*by Dr. Johannes Fiala, lawyer (Munich), mediator (Univ.), MBA Financial Services (Univ.Wales), MM (Univ.), certified financial and investment advisor (A.F.A.), lecturer in civil law and insurance law (Univ. of Cooperative Education), banker (www.fiala.de) and Ralf W. Barth, managing director of Ralf W. Barth GmbH and pecuniary loss liability broker (www.rwb-finanz.de), as well as board member (chairman) of the Verein zum Schutz für Anlage- und Versicherungsvermittler e. V. (Association for the Protection of Investment and Insurance Intermediaries). (www.vsav.de)
“Everyone complains about his memory, but no one complains about his judgment.” (Fran�ois de la Rochefoucauld)
The Intermediaries Directive will turn the financial market upside down – presumably there will also be an unprecedented shake-out of the market. The AMC reform and the MiFID Directive will also ensure greater transparency from the client’s perspective. For many agents, the question arises as to how this will all continue. Can intermediaries simply “sit out” the new legal rules, as it were, following the political model? The most serious errors at the market “grasieren” and like mediators with it at the best immediately, in the following from view of Mr. Attorney Dr. Johannes Fiala (www.fiala.de) and the VSH broker Ralf W. Barth (www.rwb-finanz.de) are pointed out. The main purpose of the contributions is to show intermediaries the possible tasks, pitfalls and new situations they may face. The intermediaries would do well to adjust to the new situation and to completely different methods / ways of working in good time in order to be able to deal with them in the best possible way.
1. mistake: the transparency requirement only applies from 2007 according to the EU Directive and MiFiD?
RA Dr. Fiala: Who knows, for example, from the intermediaries that the transparency requirement was already established in the BGH case law at the beginning of the 90s? The questions to the intermediaries are therefore: Do you know these requirements? If not, from whom can you obtain this information? Since then, which product provider has provided you with comprehensive information about the rules of the game for banking and insurance products? As a reminder: The latest “kick-back judgement” of the Federal Court of Justice (BGH) of 19.12.2006 (Ref. XI ZR 56/05) also refers to judgements which were issued many years earlier with similar content. From 01.01.2008 “only” the following will be new: In order to create further transparency, insurance intermediaries, especially in the areas of CLI and PHI, will in future have to disclose the brokerage/commission, presumably in euros and cents, before the customer signs the contract.
2nd error: I can do without the consultation and a protocol, can’t I?
Ralf W. Barth: In the last few weeks, many parties involved have had some heated discussions about the issue of waiving consultation and documentation. Boards of insurance companies and lawyers have also been active participants. From the point of view of the predominant pecuniary loss liability contracts, however, the discussion is relatively nonsensical, since many VSH conditions at least clearly require a protocol. So even if a waiver of advice is agreed with clients, many VSH insurers still feel that the procedures must be logged. Our assessment is that, from the point of view of customers and intermediaries, waiving advice only really makes sense and is practicable in very, very few cases.
Practical tip: It is better to check legally with a lawyer you trust when a waiver of advice is unproblematic for you as an intermediary. think very carefully about when and how you document / log your work. This review should also include the reconciliation of the existing or yet to be concluded VSH policy. For security reasons, you should record the process and preferably also have it countersigned, especially in the case of a waiver of consultation.
RA Dr. Fiala: The waiver of consultation and protocol must be “effective”. There is much to suggest that an effective waiver may fail because the customer does not understand or cannot appreciate “what” he is waiving. Years of case law show the limits. Thus, a suing attorney for the client will argue ineffectiveness. Do you know of a distributor, pool or product provider that provides a legally sound tinkering guide to waiving advice? So that the waiver of counsel doesn’t “go to shit” and get wiped off the table by judges as “taking advantage of inexperience”? To the memory: The “working group mediator guideline documentation” does whole work, by endangering by its “free samples” the mediator almost certainly its VSH cover. Here the authors fail to point out that it is necessary to check such a form against one’s own VSH terms and conditions. This is because the wording that the client “waives consultation and documentation” may amount to saying that the client’s own VSH insurer “will waive” coverage without documentation in the event of a claim. Caution with “forms” from the Internet or by software: Experts determined that approximately 96% of the age precaution consulting software computes “wrongly”: In the event of liability, the intermediary must first be able to explain to the lawyer and then to “his” judge exactly how he selected a correctly calculating software. Prof. Dr. Dörner (Univ. Münster) also argued at the last conference of the Bund der Versicherten (BdV) that the form-based “waiver of documentation and advice” is invalid, § 307 BGB. The intermediary should be aware of the fact that software houses have only very rarely legally examined their mostly “copied” forms – a “case of damage with recourse of the intermediary with the manufacturer” should be sufficient to sweep such software providers from the market.
