Is fee-based consulting anti-social? – Commission advice harms your wealth
The financial lobby has done it again! What one read in the fall of 2021 about the negotiations in the new coalition initially gave courage that the new government finally dares to limit or even completely abolish the nonsense of commission sales.
Unfortunately in the coalition agreement nothing more of it was to be read.
A substantial contribution to the receipt of the commission selling probably also a study of KPMG, in which fee consultation was warned and the prevailing commission selling for the majority of the consumers as the more social variant was praised. No need to mention that the study was commissioned by the banking lobby. You remember the "independent studies" commissioned by Philipp Morris and other big tobacco companies that smoking does not significantly endanger health?
The KPMG study is manipulative in several respects, technically wrong and untrustworthy.
1. The study claims that transparency requirements are an adequate substitute for a commission ban.
The industry defends itself again and again with the fact that all costs and also Kickbacks must be disclosed and for the consumer thus transparency prevails. Rarely laughed so much. We have had hundreds of conversations with clients and interested parties over the last few years. Really NO ONE – whether doctor, journalist or management consultant – could even begin to understand the fee structure of their existing basic pensions, unit-linked insurance or similar products. The same applied to the amount of kickbacks for consulting mandates – no matter at which bank. Hand on heart: How often have you ever read your 70-100 page long insurance policy from front to back?? And did you find them understandable?
The current regulations do not create transparency, they are a legally perfect documentation of a hair-raising nonsense! In sum, it boils down to a de-liability of the financial distributor – not a protection of the customer.
When fee-based advisors talk to people and show them the transparency about their existing contracts that product sellers from banks and insurance companies are actually legally obligated to provide, the reaction is actually always the same: "If I had known how expensive it is, I would never have taken it out!", "Why didn't my 'advisor' tell me that??"
In practice, your advisor, who is really just a salesman, will waffle over the issue of costs and squirm like an eel in response to queries. One thing it won't do: give you complete figures – neither in total nor as a percentage. And believe me: He himself knows exactly to the decimal place how much he earns on a contract, both one-time and continuous portfolio remuneration.
2. The KPMG study goes on to claim:
Because of the usual hourly rates of 200 euros, fee-based consulting is only worthwhile for the rich and is therefore antisocial.
We know the (unfortunately very small) fee-based advisor scene in Germany very well, as well as numerous fee-based advisors from the UK, the Netherlands or the USA. Only a vanishingly small proportion of them allow themselves to be paid on an hourly basis. Almost all of them, on the other hand, are paid a percentage of the investment amount entrusted to them for their services.
The difference to percentage-based pricing, which is also common with conventional banks and financial advisors in many areas?
The fee-based advisor is paid exclusively by his client. The bank, on the other hand, enriches itself additionally through portfolio commissions – in plain language: bribes – or works into its own pocket with fixed-price transactions and other tricks when trading. What will your Pinocchio banker recommend to you: a lean ETF or the great in-house super fund with 2.0% p.a. Management costs, half of which go back to the bank? The consequence for you: costs, costs, conflicts of interest, conflicts of interest.
Even if we assume the hourly fee of 200,- Euro as assumed by KPMG, fee-based consulting is usually much more favorable for the client than the commission business.
Only one example: A fund-bound pension insurance with 150, – € monthly contribution payments over 35 years brings your financial mediator well 3.000, – € commission. Dear KPMG, get out your calculator: four consulting hours at €200 each don't even account for a third of the acquisition commission! And we are not even talking about the horrendous annual fund and insurance costs, which cause far greater pain for the customer.
3. The KPMG study belittles the diametric conflict of interest between conventional banks and their customers.
Would you mandate a tax advisor who is paid primarily by the tax office? You get divorced and your lawyer is invited to the Maldives by your future ex-partner? For lawyers, it is a criminal offense – party treason – to accept money from the other side. In the financial sector, this completely absurd practice has become so established over time that it is no longer questioned.
The result: You are usually sold overpriced products, mostly from the in-house fund. Even worse is the conflict of interest with so-called independent financial advisors. Here simply always that comes into the Portfolio or into the insurance coat, which promises the highest intransparent inventory remunerations.
What should be the advantage of a toxic financial product, only because the consultation for it allegedly costs nothing?? Thus life plans are financially torpedoed and humans fall in the age on the social security systems back. Congratulations.
When it comes to trailer fees, the study becomes completely absurd. The portfolio remuneration is not only defended, but even declared as an advantage for consumers, which improves their quality of advice. So your product salesman gets kickbacks behind your back: thus has a massive conflict of interest, because mainly those products are sold that promise the highest possible kickbacks. And of course this generates added value for consumers?! After all, this is required by law… So you have to come up with that first. There did not already one before the legalization of Cannabis … zzz…
It resolves the serious conflict of interest between financial advisor and client, thus making objective advice possible at all. Because: "Who pays, creates."
4. Thesis of the KPMG study: A commission ban would lead to a drastic reduction in the financial products on offer.
Correct! Of course! And: Thank God! An advisor on fee basis has also no interest to foist overpriced products on you. All the toxic waste that only serves to feed the sales forces of the financial industry disappears – and that's a good thing!
In sum, this is not only good for your assets, but in the best case also for your nerves, because you are not constantly the latest hot trend is turned on. In the best case you reach a long-term strategic adjustment of your financial planning with a fee advisor, which leads to the fact that you win more quality of life. As a customer, you will certainly not miss the hectic actionism of the commission hunters.
So what to do? Commission ban and state share pension – now!
Contrary to what the KPMG study suggests, it would of course be possible to abolish commissions in investment advice and insurance without harming consumers. Implemented with a sensible transition phase, the quality of advice would improve in a very short time compared to the status quo. If I look at today's "consulting landscape", it is hardly possible to get worse anyway.
And even if that makes our financial sales colleagues' blood pressure go up even more: The simplest way to organize a streamlined and intelligent standard solution for a funded retirement plan could be the government itself. In Scandinavia it is possible – and we can do it too.
In this respect, the prevailing commission system is simply antisocial. At the latest since the financial crisis of 2008 and the worldwide upheavals, this should be clear to everyone! An industry systematically enriches itself at the expense of the general public, supported by an armada of lobbyists. What we need is a commission ban – and we need it now.
Impulses on the topic of making smart decisions about money, staying calm and thus gaining more quality of life can be found in the book by my partner Nikolaus Braun: uber Geld nachdenken (Thinking about money).