The financial supervisory authority Bafin sees some clear deficits in investment advice for consumers in Germany. In particular, there is still a significant problem with the mandatory information, said Christian Bock, head of the consumer protection department and consumer protection officer at Bafin. This includes information about the costs and whether the financial product is suitable for the investor. Consumer advocate Dorothea Mohn spoke of “terrifying results that should be taken very seriously”.
On behalf of the Bafin, 100 test purchases of financial products were carried out in 16 banks and savings banks throughout Germany. Specially trained testers usually appear as new customers in so-called mystery shopping in order to get advice. It was checked whether the institutes provide customers with the information documents required by law.
Missing suitability statements
Before deciding on a financial product, investors must receive an exact breakdown of how much the product will cost them (ex-ante cost information). In 67 percent of the consultations, according to the information, there was no corresponding information. In addition, the testers did not receive a suitability declaration in 40 percent of the cases. Advisors must explain in writing why the recommendation of a specific financial product suits the customer.
“We again found significant abnormalities in the delivery of legally required information in investment advice,” said Bock. “However, these are not a compelling indication that there are serious grievances on this subject across the industry.”
Compared to a pilot campaign in the summer of 2021, which was significantly smaller with 36 tests at 12 institutions, investment advice performed worse. At that time, customers received no cost information for 19 percent of the consultations and no declaration of suitability for 22 percent.
Because there is no right of withdrawal when purchasing securities, the testers usually do not issue a purchase order. This was also the case with “mystery shopping” on behalf of the Bafin. “So we cannot completely rule out that the missing mandatory information would still have been handed over if the consultation had ended with an order being placed,” explained Bock.
Criticism of the missing point in time when the information was passed on
Consumer advocate Mohn sees no problem in the lack of order completion. “Logically, customers should definitely get the prescribed information with the recommendation, regardless of whether they follow the recommendation,” said the head of the financial market team at the Federal Association of Consumer Organizations (vzbv). “If it were to be the case that investors only received important information very shortly before closing, that would not be a good and appropriate time.”
The banks and savings banks performed comparatively well when it came to sustainability. Accordingly, 87 percent of the mystery shoppers were asked about their sustainability preferences. This has been mandatory since August of last year.
Cooperative measures of the institutes
The institutes concerned had shown themselves to be cooperative and constructive, reported Bock. They wanted to sensitize their advisors to always hand over the information required by law. The supervisor will monitor the implementation of the measures. Further test purchases from institutions and companies supervised by Bafin are planned. “Mystery shopping is now a tried and tested supervisory tool for us,” said Bock.
An EU-wide campaign to which Bafin linked its test also showed deficits in information about costs and fees for financial products. The tests at a total of 118 credit institutions and 76 investment companies were coordinated by the European Securities and Markets Authority (ESMA).
“The results underline once again how sensible it would be to introduce a commission ban,” said Mohn. Banks and insurers usually pay investment advisers a commission in most EU countries for the sale of fund units or life insurance policies, for example. Consumer advocates see the risk of conflicts of interest, which can lead to the recommendation of expensive or unsuitable investments.
