German consumer protection groups “criticized the deficiencies in investment advice banks give to consumers,” saying the old issue persists that bank advisors’ recommendations depend more on the commission the advisor will earn from the investment than the return the customer will reap, the risk they will be exposed to, whether they can afford the product, and/or possibly also the harm propagated by the company invested in.
ZDF heute journal’s financial correspondent Valerie Haller said consumer protection groups such as the Verbraucherzentrale Baden-Württemberg warned that better and qualified bank advising would only happen if investment advisory services and investment sales were separated within the banks. Bank investment advisors ought to have specialist qualification (usually this means courses and a test) and the quality of their advice ought to be monitored by government with sanctions applicable after violations. These systemic changes need to be made via new legislation from the Bundestag, a consumer protection rep said.
Ms. Haller added that the banks countered by claiming ~90% of their customers said they were satisfied with the investments they’d been advised to make, to which the consumer protection groups responded that they had evidence many customers didn’t understand what they’d bought.
Apparently bank advisor’s commissions have been banned by law in the U.K., though either this was done recently or it was incomplete because a new fine was just imposed on Lloyds Banking Group for two billion pounds’ worth of bonus-fueled overselling from 2010 to 2012. The listed “products” oversold to the possibly up to 700,000 customers do not include stocks and bonds, and the Guardian quoted the U.K.’s Financial Conduct Authority’s director of enforcement and financial crime as saying customers will not be “‘put first'” while companies still “‘incentivise their staff to do the opposite.'” The Guardian said she mentioned that “the fine had been increased by 10% because Lloyds failed to heed repeated warnings about sales practices and because it had been fined 10 years ago for poor sales incentives.”
The Baden-Württemberg consumer protection group’s webpage reminds readers that Germany’s statute of limitations period for suing banks after incorrect investment advice was recently lengthened from three to ten years. Also that bank investment advisors have been required by law since 2010 to keep a record describing what was said in their meetings with clients and potential clients when discussing potential purchases of stocks or bonds [Wertpapiere]; this does not apply for consultations about other products, such as the ones Lloyds was just fined for overselling. After a consultation, German bank advisors must sign a copy of the protocol and give it to the consultee, who does not have to sign it even though some banks have claimed the opposite. The German law mostly lets the banks decide how the protocol will look but does define the following general requirements:
1. Reason for the consultation
2. Length of consultation
3. Advice-relevant information about the customer’s personal situation
4. Data about the financial instruments and investment services discussed
5. The customer’s wishes and investment goals, and their relevant weightings
6. Advisor’s product recommendations and reasons why
(BONK en bear AH toong bem ENG elln.)