to inflation (usually from rent)
• Many real estate products have tax exemption status
• rEits offer low investment thresholds for the mass retail investors (often less than r$ 2,000) and are more liquid than direct real estate ownership
5. iNFrA- struCturE BoNDs
• Brazil wants to develop a local bond market to help finance r$ 1 tN in projects for roads, factories and airports
• infrastructure bonds enjoy strong government support, including 0% withholding tax on income received from infrastructure project bonds
6. CDs • CDs offer a “middle ground” for investors seeking low risk and a high degree of liquidity
• Currently, CDs offer more attractive rates than poupança (11.1% vs. 7.4% average return over the last five years)
7. DirECt FixED iNCoME
• Fixed income has generated attractive coupons in excess of poupança (currently 1-2% premium)
• Most retail investors seek government bonds, as the corporate market lacks liquidity
Source: oliver Wyman analysis
6. sistema Especial de Liquidação e Custódia, que é a taxa definida pelo Banco Central Brasileiro para a realização de operações do mercado aberto.
Copyright © 2013 oliver Wyman 10
FoCus: rEAL EstAtE iNvEstMENt ProDuCts
Funding the housing finance system has been at the heart of many developments in the
Brazilian financial services market. Without a doubt, there is a strong need for housing in
Brazil as the population grows more than 1% every year. Many estimates suggest a housing
deficit in excess of 10 MM units.
the Poupança program itself was designed to allocate funding to real estate lending
through banks when the sBPE program was created in 1964. since then, the government
has moved to make real estate investment vehicles tax exempt for retail investors, and is
also creating the legal infrastructure to support the development of a securitization market
with transferrable contracts and interests.
As a result, real estate products have had a tremendous track record in recent years.
real estate investment funds (similar to real estate investment trusts [rEits] in the other
markets), some of which are publicly traded and regulated by CvM, invest directly in
properties but also buy real estate securitization instruments. in the last five years alone,
investment in real estate products have grown 43% per year.7
Despite strong recent growth, most analysts agree that the real estate finance system is still
well below its full potential. real estate securities are highly attractive investment vehicle for
retail investors (refer to Exhibit 13).
We note that the financial products in the real estate market are relatively unproven – which
is even more reason to ensure the development of a safe and transparent market. But
barring a significant hiccup in the real estate market, real estate funds will likely continue
strong growth by offering investors exposure to real estate price appreciation.
ExhiBit 13: outstANDiNG rEAL EstAtE sECuritiEs
40
20
60
80
VOLUME OUTSTANDINGR$ BN
2003 2004 2005 2006 2007 2008 2009 2010 2011
CRI
LH(Mortgage notes)
LCI(Real state notes)
0
Note: Excludes FiDiCs
Source: CEtiP and oliver Wyman analysis
7 source: CEtiP.
Copyright © 2013 oliver Wyman 11
3. ChANNEL DivErsiFiCAtioN
With a growing number of investment options, investors will likely need more sophisticated
intermediaries to find the products that best suit their asset management needs. rising
complexity will likely drive demand for comparison platforms, risk management tools, and
independent advisors that can offer more customized investment guidance.
While developed markets have already experienced growth in the investment advisory
space, in Brazil, traditional retail banks distribute virtually all mutual fund products – with
significantly fewer alternative channels than other markets. For instance, there are roughly
4,000 registered independent brokers in Brazil, compared with over 300,000 financial
advisors in the united states.8 Channel diversification would be a natural development in
response to an increase in risk tolerance and product choice.
this change could come at a time when consumers are looking for alternatives beyond the
traditional retail banking offering. international consumer research conducted by JD Power
& Associates suggests that consumers of retail banking are among the most unsatisfied
among five countries surveyed (Brazil, united states, Canada, China, and the united
Kingdom).9 Furthermore, consumers in Brazil rank a banks’ product offering and product
information as two of the top three drivers of customer satisfaction.10
8 xP investimentos, Cerulli Associates.
9 JD Power & Associates (http://businesscenter.jdpower.com/JDPAContent/CorpComm/News/content/releases/pdf/2011136-brbs.pdf).
10 JD Power & Associates. the other top 3 driver of customer satisfaction were account activities (http://businesscenter.jdpower.com/JDPAContent/CorpComm/News/content/releases/pdf/2011136-brbs.pdf).
ExhiBit 14: MutuAL FuND AssEts By DistriButioN ChANNEL, 2011
40%
60%
80%
20%
UKSpain France IndiaKoreaBrazil USItaly Germany
Banks
Independentbrokers
Other channels
TOTAL SALES100%
0%
Note: other includes direct sales and insurance distribution channel. in the us, wirehouses have been categorized as “bank”Source: Lipper FMi data digest, Cerulli Associates, Asian industry Associates, J.D. Power do Brasil, Anbima, oliver Wyman analysis
Copyright © 2013 oliver Wyman 12
While consumers may evaluate alternatives outside traditional forms of banking, they are
likely to continue to heavily rely on agent relationships for product advice and investment
guidance. in a recent survey of xP investimentos clients, the majority claimed to make their
ultimate choice of products based on their advisor’s recommendations. similarly, over 70%
of customers surveyed at xP make their investments through the agent channel, despite
having access to direct trading services via call centers and online.
incumbent retail banks, who already have retail banking relationships with customers,
will need to ensure that they engage potential investment clients seeking alternative
investment products. the challenge will be to avoid cannibalization of existing products.
thus, banks are likely to respond cautiously by modifying their existing offering. Banks
will also have to closely monitor and control their networks to avoid mis-selling or creating
operational liability.
the more visible change will likely arise from growth in non-bank and/or independent
channels – which will have a more structural impact on the market. For instance, the united
states has a highly developed investment advisory space, with relatively sophisticated
non-bank channels. Discount brokers offer relatively self-directed trading platforms,
while independent brokers operate as contractors serving the middle market with
packaged products. in contrast, registered investment advisors, are usually small practices
emphasizing holistic planning advice with fee-based services. Meanwhile, wirehouses have
developed national branch and advisor networks that offer a wide product range that is
increasingly moving from commission-based to fee-based revenue models.
