Podcast on the topic of commission bans
Why commissions are a structural problem
Consumers turn to a financial advisor if they cannot or do not want to make an investment decision themselves due to a lack of information or time. As a result of the financial advice, you expect a recommendation that meets your needs, in particular your risk tolerance and risk-bearing capacity. They want to know which investment products will best help them achieve their goal, for example retirement provision that will secure their standard of living.
Consultants at financial institutions, such as banks, represent the interests of their employer. He, in turn, wants to earn money through the investment and therefore motivates financial advisors to sell expensive investment products. The salespeople are also well trained. You will receive targeted training in sales psychology methods and apply them. At least their career depends on sales success, but in some cases bonuses are also paid depending on sales success.
There are also many insurance intermediaries or supposedly independent financial advisors as well as structural sales companies who also broker products in return for sales commissions on their own account or for other financial institutions. Their income depends directly or indirectly on the level of commissions.
In a situation where consumers are seeking advice, financial advisors have an information advantage that consumers cannot catch up with. They cannot tell whether the investment opportunity offered is really the best possible recommendation for them.
Financial advisors recommend the products that will make them the most money, without being visible to their customers.
What damage commissions cause
Commissions prevent needs-based investment decisions. Because of commissions, sellers select products based on the amount of the commission, not based on the needs of those seeking advice. That is why consumers are primarily sold private pension insurance policies, for example for retirement planning. A high closing and portfolio commission is paid, while a simple ETF savings plan is so cheap that there is no incentive for intermediaries to recommend it. However, ETFs are often also a good, needs-based choice for consumers, especially for retirement planning.
Another example: Until recently, banks had introduced custody fees. Those who did not want to pay these were sold expensive mixed funds. In return, the banks were able to collect ten times what they would have collected after a year with the negative interest rate through the commission. And what did consumers get out of it? They paid full commissions and were left with price losses of 20 percent or more within a year. A custody fee would generally have been the cheaper choice.
Or: Young people are sold pension insurance for retirement provision, in which the money is supposed to be invested in funds that are supposedly professionally managed. Only when the consumer advice centers recalculate the contracts will the extent of the damage become clear. Even 20 years after the contract was signed, many contracts are still in the red, primarily because of high costs, which are also used to pay the commissions. On the other hand, if investments had been made as needed, savers would have been able to capture almost all of the capital market income at minimal cost. Instead of the loss-making business, there was decent income.
After all, because of commissions, new products are often sold in order to cash in multiple times. Consumers say that brokers have already advised them twice to change their Riester retirement plan contract. Each time a new commission was collected, each time the recommendation was not appropriate.
These are not isolated cases: consumer advice centers have published market observations and evaluated cases from consumer financial advice on several occasions. According to the consumer advice centers, 95 percent of the investment suggestions from financial advisors were not appropriate.
Why commission-based advice is a problem, especially for small investors
The argument that small investors would no longer be able to afford advice if commissions were banned is a bogus argument. Because what is supposedly offered free of charge to small investors has nothing to do with advice. What is offered are standardized sales conversations: only what brings commission is sold. Through hidden costs and open commissions, small investors already pay many times what would be necessary given the manageable amount of advice required. Typically, you often pay around 2,000 euros to take out a Riester pension. For a sales conversation that hardly lasts longer than 30 minutes, including small talk.
The damage is just not as obvious for small investors because of the lack of transparency in commissions and the quality of advice. Since they have limited funds to invest, it is It is particularly important that they are protected from incorrect advice and can benefit from independent advice and cost-effective products. Anyone who only has 50 euros left and no other assets is better off building up reserves and a cushion first, rather than tying up the money straight away in a 40-year pension insurance policy, which will probably have to be terminated prematurely, like the majority of people do Contracts.
The solution: ban on commission
To ensure that commissions no longer determine the consulting result, the following must apply: Where it says advice, there must be no commission. Consulting and sales must therefore be separated by law.
- Only those who do not receive commissions or any other benefits from third parties can describe themselves as financial advisors.
- The term financial advice must be legally defined in such a way that it is based exclusively on the needs of those seeking advice. The definition must be consistent across products. Consumers must be able to rely on the fact that they are paying money for advice that advisors represent their interests. And only hers.
- In addition, financial advice must be effectively monitored by a supervisory authority such as BaFin, based on the rules that apply to independent financial advice.
- Only financial advisors who are qualified to provide advice exclusively to the needs of consumers seeking advice may be approved. They must accurately determine the needs of those seeking advice and be able to reliably and correctly evaluate the financial products offered on the market in relation to the needs of those seeking advice.
The Baden-Württemberg consumer advice center has written a position paper on this. The Federal Association of Consumer Organizations (vzbv) is also calling for a ban on commissions and stricter legal regulations.
