Analytical research on behalf of the Association of German Financial AdvisorsTowards "fair play" between consumers and the financial services industry

Project period:
April 2012 – September 2012

Association of German Financial Advisors (Berufsverband Deutscher Honorarberater - BVDH)

Project partner:
Dr. Frank Niemeyer (Prof. Roll & Pastuch GmbH)

Consumer advocates often complain that the current financial services market is not functioning properly from a consumer perspective. They criticize misdirected incentives in the selling of financial products. These result from the fact that financial advisors generally receive commissions for the sale of financial products. In 2013, these commission payments were banned in the UK, the Netherlands and Australia.

The aim of this study was to understand, half a year before the introduction of these commission bans, the reasons for these far-reaching regulatory interventions, analyze their likely impact on the financial industry as well as the consumers and derive conclusions.

As part of a case study, both the British Retail Distribution Review (basis for the regulation of the financial industry in terms of the sale of investment products) as well as experiences from other EU and non-EU countries were analyzed. In addition, academic literature on the subject was evaluated.

The key findings of the study can be summarized in eight theses:

  1. The market for financial services is not working properly. This has a significant negative impact on a large number of consumers, the financial services sector and for the economy as a whole.
  2. The commission-based sales model has failed. It serves neither the consumers nor the industry because it creates a conflict of interest, which can have a detrimental effect on consumers.
  3. Attempts to address the commission orientation through stricter transparency obligations have not worked.
  4. A ban on commission transforms the financial services industry, offering new opportunities and encouraging competition for more quality.
  5. Potential negative effects for consumers can be compensated.
  6. Fee-based consulting resolves the conflict of interest inherent in commission-based consulting. However, high professional standards for fee-based consulting are necessary.
  7. The transformation of the financial industry is an open process. Although new challenges will arise, the most pressing issues should be tackled efficiently.
  8. A systemic change in the financial industry is necessary in order to protect consumers and to strengthen and restore confidence in the financial industry.

The study can be ordered here.

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