3rd mistake: A protocol is only the proof of my mistakes – so I leave this out!
Ralf W. Barth: As already mentioned, it is also pointed out by lawyers (in particular, for example, in the area of closed capital investments) that it is precisely prefabricated protocols for ticking off that can reveal errors on the part of the intermediary. With it, according to these lawyers, the mediators bring themselves actually only correctly into the adhesion. On the other hand, the specifications of the VSH insurers for the occurrence of the insurance coverage, just a comprehensible documentation. This is above all in order to be able to examine at all reasonably how the factual situation could have been really.
RA Dr. Fiala: Whoever “forgets – or deliberately omits” a protocol will later be able to have the VSH insurer say that he acted deliberately. This then involves intent and gross negligence with regard to the legal requirement under the EC Directive – and as a consequence the VSH cover is at stake. Who likes, and especially who can even pay for the damages out of their own pocket?
Ralf W. Barth: Practical tip: Get used to a way of working that systematically records every conversation. If necessary, take a white sheet of paper as a protocol and record the most important basics on it. These are usually: the place the time the present participants the reason for the occurrence of the appointment from whom the wish for the appointment / conversation emanated what the content of the appointment and the conversation was which wishes were named or determined which initial situation / status was recognized what is to be (concretely) done for the customer (commissioning) how a future solution is to look like, or to which solution one has come together at the appointment to whom which documents were handed over / left for which purpose if applicable at which time follow-up appointments and agreements are or were made. You do not need an endlessly long form for this information. With this short script, which does not claim to be complete, all essential points / facts can often be reasonably documented on one or two DIN A 4 pages. Of course, checklists for the identified risks, such as those of the EU Intermediaries Directive, can and should be added.
Practical tip: Always have a protocol countersigned by your customer, or even better by all parties involved in the conversation! To the memory: Already the OLG Schleswig stated by its judgement of 05.12.2002 (Az. 5 U 28/02) that consulting minutes can mean a safe adhesion for the mediator. In the decided case the investor had signed a consulting minutes usual in the market, on which the preformulated questions after the consulting contents were answered in each case by marking in the positive sense. Pointiert holds the OLG Schleswig firmly that the questions are formulated in such a way suggestively that each the Kästchen ?no? ticking investor would have to let ask itself obviously, why it wants to enter such a participation at all. The intermediary will therefore ask himself whether the advice protocol has been checked in a court of law or legally?
Ralf W. Barth: It is only initially not decisive whether the intermediary uses a protocol according to the model of manufacturer X or Y. The same is true for the protocol of the manufacturer. On the other hand, it is essential to first define one’s own working method and then to define the tools (such as checklists, contracts, protocols) to be derived from this. This will be the only halfway secure way to also “deal with every intermediary special case” in a tailor-made and practical way.
4. misconception: consulting protocols are uncharted territory?
Ralf W. Barth: On Internet pages you will sometimes find texts such as: “With the documentation you are basically entering unknown and thus uncertain legal terrain.”
RA Dr. Fiala: But it is relatively simple: A look at the decades of case law on the liability of intermediaries and advisors shows that this is not at all “new territory”. Case law, for example, has made it abundantly clear that a protocol can be an important piece of evidence – otherwise almost every liability case is already almost certainly lost. Example: You arrange an occupational pension contract with a duration of 20 years and more for an employer; how do you explain this to a judge who has learned from the Federal Statistical Office that employees are with an employer for less than 5 years on average?
Ralf W. Barth: Practical tip: Look e.g. on the side “beratungsprotokollfaq. de” and the mediator guideline protocols the protocols first of all after the components important and relevant for you. Make your own logging system and use it consistently. If you are uncertain about the design and procedure, use experts such as the network partners of VSAV e.V. (www.vsav.de) who are at your disposal with their legal, formalistic, technical and advertising experience. Also take advantage of events where professional market participants provide specific information on the topics.
RA Dr. Fiala: Consultancy protocols are not new territory, but require knowledge and experience from liability proceedings in their design. Knowledge includes decades of case law on the presentation of evidence in civil litigation. According to the case law of the Federal Court of Justice (BGH), the waiver of advice in a form is also invalid in the case of an insurance broker. Such ineffective forms are not only found on the website www.vermittlerprotokoll.de , but in an identical or similar manner in books/new publications from 2006 and 2007.
More info: Click Here As a reminder, relying on samples and doing it yourself always risks exacerbating or multiplying the violations of the law contained in samples. The vast majority of free sample contracts and protocols on the Internet contain serious legal errors, some of which can lead to invalidity. So the question will be whether one can afford and wants to work with contracts that are then unfortunately “null and void” in case of doubt?