ExhiBit 15: xP CustoMEr survEy
60% 40% 20% 0% 60% 40% 20% 0%
Recommendationfrom my RM
Own decision
Recommendationfrom specialized
websites
Recommendationfrom press
Others
Recommendationfrom family or friends
Invested inproducts that fit
my profile
Through XP Central,via phone
Through XP Central,via website chat
Directly throughmy RM
Through XP Central,via e-mail
HOW DID YOU CHOOSETHE PRODUCTS YOU INVEST IN?
WHAT ARE THE XP CHANNELSYOU UTILIZE THE MOST?
Source: xP customer survey (2.903 answers)
Copyright © 2013 oliver Wyman 13
Non-bank distribution channels will have a very different starting point than traditional
retail banks. incumbent retail banks are burdened with relatively high fixed costs, opening
opportunities for channel innovations that experiment with lower cost, efficient models that
overcome the cost of branch-based banking in Brazil. By international standards, Brazilian
banks have relatively high cost income ratios, driven by low productivity and high fixed
personnel expenses. Non-bank players can experiment with “light” or online channels as
access points to reach select customer segments, like that of E*trade or Charles schwab
in the united states. For instance, rather than treat employment costs as a fixed expense,
independent brokers often shift the risk onto agents and pay a higher share of commission-
based income.
ExhiBit 16: toP BANKs AvErAGE Cost-iNCoME rAtio, 2011
70% 50% 45% 40% 5% 10% 15% 55% 60% 65% 0%
Italy
France
UK
US
Germany
Japan
Argentina
Brazil
Canada
Colombia
South Africa
Turkey
Australia
Russia
Chile
Brazilian Brokerage*
India
Korea
Mexico
…
* Based on a sampling on Brazilian brokerages (oliver Wyman analysis)
Source: oliver Wyman analysis, Bankscope
ExhiBit 17: sALAry ECoNoMiCs, By ProFEssioN AFtEr tWo yEArs (r$)
BANk mANAger iNdePeNdeNt AgeNt iNSurANce AgeNt*
Annual salary 70,000 0 62,400
Annual commissions 0 120,000 12,000
Monthly salary 5,833 7,500-10,000 6,200
total # of managers ~21,000 1,200 ~45,000
* Average annual salary based on average of corporate and retail insurance agents (FENACor)
Source: oliver Wyman estimates, FENACor, 2011
Copyright © 2013 oliver Wyman 14
For non-bank channels, the challenge will be to build trust and branding in the eyes of
Brazilian investors, convincing them to capture a significant share of wallet.
Like other areas of the retail banking market, financial institutions will compete heavily for
access to the customer. Financial institutions with smaller networks than the major Brazilian
retail banks are already creating product advantages through emerging models. Citibank
has created an open platform of investment products where customers can choose from
over 60 types of investment vehicles. similarly, other large independent brokers offer
hundreds of investment products on integrated online platforms.
As both bank and non-bank financial institutions take a more active role in guiding
customers through a wide range of investment choices and products, they will need to
design any advisory services with potential regulation in mind. Globally, regulators have
enforced consumer protection in the regulation of the sale of financial products.
Managing operational risk, while providing relevant advice, will be a challenge that all
financial institutions will face. Closer management of distribution networks will be required
to appropriately manage potential operational risks. incentives for advisors will be critical to
the success (sales capabilities) and failure (risk management) of these networks.
ExhiBit 18: rECENt rEGuLAtory DEvELoPMENts iMPACtiNG DistriButioN oF FiNANCiAL ProDuCts
CANADABroad regulatory reformsto enhance consumer protection and bring greater disclosure for retail customers (2006-2012); stronger restrictions on banks (2011); and ongoingconsultations on regulation of MGAs (2011-2012) and online insurance sales
USReviewing “fiduciaryduty” of brokers to create level playing field
BRAZILCentral Bank developed the Financial Eduction Program to inform people the importance of financial planning, economy and financial operations
SOUTH AFRICAWorking group considering components of the RDR/FoFA reforms
INDIAComittee on investor awareness and protection
SINGAPOREFinancial Advisory Industry Review (FAIR)
HONG KONG (2011)Remuneration disclosure requirement
EUMiFID II and IMD II reviewing commisssions and independence of advisors; EU considering new regulation to improve transparency for retail investors to apply 2015
SCANDINAVIA (2005-08)Finland, Denmark and Norway banned the payment of commissionsby insurers to brokers
NETHERLANDS (2013)Abolition of commission on investments and protection
UK (2012)RDR launch aims for greater transparency in product pricing with new minimum qualifications, move to fee based advice
Source: oliver Wyman analysis
Copyright © 2013 oliver Wyman 15
CoNCLusioN
For years, it has been easy to generate high nominal yields through simple savings products
in Brazil. But lower real rates and higher economic stability will encourage investors to shift
into emerging alternative products. it will be up to banks, brokers and advisors to develop
solutions that serve Brazil’s rapidly evolving customer needs, creating sustainable business
models for the industry that both enhance value for the end customer and encourage
innovation within a safe and controlled environment.
Copyright © 2013 oliver Wyman 16
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ABout thE Authors
michael Wagner is a Partner in the EMEA Corporate and institutional Banking practice
travis Hollingsworth is a Manager in the EMEA retail and Business Banking practice
Jason oh is a Consultant based in são Paulo, Brazilil.