Since their creation in 2009, Spain’s independent advisory firms (Eafis) have grown consistently in number, to some 161 firms by November 2016, but also measured by assets under management – up 19% year-on-year in 2015 to €25.3bn, latest data suggest.
The roots of this growth can be found in the restructuring of Spanish financial institutions, which has pushed a number of professionals to consider other business models in order to continue their careers, while providing a more independent advisory service relying on true open architecture.
Horacio Encabo, responsible for Eafis at Andbank Spain, suggests that some banking professionals feel their advisory ability is limited by traditional banking products or industrialised advisory services.
This, coupled with the rapid regulatory changes that will be introduced after Mifid II, is leading numerous banking professionals to rethink future business models.
“The alternative, to become an Eafi, increasingly makes more sense for this particular professional profile, as it offers the advantages of independence, transparency, multi-custody and the non existence of conflicts of interest,” Encabo says.
On the other hand, private banking clients are increasingly demanding advisory services offered by independent professionals. This increase in demand is, many times, linked to investors’ poor experiences with certain financial entities that sold them “toxic assets” or “unsuitable products” for their investor profile, says Guillermo Santos, partner of the Eafi iCapital.
Although demand for independent financial advice is increasing and Eafis have scope to gain market share, Santos points out that there is a lack of major investors in Spain willing to put higher levels of risk into their portfolios – a breeding ground for financial advice.
“Spain is rather a country of savers who want minimum or no risk in their portfolios, and where financial advisory [business] has less space or, at least, its contribution is less necessary,” Santos says.
In Spain, it is still tough work getting clients to pay for independent financial advice as competition from banks is “tremendous although often unfair as they move in constant conflict of interest”, Santos says, adding that there is ample scope for advisory services but not for all Eafis.
Encabo, however, says there is room for everyone.
“This has just started. The current market share of Eafis is not more than 1% so there is still much ground to cover,” he says.
“Today, the majority of Eafis tell us that their main source of new clients comes mainly from recommendations from other clients; thus, on paper, the growth curve can be exponential,” Encabo says.
According to Isabel García, director of the agent network and Eafis at Bankinter, the market overall is not growing at the same rate as Eafis are expanding.
“[Only those Eafis] doing things better, handling larger volumes and providing greater value as perceived by customers who are willing to pay for it, will survive,” García says.
The need for a wider range of services and more efficient structures from the cost point of view – particularly in the near future with the arrival of Mifid II – means it is effectively compulsory to consider more competitive models, which most likely will lead to mergers of Eafis, she notes.
Andbank’s Encabo points out that Eafis tend to be more similar than different, suggesting that mergers may only be a matter of time – as was case recently involving Wealth Solutions y Áureo Wealth Advice, which were consolidated into Wealth Solutions Eafi.
Eafis could also assess conversion into becoming asset managers, but Santos does not see it as a trend.
“If the problem is costs, an asset manager can have even higher costs. If the problem is management activity, there are formulas to collaborate with [banking] entities,” Santos says.
He adds this type of move only makes sense when Eafis aim to directly commercialise a product – but then the Eafi purpose of offering pure independent advisory services would be blurred.