Illegal personnel consulting: Expert fee-based consulting with hidden commission

– BGH ruling:

Liability of management consultants in occupational pension schemes –

– OLG Munich judgment:

Financial firms liable for kick-backs to tax advisors –

Remuneration issue: fee at the front – commission at the back

A current letter from the Federal Ministry of Justice points out to the state judicial administrations that a license as a pension consultant is incompatible with an activity as an “insurance broker, financial service provider and insurance company” due to a conflict of interests. Other holders of a legal advice licence, for example insurance advisors, lawyers and tax advisors, also risk the withdrawal of their licence if they carry out commission-oriented advisory and acquisition activities in a business and personnel consultancy company, for example, or if they work as investment advisors or insurance brokers. The recruitment consultant will hardly ever disclose the additional commission income to the client.


Cooperation issue: apparent independence

A preliminary stage, as it were, of such “one-stop solutions” are cooperations of financial houses together with intermediaries and consultants with a built-in kick-back for holders of a (partial) licence to provide legal or tax advice. Occasionally, works councils or personnel managers also receive part of the agency fee, as is learned from investigations by the public prosecutor’s office. