Delivering quality investment advice isn’t just a question of the appropriate compensation structure, a variety of reforms are needed to ensure the quality of advice, argues a new report.

A report published Tuesday by Deutsche Bank Research examines the provision of retail investment advice, compensation structures, and the possibility for regulatory intervention by European authorities. The report argues that both commission and fee-based remuneration structures should continue to be allowed in order to meet the needs of different sorts of clients. However, it acknowledges that reforms are necessary.

The report argues that a ban on commissions won’t solve all forms of mis-selling. While a commission ban would solve the issue of mis-selling due to the payment of trailer fees that influence product recommendations, it maintains that there are still other forms of bad advice that are not due to the method of remuneration — such as improper investor classification or improper assessment of product features — which would persist regardless of the remuneration scheme.

To allow both models to exist, there should be “unconditional transparency” on remuneration payments flowing from a product maker to an advisor, it says. “Transparency does not only mean data in an information sheet. Rather, it must be information that the consumer can understand just as easily as a fee that has to be paid upfront before the advice is given,” it says, adding it would be helpful to deliver this disclosure in dollar terms as well as percentages.

Indeed, the report says that, “Making the benefits of investment advice measurable will be one of the major challenges for providers of investment products over the next few years.”

It notes that pressure is building on the industry to justify its remuneration. “Explanations must be given to clients to detail what remuneration they are paying for which value added,” it says, adding that the crucial factor is to be able to make the quality of investment advice measurable and visible to the client.

The report suggests that quality can be measured in two ways: procedural quality, which is how well the advice offered is anchored in content, what form it’s offered in, and how it’s presented to the client; and, outcome quality, which is how well the advice performs, depending on the client’s individual targets and preferences.

Moreover, it says to ensure higher-quality investment advice, “it is necessary to address all the factors involved – not just remuneration.” Other measures could include: providing detailed and comparable cost transparency; defining structured advice processes and controlling their quality via mystery shopping (by both firms and regulators); improving general financial literacy; enhancing advisor training in communication skills; and, using client-oriented and/or individual result-linked key ratios in the variable component of advisor remuneration. And, it notes that, in Germany, the introduction of a neutral product assessment centre, which would test products for retail investor suitability before their market launch, is also under discussion.

“The impact of some of these measures would probably only tend to emerge in the medium to long term (investor and advisor qualification). Revamping internal incentive systems also takes time, as do the designing and implementing of structured advice processes. Cost transparency and mystery shopping would presumably be the measures that would be the easiest to implement in the short term and could unleash positive effects soonest,” it concludes.