Consumer associations have been observing for years that when it comes to financial advice, the interests of banks often take precedence over the interests of customers. Products are often too expensive or risky. The consumer advice centers are calling for a reform of financial advice and a standard product for private pension provision.
The most important thing in brief:
- The legal regulation of financial advice does not take enough account of the needs of consumers. As long as the advice does not focus exclusively on your interest as the person seeking advice, you should remain skeptical of advisors.
- Consultants have to sell certain products. You only earn from selling products with commission or margin. They usually cannot recommend cheap products.
- The problem of inadequate regulation affects not only commission-based consultants but also fee-based consultants and fee-based brokers.
- The consumer advice centers are therefore calling for a reform of financial advice and a standard product in retirement provision that is geared exclusively to the interests of consumers.
Why financial advice is inadequately regulated
Products for investing or building assets for retirement provision are often so complicated that you, as an outsider, can hardly estimate how good or bad they are. You depend on good advice and therefore seek financial advice to help you make your decision. You rightly expect a recommendation that meets your needs.
The problem: The legal regulation focuses too much on the interests of financial advice providers and not enough on the interests of consumers in receiving a recommendation that meets their needs. No wonder, because financial advice as we know it today has developed from established sales channels of a wide variety of financial service providers. Many financial advisors claim to be able to give you good financial advice. But how do you as a customer know how reputable the financial advisor is? Unfortunately, the law does not offer you any security here.
Although there are a number of regulations regarding the distribution of financial products, none of these regulations oblige advisors to advise exclusively in your interests. Don't let anyone tell you otherwise. Depending on which financial products the providers want to sell to you, either the Banking Act or very different regulations in the trade regulations apply. More exotic investments such as subordinated loans, company investments and profit participation rights have their own legal basis, as do real estate or building savings contracts as capital investments. Unfortunately, the regulations do not provide any reliable information about the qualifications of the financial advisor, because the legal licensing requirements only require proof of expertise, which is primarily based on successful product sales.
Depending on who you contact, the services and resulting recommendations from your financial advisors differ significantly. And that even if the needs of those seeking advice are identical.
