Josep Soler: "80% of savings is invested with very low returns, below inflation"

BarcelonaJosep Soler, founder and executive advisor of EFPA Spain (Spanish Association of Financial Advisors and Planners), believes that financial culture needs to be improved, one of the tasks he has been promoting for years. Furthermore, an effort must be made to encourage, through taxation, citizens to move from saving to investing.

One of the pending issues in this country is financial culture. Have we advanced?

— We are advancing, but at too slow a speed.

Why?

— We have a vast universe of people who should improve economically with financial literacy. Everyone makes financial and financial health decisions. And we are moving very slowly with the improvement of this aspect.

What do countries that could serve as a reference for us do?

— Anglo-Saxon countries have been improving for longer and, above all, have a culture of risk and savings and of understanding that savings must be converted into investment if savings are to serve any purpose. They are much more advanced than the rest of the countries in continental Europe.

Saving is a static concept and investing, dynamic, right?

— Yes. In Spain, and in Europe in general, we save. Of course, there are many people who cannot save, but globally quite a lot is saved. And, in recent years, we have also increased the savings ratio quite a bit.

Why?

— Because there has been more employment. We save, but the placement of this saving is terrible. It's not that there is 40% in deposits and current accounts, which, moreover, in the Spanish banking and financial sector, this practically generates nothing, no; it's that of the other 60%, what is theoretically invested, is invested in very conservative options. In investment funds, there is a brutal dominance of guaranteed conservative funds or those with short-term fixed income. There is also a very important part of insurance which, by rule, must be invested very conservatively. Therefore, perfectly, 80% of financial savings is invested with very low returns.

Below inflation?

— Indeed. Losing purchasing power. And savings that, in general, lose purchasing power, is a drama because they are not put to any use. Saving is very important, but the government does not dare to say that public pensions are fragile (and I am being moderate). We do not dare to say that it is increasingly essential to supplement them. Not because we have to privatize them. No, no. Supplement them because the trend is that these pensions will be increasingly lower or more at risk. That's all. And, therefore, we should encourage people and give them facilities.

What kind of facilities?

— Incentives, which, let's not fool ourselves, must be fiscal. Consequently, if, on the one hand, we have low financial literacy and on the other we are poorly advised... Quality financial advice still doesn't reach everyone. And, moreover, there are few incentives, fiscal ones. Unfortunately, it remains unproductive savings. Quite unproductive. And you might say, well no, this money that people put in banks serves perfectly for them to then give credit and invest. But, by regulation, banks tend to invest in low-risk credit. With little innovation. That is, watching the risk very closely because they are obliged to do so. And, therefore, we would need, like the Anglo-Saxons, to have more alternatives alongside bank financing. And that's what we're missing.

I was saying that we are ill-advised; doesn't the figure of the independent financial advisor exist?

— We have improved a lot, but not enough. They must be of higher quality, more autonomous, and let's not even mention more independent. Independent means they have to charge the client. And let's not fool ourselves: nobody here wants to pay a financial advisor. For example, we are willing to pay a doctor, if necessary; but not a financial advisor. "This financial advice is free –we think–. The banks have always given it to me for free. They advised me, I don't know well or badly, but they advised me and, therefore, there was no need to pay." Consequently, nobody here is willing to pay for advice.

And the solution?

— We should be more subject to fiduciary duties, which are common in the Anglo-Saxon world. Even if you are an employee of a bank, if you adhere to fiduciary rights, you must prioritize the client's interests. In the case of doctors, there is the Hippocratic Oath. If this is the case with physical health, it should also be the case with financial health because it is what gives you certainty about the future. And this has not yet entered the country's culture. I repeat: we have a little more quality than before, because advisors are asked to be qualified, to undertake 30 hours of continuous training each year – something that is not required of almost any profession –. And more autonomy and more subjection to fiduciary duties. That is to say, simply, to be subject to an ethical code that gives primacy to clients. And this is very important.

I mean, independent financial advice, the advice is given by the bank...

— Or the brother-in-law. (Smiles).

The CNMV now says it analyzes content on social media, those they call finfluencers.

— There are many. I'm sure there are trustworthy ones, but I know few. I see brutal animals.

And they even impersonate famous people...

— Yes. And, in general, they make recommendations. This is very dangerous. Because these gentlemen no longer reach even the minimum. They are neither qualified, nor do they have to requalify every year, nor does anyone control them for selling rubbish. This is a drama, indeed.

Another point of attention maybe should be cryptoassets like bitcoin, right?

— Here perhaps there has been something that I don't think is very good and that is that regulated and registered entities have perhaps entered too easily. They will tell you it is an offer for a very small part of the portfolio, but you have to be careful because they are laundering an asset that, like it or not, has no support behind it to justify it.

And what do we have to do for it to be invested?

— Incentivize investment in Europe.

Looking at last year's data, the weight of individuals on the stock market has decreased...

— Certainly. The weight of everything has been inverted, but more so that of individuals. In Europe we have different markets, 27 different stock exchanges that are not integrated or poorly integrated. And especially smaller companies.

Do we have an alternative in Europe?

— Not much, because companies are smaller compared to those in the United States. And in Europe, we either invest in productivity, innovation, and market integration and national champions in different sectors, or we will continue with a significant decline in relation to more dynamic parts of the world. We must generate resources and they cannot be public. We need private money to invest. And more alternative financing, especially for SMEs, which depend heavily on banks.

So, what should we do?

— Incentivize via taxes. Here in Spain, the option chosen has been to promote savings-investment accounts. It says nothing about taxes, but it will be for a maximum of 3,000 or 5,000 euros to avoid favoring the rich, when it is they who generate volume to be able to invest. A public consultation has been held, and two things have been mixed up: what is called the European label and savings and investment accounts. A new differentiated vehicle is needed if one invests generally in stocks, in European stock markets, or in the Spanish market. One can even request that to have tax advantages, they remain for 3, 4, or 5 years and, therefore, that these gains be treated differently because otherwise, people who save, pay income tax and once they invest more, all capital gains: a blow from personal income tax. You lose due to inflation, you lose due to expenses...