*by Johannes Fiala, Attorney at Law (Munich), MBA Financial Services (Univ.Wales), M.M. (Univ.), chartered
Financial and investment advisor (A.F.A.), EGExpert (C.I.F.E.), banker (www.fiala.de)
Distribution and intermediary law: what are contract brokerage, investment advice,
Financial portfolio management,financial planning, investment brokerage and prospectus liability?
Investment brokerage: Investment brokerage (also acquisition brokerage, especially in the
insurance sector) is the mere brokerage of a third party’s investment
(no self-produced products).
What is owed is the provision of information and the execution of the mediation,
but no counseling. The investor has a limited expectation here, because he only gets
objective information and not a personal subjective evaluation of the product.
But: This form (cf. § 1 Ia 2 No.1 KWG, § 2 III No.4 WpHG) is dying out
because as soon as the appearance of a consultation (e.g. by the firm addition ?economic consultation?,
?consulting?) is set, a consultation may be expected.
Investment advice: The investment adviser does not only owe information (as in the case of the intermediary, i.e. information about facts),
but also the expert assessment and consideration of the client’s personal circumstances.
Once the client has made an investment decision, the duty to provide advice normally ends: In cases of damage
that can change. The investment adviser also does not manage his client’s assets, so he has no authority to
to dispositions. The guideline for the obligations is the BOND ruling of the Federal Court of Justice (BGH) of
06.07.1993 (Ref. XI ZR 12/93).
But: This form (cf. § 1 III 1 No.6 KWG, § 2 IIIa No.3 WpHG) is particularly prone to liability, because without documentation
it is difficult to prove that proper advice was given.
However, the BGH has stated that there is no obligation to provide written documentation. Excluded is
the securities sector ? there are statutory record-keeping obligations pursuant to section 34 of the German Securities Trading Act (WpHG).
Asset management: Asset management,in the case of securities also referred to as financial portfolio management,
means the permanent independent management of the investor’s assets ? mostly according to previously agreed investor guidelines.
In the sector of bank execution of wills or foundation transactions, the investment guidelines of
all too easily forgotten by some consultants. The asset manager therefore has a power of disposition,
In addition, the client has duties to inform and advise, and the duty to safeguard the interests of his client.
But: This form (cf. § 1 Ia 2 No.3 KWG, § 2 III No.6 WpHG) requires special authorisation by the
BaFin. A business licence is therefore not sufficient. The running costs of the necessary involvement of a
auditor are in the five-digit range p.a., cf. §§ 32 f. KWG. In German-speaking countries this is
Financial Planning: Financial planning includes the expert development of a (re)design of the asset structure,
a preliminary stage, as it were, of asset management. As a rule, it should be a fee-based advisory service. In
in this area, financial planners are liable like experts. Financial planning is therefore particularly dangerous,
because the training sometimes seems grossly incomplete (e.g. many banking products,hardly any insurance issues), some
software has calculated incorrectly and the scenario technique was missing in the planning ?
including controlling with benchmarks for an exit from certain investments. Some
Big bank was sued and lost good private banking clients: A software for risk optimization is missing until
to many a private banking advisor today.
But: This form of activity easily crosses the line into unauthorized legal or tax advice.
This allows clients to reclaim the fee from the bank or financial planner. A chamber of tax advisors
obtained a cease-and-desist letter from a major bank after the financial plan showed gross deficiencies in the
of a client’s tax advisor.
In this case, cooperation with a tax advisor or legal counsel solves the problem in practice. resembles
The situation is even worse for estate planning, i.e. inheritance and succession planning.
Liability-free activity through contract design?
Again and again, even renowned market participants try to limit the liability for their activities in an inadmissible way: Even the
Liability for merely ?simple negligence? (and a fortiori not for gross negligence) can then not be
effectively exclude if essential contractual obligations are involved.
At this point, some providers stand out from the start as unprofessional or unserious. Seriously, the
Residual risks to be adequately insured ? after a consultation about it.
Liability-free activity without a contract?
Not concluding a (written) contract with the customer is at least as negligent as not providing documentation.
to create. Even without a contract, a contract is usually concluded; and even then, unfortunately, in the
Doubts liable for anything and everything.
Another trap can arise from a missing cancellation instruction in the case of doorstep selling.
