How customers can save costs at banks and insurance companies?
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. The situation is similar at credit institutions, because in private banking the “bank officials” are under constant sales pressure: “If the sales director specifies building society contracts as the product of the week, in case of doubt this is also made palatable to a pensioner, even if it misses the mark”. 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.
Direct banks, some cooperative banks, a few independent investment fund distributors
In any case, it can 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 otherwise there is hardly any need for 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 the BaFin after they wanted 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 decision. Already by judgement of 04.04.2001 (Az. 1 StR 582/00) the Federal High Court expressed itself to the commission delivery prohibition “admittedly there were efforts to lift the disputed and – on what the revision points out – “in practice little seriously taken” prohibition; the legislator followed these however so far not.”.
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 reimbursed to the end customer as income-related expenses if the passing on of the commission was necessary for the conclusion of the contract and does not represent a voluntary benefit only provided after the brokerage (BFH judgement of 20.01.2009, ref. IXR 34/07).
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.handwerke.de (published in Computern im Handwerk 05/2012, page 4-5)
www.pt-magazin.de (published on 09.03.2012)
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About the author
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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