*by Johannes Fiala, Lawyer (Munich), Mediator (Univ.), MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer (Univ. of Cooperative Education), Banker (www.fiala.de)
The defendant asked his lawyer how long the whole affair was likely to take. Lawyer: “For me three hours and for you three years…”
Again and again entrepreneurs discover that with the time value account or the ?reinsured? U-Kasse expensive consultation and organization errors are present. For the intermediary concerned, the question then arises as to whether a standard financial loss insurance policy (VSH) also provides cover for such losses.
The completely normal insolvency of a U-Kasse from Ratingen: Time and again, intermediaries claim to customers that the PSVaG also steps in in the event of insolvency. This is true for normal employees and their periods of service (if the employer goes bankrupt), but not if the U-Kasse itself becomes insolvent. Often, financial service providers have not even made sufficient provision for the insolvency of the U-Kasse in their own company, because the PSVaG does not step in. In practice, this can also be ‘repaired’ today, as long as the U-Kasse is still solvent.
The quite normal insolvency of an entrepreneur with second value accounts (ZWK): Time and again, training managers claim to intermediaries that ?their pledge? is legally secure. The impression is that these are contracts which have in fact been “self-made” by the provider. One example is the transfer of the ZWK reinsurance to a trustee in the event of insolvency ? according to established case law, this process is usually “null and void”: the insolvency administrator will take these assets to the estate ? in case of doubt, the employees will not see a cent.
Equality of value in deferred compensation: A ?bAV-Fachinfo? of Pfefferminzia describes the equal value as a ?protective provision for the employer?, so that zillmerisation is always permitted in the case of salary conversions. If an employee, statistically after 4.9 years, leaves the enterprise, then usually only a smaller fraction of the converted and/or paid in contributions is present as ?repurchase? value. In this case, it is sufficient to refer to the BGH BOND ruling in order to remind the occupational pension broker of his liability as an advisor.
Zillmerung with the remuneration conversion: The Federal High Court (BGH) had to decide in its judgement of 07.03.2006 (Az. 1 StR 379/05) on a capital investment case, with which (from the investor) unrecognized costs were causal in favor of the initiator for a capital withdrawal. The investor’s deception about the actual content of the investment model went so far as to render the investment model unusable for its contractual purpose. The policy model where the employer only signs an application is already very likely to deceive because the employer does not receive the terms and conditions etc. from the insurer until later.
If the value of a ZWK or a bAV approaches ?zero? in the first years due to the cost burden, the uselessness becomes economically noticeable from the employer’s point of view when an employee leaves.
The BGH dealt with fraud and incitement to breach of trust: the decisive question is then whether the bAV and ZWK models also provide for a ?payment of hidden commissions? ? i.e. a deviation from the total costs according to the prospectus documents.
The intermediary risk in criminal law lies in the fact that the employer may feel deceived about the nature and risk of the transaction, that he is acquiring something completely different (as a bAV or ZWK model) than he would like to acquire: because if an employee dissolves the employment relationship after a few years, and if there is then no or only a small fraction of the contributions paid in or converted ‘as value’, the employer will see no benefit in this.
A criminal court can then come to the conclusion that it was already clear at the time of the conclusion of the contracts that the danger of ‘the definitive loss of the payments made into the model’ existed from the outset.
Fiduciary liability in the case of deferred compensation It has been known since 1992 that the Düsseldorf Higher Regional Court, in its ruling of 6 March 1992 (17 U 201/91), declared the employer to be the fiduciary of its employees in the case of deferred compensation: a circumstance which very few ZWK and bAV models take into account with legal certainty. Therefore, this area is not only particularly prone to liability, but there are practically considerable VSH gaps into which the intermediary can stumble. Which product provider has already trained its intermediaries on fiduciary liability for employer advice?
Ask a defense attorney you trust if relying on a vendor’s less-than-plausible promotional materials is any good?
In the case of a knowing breach of duty within the meaning of the VSH conditions, i.e. in the case of a breach of legal prohibitions (“You shall not deceive the employer”) or in the case of a breach of legal requirements (“You shall only convert remuneration of equal value”), the VSH does not provide cover. This also applies to other related offences, such as aiding and abetting or incitement.
2 VSH risk: Promises and forecasts There is also no cover under VSH for promises made by the intermediary, guarantee declarations and yield forecasts, as these are not statutory liability claims.
3rd VSH risk: Incorrect reinsurance Some insurers already point out that there is also no cover in the case of non-insurance-type reinsurance in the ZWK and bAV brokerage, explains VSH specialist broker Ralf W. Barth.
4 VSH risk: return and performance risk It is popular, especially in the area of closed-end funds, to advertise returns according to the IRR (internal rate of return). This area, i.e. the “return and performance risk” is usually not insured in the VSH. The danger of investor deception is particularly evident in the case of loan-financed investments.
5 VSH risk: Subsidiary backward coverage Some VSH insurers offer backward coverage only under the current terms and conditions, even if these then provide for an additional documentation requirement. If the mediator does not have any documentation for the ?backward time?, he will never be able to get a cover, VSH broker Ralf W. Barth knows.
6 VSH risk: No customer order If the customer later claims that no order for certain dispositions (e.g. sale of fund units) or certain risk coverings was given, the intermediary will be in need of proof. An unarranged deviation from the customer’s order can also lead to the loss of cover. Whether the later damage was intended is irrelevant.
Outlook for your own protection: If you consider the complexity of the VSH topic, it becomes increasingly clear how important it is to entrust yourself to an experienced and above all independent VSH broker. Concept providers with only one solution are unlikely to argue against their own offering. However, these may then not be able to solve one or the other question optimally in the sense of the inquirer. This circumstance should document these offerers apart from the advertisement with the favorable price in the course of the EU-VRL conversion absolutely opposite your inquiring prospective customers, otherwise their own adhesion intensifies.
The example of time value accounts and U-cash clearly shows that it would be the responsibility of the providers to carry out legally secure designs and training instead of feeding sales with half-truths. Sometimes there is the impression that some insurers would like to turn the case law of the BGH on its head (?our intermediaries are not vicarious agents of the employer when advising employees?) ? an ineffectual attempt: ridiculous in its approach ? fatal in its effect. For the intermediary, this means conversely that he should have a solvent guarantee or creditworthiness-questioned contractual penalty agreement if there is even the slightest doubt about the seriousness or reliability of information provided. This can be a vital addition to the appropriate VSH protection.
Please also read the following article from Rpfleger 1997, p.281: Dangers with the plant and Vewaltung of strange funds: here click to the judgement OLG Duesseldorf, 06.03.1992 – 17 U 201/91: Subscription right from Lebensverischerung in the bankruptcy: here click to the judgement BGH, 07.03.2006 – 1 StR 379/05: Financial loss in the case of fraud by fund investments: click here To the judgement BGH, 06.07.1993 – XI ZR 12/93: Liability of the bank for inadequate investment advice – bond: click here
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About the author
Dr. Johannes FialaPhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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