Liability reduction due to contract content:
It is through written contracts that the responsibility of the activity can be limited. This catches
to describe their own achievements ? and point out what is not to be done. As far as
no performance and responsibility is desired, a delegation can help further or a real cooperation.
The more precisely this is legally formulated, the more effectively such a risk avoidance strategy can take effect.
Prospectus liability in the narrow sense:
It sticks ? even without a contractual relationship ? the initiators, product providers, founders, managers, designers of
Investment and public companies.
This may also include backers and guarantors (StB, RA WP) under special circumstances (see also
It?s not well known, ?prospectus? are all written documents, also internet pages and ?sample-calculations?
(e.g. ?false IRR yield preview? or ?embellished leverage yields?,created with the sales software
of the initiator). The initiator is regularly liable for only 3 years (limitation period), whereas the intermediary or consultant is liable for 10 years (limitation period).
years (statutory ?farmer sacrifice risk?). If the intermediary arranges a combination of a life insurance policy with a foreign loan
his ?own? If he uses his ?own? lever-arm-model, he also becomes initiator.
Prospectus liability in the broad sense:
Here, as a rule, banks, investment advisors, investment brokers are liable ? if a concrete contractual or trust relationship
exists. This can also come about tacitly.
The limitation period is 10 years ? in the area of securities, however, only three years (§ 37 a WpHG).
This is where the ?investor-friendly? (can the customer afford it?) and ?object-fair? (are the details
legally, fiscally, economically plausible?) advice, as can be found in the BOND ruling and in § 31 WpHG.
Liability-free activity as an ?employee?
In principle, an employee or agent can act under the name of a product provider (e.g. insurance company,
Bank, Initiator) or a (Strukki-?-) sales organization occur. Then a regular
Claim against employee dismissed if investor fails to provide anything regarding employee’s personal liability
in court. The connecting factors are ?personal trust? (the intermediary has proven to be
expert, specialist, etc.) and ?economic interest ? but not pure commission interest).
Economic interest may exist, for example, if the customer is paid a special fee in addition to the ?usual? commission. commission a special fee
is calculated. Whether the product provider or distributor, who may be solely liable (to the outside world), then nevertheless
can enforce recourse against the employee is another matter.
One thing is certain, however: the BGH has recently judged it to be ?intentional immoral damage? according to § 826
BGB, if employees are trained ?incorrectly? are trained. Also gaps can lead to ?wrong? training. All the more
it is more important for the employee to archive all sales and training documents for his own relief;
preferably in two places as a backup copy. The following shows how important this is:
Example: In the model country, a doctor invests DM 2 million in an LV; equity capital DM 150 thousand ? lends the remainder to the investor
a bank. In the event of a claim, the intermediary is portrayed as a ‘fraudster’ by his product provider, and the bank and
Investors advised to report: This only goes well until the intermediary provides a leverage transaction training document
from his archive: Speaker was v.a. also the sales director of the product provider -;).
Experts Archive: The old hands among the financial service providers have in your garage, attic or
boxes of old sales and training manuals in the basement. A space-saving alternative is the expert
Archive, as per the following link:
www. e x p e r t e n . d e / N E T / w e b – site/50991.website under ?advertisements?.
Examples of partly older liability cases are deposited there, such as liability for zillmerization or lack of equal value.
occupational pension schemes or working time account concepts. For the risks and side effects, consult your legal counsel, but
just not the sales manager of your product provider.
No competition from honorary professions:
For the StB, WP, RA it is valid that they exercise their profession ?independently and on their own responsibility? (also in liability)
have to exercise. These professions include activities as real estate or insurance brokers, financial brokers, intermediaries of financial services
incompatible: this will result in the withdrawal of the licence. Accepting commissions is just as damaging, because the StB/WP is not entitled to
commercial activity is prohibited. If the accountant/ auditor prepares an isolated financial plan without taking care of the core tax issues
aspects, a (prohibited) commercial activity may also be presumed.
A cooperation offers itself here, because especially for legal and tax advice is the financial service provider
never insured on his VSH policy:
This is where the involvement of an honorary professional can relieve and exonerate the financial services provider. To the honorary professional
product knowledge is almost always lacking, so that here, as it were, a complementary partnership is required.
is possible. If the wife of the honorary professional is not sent forward to hold out both hands, one can
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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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