UNDER the influence of the economic downturn Slovaks have started to think more about their future financial security and are searching for better ways to protect their assets. People are becoming more interested in developing reserve funds and learning ways to shield their assets from the potential impacts of losing a job or becoming disabled. But the fundamentals of managing personal finances are not undergoing radical change and a personal finance expert says that a well-designed asset management strategy should not ‘change with the weather’.
The Slovak Spectator spoke with Tomáš Krídl, a team manager with Partners Group SK which specialises in personal financial services, about the responses of Slovaks to the economic downturn, whether the crisis has impacted firms in the financial consultancy business, and how he views the level of financial literacy among Slovaks.
The Slovak Spectator (TSS): How have Slovaks responded to the crisis in regards to management of their personal finances? Has behaviour or priorities changed?
Tomáš Krídl (TK): The crisis has particularly brought more deliberateness into decision-making by Slovaks and the hunt for profit has been replaced by a desire for better capital protection. Most people started to more intensively watch economic events – events which can indirectly influence the financial situation of each one of us. The need to cover unexpected drops in income, either because of the loss of job or an inability to work, has been increasing. Our clients are caring more for creation of short-term and mid-term reserves for ‘rainy days’. The general trust in state security or inter-generation solidarity has been decreasing because of events over the past months and years. The trust in the commercial sector is gradually increasing and people are behaving towards their money in a more responsible way and are thinking in longer-term perspectives. They are trying to make future plans and to not rely on chance.
TSS: What kinds of products are Slovaks searching for and which have become less attractive?
TK: Professional consultancy is based on planning and increasing the financial literacy of a client. It does not react exaggeratedly to changes in the market; rather it focuses on changes in a client’s needs. A well-designed strategy does not change ‘with the weather’. Thus, demand for financial products or the methods used have not undergone any radical change. People rather are approaching management of their money in a more responsible way and are thinking more about the future.>
Themes such as securing current income and in retirement, financing of housing, and creation of reserves remain priorities. Our clients are thinking more; they do not only assume ideal developments but also think about dealing with worse-case alternatives. They are thinking more about protection in the form of insurance and creation of short- and middle-term reserves by means of conservative products.
TSS: What trends do you expect will prevail in the Slovak personal finance management market because of the expected revival in economic growth but with the remaining high level of unemployment?
TK: Slovaks will put further stress on creating available reserves via bank deposits and instruments of the financial market. It is possible to expect an increasing interest in insurance for income continuation in the event of inability to work. Gradual relaxation of the credit policies of banks will lead to a renewed interest among clients in solving their housing issues.
TSS: Slovak legislation offers the possibility of personal bankruptcy. What are experiences of Partners Group in this field?
TK: The task of a financial advisor is to help a client plan – to think one or two steps forward. When cooperating with a professional consultant it is more characteristic to use the term ‘fire prevention’ than ‘extinguishing’. Since our planning concept is based particularly on protection of income and creation of reserves, solving a financial situation by disencumberment via bankruptcy in a court does not occur. Since the introduction of personal bankruptcy in Slovakia a few citizens have used this possibility, but none of our clients.
TSS: How has the crisis influenced the financial consultancy business in Slovakia? What challenges has it brought to its practitioners?
TK: The economic situation has gradually cleaned up the Slovak market of intermediation firms. The development puts higher requirements on professionalism and education of advisors.
During the next few years financial intermediation will become a highly specialised activity with a large moral responsibility. Only client-oriented companies which are able to show personal interest and which can provide professional services and better products over a long term have a chance to survive.
The ability to constantly innovate is especially a precondition for the long-term success of any company in this field. Only continuous change as ‘a learning company’ will provide satisfaction to clients – and through this lead to a strengthening of its market position and its better reputation as a consultancy.
TSS: How would you assess the financial literacy of the average Slovak citizen? Are Slovaks comparable with citizens of other countries? Has the situation changed over the last few years?
TK: The easiest way to assess financial literacy is on the basis of the diversification of the assets of the population. The average assets of Slovaks, also measured as a percentage of GDP per citizen, are still lower than the EU average. People here underestimate the value of financial planning and tend toward ‘proven’ even if obsolete products. Their division of assets does not reflect their goals.
Most Slovaks keep their short-term reserves in current accounts in banks where their money, de facto, is losing value. And they invest middle and longer-term savings too conservatively. Only a bare minimum of Slovaks use methods of static or dynamic diversification proven by decades of experience across the world. These methods are able to secure much higher and stable revenues.
During the last few years we have registered an increased interest among clients in more carefully following the course of economic events and they are seeking quality information about the financial market. The economic and financial literacy of our clients has been gradually improving and we expect this trend to become even more visible in the future. The best years for financial service consulting are only tocome.