5. misconception: documentation may not be proof of correct advice?
RA Dr. Fiala: Documentation can never be proof of the correctness of advice. Sample forms available on the market are, if the content is well prepared, at best checklists for checking the completeness of advice. Documentation is also not a disclaimer. Case law shows that forms can never optimally limit liability anyway. Choosing “unsafe” wording accomplishes almost nothing. The forms require an adjustment with the jurisdiction, and for the optimization in the handling always a training! In addition, “forms”, i.e. general terms and conditions, must always be adapted with the brokerage contract or the brokerage agreement with the customer as well as the content of the individual VSH policy with conditions. Those who cannot afford this economically as an intermediary should first question their business model with a stragie expert or coach (cf. vsav.de).
Ralf W. Barth: Many so-called protocols are excellent checklists for checking all relevant points. However, the essential factors in addition to the information from the insurance contracts must be determined and recorded in discussions with the customers. There will almost always be statements / wishes / ideas from customers that may never have been recorded in such a checklist protocol. Practical tip: In addition to the factors listed above, record what your (future) customer expects from you and what he says about your rules of cooperation. These are later important and comprehensible factors that speak for you on the one hand and train you in your assessment of your customers on the other. As a reminder: VSH protection is only one of several useful components for keeping the risk of liability as low as possible. The own samples (contracts etc.) always need an adjustment, not only to the own insurance conditions of the VSH policy. Neither the VSH broker nor the VSH insurer will be able to do this as a whole and tailored to the individual case.
6. error: the customer signature on the accuracy of the protocol is invalid?
RA Dr. Fiala: If a customer confirms the correctness of the recording of a consultation or the content of the documentation by his signature, this is as good as always “effective”, because this is a mere confirmation of facts and thus provable in court. As a rule, only declarations of intent or legal transactions can be invalid.
Ralf W. Barth: Practical tip: Another confirmation that you always have your protocol countersigned by the customer, or even better by all those involved in the conversation!
RA Dr.Fiala: Documentations and protocols belong in an archive with exterritorial data protection, because the limitation period of up to 10 years has to be kept in mind for liability. The accuracy of the content of the advice can also be completed by reference to the archive content of the expert network: One could think, for example, of ratings (how did the intermediary know they were correct?), negative press coverage, Transparence in Finance, etc.
7. error: Has my VSH broker effectively included closed participations for me?
Ralf W.Barth: The real problem lies deeper – the intermediary must know the VSH conditions. As a rule, it is stated there that the broker must have an IDWS4 expert opinion in order for the brokerage of such products to be insured. The crux of the matter is that the full-bodied advertising suggests that the complete range of products in the closed-end fund sector is insured – but the pitfall is in the detail.
RA Dr. Fiala: Strategically, the intermediary is at an advantage who can also prove that not only he but also his client was aware of the IDW S4 expert opinion. In addition it comes that probably only Heinz Gerlach with its direct investor protection (www. directanlegerschutz.de) again and again with such appraisals heavy lack determines. The initiators do not react to this too often – but I have to reproach the mediator later that he should also have noticed such expert opinion errors.
8. mistake: I have taken out a wonderful insurance policy with the VSH broker on the Internet?
Ralf W.Barth: Price orientation in livelihood security is a bit like Russian rolltte: It could go well. It is better to check your risk sufficiently with a VSH broker by means of a risk assessment sheet. It is not uncommon to discover things that you would never have thought of on your own, except afterwards under the heading: wiser through experience, but not richer. Make sure that you are made aware of internal specifications, clauses of the offer in relation to your activities and products. Are there alternatives to the offer and do you have a choice of several options from the broker? There are a large number of other important questions, the significance of which interested intermediaries usually recognise very quickly in the risk analysis discussion.
RA Dr.Fiala: A broker is supposed to do convincing work. Offering a single rate over the Internet may be the best evidence that the broker is working more like an agent, or not taking his brokerage duties entirely seriously. Such a procedure is only serious if the agent submits an offer via the Internet and the VSH broker then approaches him to check whether your risk and the insurance cover offered also fit together. Those who cannot or do not want to do this as VSH brokers should switch to agent status before they are sued for liability and portrayed as pseudo-brokers. As a reminder, insurance brokers must generally be aware of their clients’ risks in the liability field. Courts have already condemned insurance brokers who have not informed their clients about legal changes or new case law on liability law on the client side. If brokers advise in forums to limit the liability for slight negligence to one million Euro in the brokerage contract, they only prove that they do not know or ignore the case law that has been valid for decades. Then I guess it would be better to act as an agent instead of being pilloried later as an “overworked pseudo broker”?
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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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