The Federal Minister of Finance rejects a commission ban for investment advisors.
(Photo: IMAGO/photothek)
Brussels Federal Finance Minister Christian Lindner (FDP) is involved in the debate about a commission ban for financial advisors. In a letter to EU Finance Commissioner Mairead McGuinness, he defended the practice of German banks and insurance companies against attempts at reform in Brussels.
Lindner writes that he is “very concerned” that McGuinness may want to impose a general ban on commissions as part of the planned retail investor strategy. Such a ban would be a “significant step backwards” in efforts to boost investing in European capital markets. The letter, dated December 28, is available to the Handelsblatt.
Shortly before Christmas, the Finance Commissioner had expressed sympathy for a ban on commissions in a letter to MEP Markus Ferber (CSU). Such a reform could lead to cheaper products and independent advice for investors, she had argued.
She cited Great Britain and the Netherlands as examples, where a commission ban had led to falling costs for consumers. Investors there now pay fixed fees to independent advisors when they get financial advice.
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German consumer advocates have long been calling for commissions to be replaced by fees that are independent of the sale. This is to prevent consultants from having a financial self-interest in selling the customer products that are as expensive as possible. McGuinness has not yet made a decision, she wants to present the retail investor strategy by the end of the first quarter.
Lindner: Maintain “differentiated approach”.
In Germany, around 300,000 consultants in savings banks, banks and insurance companies sell financial products on commission. A ban would have far-reaching consequences for the industry.
Lindner now argues that the current model leaves it up to the investor to decide whether to opt for advice on a commission or fee basis. It is important to maintain this “differentiated approach”.
In the insurance sector, products for old-age provision must be easily accessible, writes the finance minister. Commission-based distribution allows consumers to get advice and quick access to such products without the risk of having to pay for advice if a contract doesn’t materialize. He was concerned that a commission ban would prevent advice in cases where it was most needed.
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Lindner’s coalition partners, on the other hand, are more open to a radical reform of investment advice. The Green State Secretary for Economic Affairs Sven Giegold, who was previously responsible for financial matters in the European Parliament, is considered a supporter of a ban on commissions.
There are also sympathizers in the SPD. “I can imagine a payment system based on commissions as well as on a fee basis,” says SPD MEP Joachim Schuster. “Increased transparency for the consumer is important. It has to be clear why certain products are being offered and what the bottom line costs are to be paid for the advice.”
Schuster considers the financial industry’s criticism of a commission ban to be excessive. “It would be a change, but that wouldn’t break the world,” he said. Consultation continues in the Netherlands and the UK. “So the fee system seems to be working.”
More: German financial sector fears commission ban