The profit lies in purchasing

Anyone who buys financial products from penny-pinchers, such as distributors with three or four letters, must reckon with the fact that particularly high commissions, fees and costs are included in the calculation. When it comes to life insurance, going to a direct insurer can be worthwhile because, as insurance advisors have determined, acquisition costs can range from about two per thousand to soon to be 18% of the sum insured. With credit institutes it looks similarly, because in the private Banking the “bank officials” are under constant sales pressure: If the sales executive committee specifies as product of the week building savings contracts, in the doubt also a pensioner this is made palatable, even if it goes at the need before with “. Thereby 90-100% discounting are quite possible in the investment and/or bank range with commissions, Agio & Co., in particular if it concerns investment in open or closed funds.

In any case, it may be worthwhile to compare prices, costs, fees and commissions. Especially in such cases, where the customers do not want any advice, for example place their orders via online portals, and incidentally there is hardly any need as support, the customer will be able to make massive savings on the brokerage costs.

However, this does not replace the expert discussion with a specialist, e.g. private assessor, expert or a retired insurance or bank consultant – on a fee basis.

These discounting models are nevertheless profitable for the providers, because they receive a part of the management fees “refunded” by the fund or investment companies, which is also referred to as kick-back or retrocession. If an equity fund charges the investor 2% of the invested capital each year as management costs in accordance with the fund terms and conditions, then, depending on negotiating skills and market power, a share is given to the intermediary – and this then year after year as the amount invested grows.

Financial services provider overturns commission levy ban for life insurance policies

At the instigation of a distributor, the Administrative Court of Frankfurt/Main (ruling of 24.10.2011, ref. 9 K 105/11.F) overturned the ban on commission payments for unit-linked life insurance policies in particular.

The sales department had been fined by Bafin after it had tried to pass on the acquisition commissions to the customers. This is because the business model of the sales force is to dispense with advice in the brokerage process. The Administrative Court considered the concretisation of what was to be understood by a “special remuneration with a prohibition of passing on to the end customer” to be too vague, § 81 Insurance Supervision Act (VAG).

BaFin has appealed against this ruling. In its ruling of April 4, 2001 (Case No. 1 StR 582/00), the Federal Court of Justice already commented on the prohibition of commission payments: “Although there have been efforts to repeal the controversial prohibition, which – as the appeal points out – is “not taken very seriously in practice”, the legislator has not yet followed these efforts.

However, it is not mandatory to pass on an acquisition commission to the end customer if a commission-free tariff is chosen from the outset. In addition, the agent may only claim the commission paid to the final customer as advertising costs if the passing on of the commission was necessary for the conclusion of the contract and does not represent a voluntary payment made only after the brokerage (BFH ruling of 20.01.2009, ref. IX R 34/07).

Dr. Johannes Fiala
Peter A. Schramm