Many insurance brokers fear that, under the EU’s planned Retail Investment Strategy, they will no longer be permitted to take commissions – for example on life-insurance investment products – and will therefore be forced to become fee-based advisers, losing the right to take commissions on all other products as well. A misconception?
The EU recently confirmed the following interpretation of “independence”: “The Federal Association of German Insurance Brokers (BVK) gives the all-clear: the EU Retail Investment Strategy does not provide for a ban on commissions for insurance brokers in Germany, the BVK announced. This had most recently been reaffirmed by statements from the EU Commission, the association explained, seeing its own view thereby confirmed. As BVK President Michael Heinz put it: ‘Immediately after the draft of the relevant Retail Investment Strategy (RIS) became known in early May, we established that the commission ban taken up by the EU Commission applies only to independent advice – in the broadest sense, to insurance advisers working on a fee basis.’”[1]
Insurance brokers (Versicherungsmakler) are not classed among the independent advisers. Yet it is not forbidden for a non-independent broker to take commissions from the insurer. It is only the broker who dreams of “independence” for whom nightmares arise.
No one requires an insurance broker to work on an independent or commission-free basis.
The BVK adds: “The fact that insurance brokers receive a commission from companies does not, under the national understanding of the law, mean that insurance brokers are to be characterised as ‘dependent’. This status is not intended to change – and will not change – even under the current interpretation of the EU rules. If, however, insurance brokers offer advice on an independent basis and also explicitly declare this to the client, then, according to the EU Commission, they may not accept commissions. That is precisely what Article 30(5b) of the EU Retail Investment Strategy (RIS) states. The BVK has always emphasised this important point in its statements.”[2, 3]
No one requires a broker to be independent. And in principle he could even advise on whatever “independent” basis he likes, however he himself chooses to understand it. Only if he declares this “independence” to the client (for instance by advertising it on his website) may he then not take any commission from the provider. This is now what the BVK states even more clearly, and it is what Heinz meant.
No insurance broker has to become a fee-based adviser for any kind of intermediation
The fear held by some brokers – that under EU rules they will no longer be allowed to take commissions, for example on life-insurance investment products, and will therefore have to become fee-based advisers and then also lose the right to take commissions on all other products – is unfounded.
That is not what the EU said. Rather, it said what many believe in any case: that an insurance broker who receives commissions from the product provider is not independent and therefore may not claim this to the client – and if he does claim it, he may not take such a commission.
Claiming an independent basis of advice while taking commission from the provider are mutually exclusive. But that need not concern the broker, because insurance brokers are not obliged to claim that they are independent – not in any initial information document, nor anywhere else – and if they refrain from this unnecessary statement, they can carry on with commissions as before.
And if competitors already deny them their independence today, they need not argue either; they may think what they like, but say nothing unnecessary: “simply refraining from such wholly unnecessary claims towards clients” is fully sufficient.
Every insurance broker may continue to accept commissions from the insurer
No insurance broker has to inform the client whether he is advising him “on an independent basis”. He may therefore also continue, under the new paragraph 5b in Article 30 of the IDD amendment, to accept commissions from the insurer.
The VVG (German Insurance Contract Act) provides in § 59 – no differently from the German Trade Regulation Act (Gewerbeordnung): “An insurance broker within the meaning of this Act is anyone who, on a commercial basis, undertakes for the principal the intermediation or conclusion of insurance contracts without being entrusted to do so by an insurer or an insurance agent.” No one requires an insurance broker to advise “on an independent basis” or even to expressly claim this to his clients. The Insurance Intermediation Ordinance (Versicherungsvermittlungsverordnung), too, does not require – for instance under the initial-information duties of § 15 – any information to the client about advice “on an independent basis”.
“He who orders the music must also pay for it” – or “he who pays the piper calls the tune”?
Historically, numerous specialist lawyers assume that the broker is dependent on his principal – like any other contractor or service provider. This is reflected, for example, in duties of advice and in the client’s right to notification and account. Strictly speaking, then, it should be the client who pays the commission to the broker.
Yet for decades it has been established practice, commercial custom or usage that the insurer relieves the client of this financial burden, that is, silently assumes this expense. This is often underpinned by the framework of a commission undertaking. There are, however, also insurers who pay brokers nothing at all from the outset and do not cooperate with them. These can nonetheless be recommended by genuinely independent insurance advisers.
Without this – and the associated “attachment” – the broker receives neither a commission from the insurer nor access to the quotation system, and is not printed as the contact person on his clients’ insurance policies. For many insurers the effort of administering thousands of brokers and checking whether each meets all the requirements – brokers who often scarcely place a single contract with them – is too great.
They therefore expect a minimum turnover from every broker relationship. Otherwise there is not even any advice from the broker support team. The alternative, “pool attachment”, in turn means a corresponding dependence on the pool. Hardly anyone would care to claim that the pool broker, of all people, advises on an independent basis.
And the quasi-fiduciary trustee?
Naturally, all those who miss an independent basis of advice in the broker are familiar with the broker as the client’s quasi-fiduciary trustee (treuhänderähnlicher Sachwalter). Yet why should a broker be unable to fulfil his obligations merely because his basis of advice is not entirely independent? Evidently no one who denies brokers an independent basis of advice sees any contradiction in this.
Even with a dependent basis of advice – owing to dependence on commission from the provider – a broker can be a quasi-fiduciary trustee. After all, the BGH (Federal Court of Justice), in its trustee ruling, was well aware that the broker receives commission from the insurer. And it makes no mention of his “independent basis of advice”. To attribute such a thing to the BGH overstates its statement, which merely sought to describe the broker’s duties towards the client.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
with the kind permission of
www.experten.de (Published on 12 December 2023 and in ExpertenReport 12/2023, pages 46–48)
link: www.experten.de/2023/12/wann-darf-mit-unabhaengiger-beratungsbasis-geworben-werden/
