the brazilian retail investment landscape

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.


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.


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.


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.


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


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



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


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


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


6. sistema Especial de Liquidação e Custódia, que é a taxa definida pelo Banco Central Brasileiro para a realização de operações do mercado aberto.


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.


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


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)


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


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



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.


oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation.

For more information please contact the marketing department by email at [email protected] or by phone at one of the following locations:

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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.

the brazilian retail investment landscape

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