German firm seeks out Czech mates

Catching a taxi in Prague’s Václavské Námestí – Wenceslas Square to non-Czechs – recalls heady scenes of massed ranks of pro-democracy demonstrators, standing shoulder to shoulder in support of Václav Havel’s emerging nation back in 1989. Today, the crowds are not made up of nervous political demonstrators, but fun-seeking tourists. Democracy and economic liberalisation have turned Prague into an international playground, full of Italian boutiques, Spanish tapas bars and the all-conquering American burger and coffee franchises. Traditional Czech food and goods have become a minority interest in the country’s capital city. As the taxi crosses one of the bridges across the Vltava river, the Hradcany castle, green domes and spires shape a glorious Central European skyline. The churches, museums and theatres remain, for those who wish to seek them, but the slightly sinister, romantic, mysterious streets and passageways of old, immortalised by writers such as Franz Kafka and Jaroslav Hasek, have been rebranded as part of a new-found consumer paradise. New-found prosperity This economic prosperity, with many Prague residents selling up their properties to foreigners and moving to the provinces, coupled with rising incomes, has spurred interesting developments in the financial services industry. And 15 minutes’ drive from the bustling Old Town sits an unassuming low-rise building on the non-descript suburban street of Baarova, which is an unexpected hive of activity. This is the Czech headquarters of OVB Allfinanz, the leading financial services adviser in the republic and a growing outpost of the German parent group. On the day PWM visited, hundreds of graduates in their early 20s passed through the offices, in an almost carnival atmosphere, to receive exam results and be inaugurated into the growing community of Czech commission-based financial advisers. A quiet revolution The Czech operation was opened in 1992, three years after the so-called Velvet Revolution. “At that time, we felt that the Eastern European region, after it had opened up, and all the changes in 1989, had a huge demand for financial tools, including pension funds, life insurance and all types of investment products,” says Martin Gardavsky, the thoughtful, articulate and steely leader of the Prague-based practice, which controls 2,000 full-time advisers. Prague’s geographical proximity to Germany was also an important factor, which made setting up the business more straightforward. “In the past, there was nothing like this,” says Mr Gardavsky of the Allfinanz concept, popularised by German groups such as the DVAG, which enables ordinary people to get all of their products from a single adviser in a one-stop shopping concept. “You either saved or you did not. For 46 years, people had just been saving their money in state-managed deposits – a monopoly – so they were not used to investment in any sense of the word.” But before things got better they initially got worse, with a dose of economic shock therapy combined with then finance minister Václav Klaus’s controversially administered series of voucher privatisations, “which brought people, in both the positive and negative sense of the word, to invest”, says Mr Gardavsky. After sealing an initial partnership with Czech-Austrian insurance company Uniga, OVB began to offer clients mutual funds produced by groups such as Pioneer, Conseq, AIG, ING and HSBC Investments. “Czech banks in 1992, were not able to offer investments, as they were not really ready for that and there were no products in existence at the time, apart from insurance products, manufactured by the state-owned insurance company,” recalls Mr Gardavsky. He champions the independent financial advisory (IFA) model, because banks are tied to their own group products whereas IFAs can offer the best solutions in the market. “Should clients visit a bank, the products they are offered come exclusively from that bank,” says Mr Gardavsky. “If speaking to one of our advisers, clients are offered products of several banks or banking groups. Via some of our partners, a client can purchase any fund worldwide, so the potential portfolio on offer is very wide and broad.” Global reach The Czech securities trader, Conseq, is OVB’s biggest partner in the country, and according to Mr Gardavsky, this firm can “create a package in any investment fund worldwide.” Until recently, OVB clients have been very conservative, preferring money market and fixed-income funds. While the Czech mentality remains much more risk averse than, for instance, neighbouring Poland, where every type of blue-collar worker has been involved in the long-running equity bull market, Czechs are just beginning to mix shares into their holdings. OVB’s Czech clients and their advisers also come from a variety of backgrounds. “We have women on maternity leave, university graduates and ex-hairstylists on our books,” says Mr Gardavsky. “Our portfolio of clients is as varied as the backgrounds of our advisers, spread across lower, middle and upper classes. We are not focusing mainly on academics or intellectuals. Our clients are spread right across all income levels.” But as much as he is pushed, Mr Gardavsky sees very little reason for directing clients to domestic investments on the Prague exchange. He – and he claims his clients – prefer a safety-first approach. And this, says Mr Gardavsky, requires international diversification, rather than investing in a home market, which on its own can prove a very risky bet. He repeatedly shrugs off talk of potential domestic gains, enjoyed by Czech banks such as Komercni Banca, which channel savers into domestic savings funds. “The most important thing in the Czech Republic is a certain awareness that investing in the stockmarket is too risky. Yes, there are a certain section of people who invest in it, but just a small part. Investment funds investing in the Prague stock exchange are very popular, and there are relatively large volumes traded here, but we would ascribe those to institutional investors.” The preferred recommendation of OVB advisers is typically into guaranteed funds. “Certain products from HSBC are very popular, as there is no risk of loss,” claims Mr Gardavsky. “Most of our clients were invested into guaranteed investment funds last year, and 90 per cent of those funds are invested abroad.” Conducting transactions in Prague is certainly much more straightforward today than in 1989, when shady money lenders frequented dark corners – and there were many dark corners in Prague in those days.

Gardavsky: wide range available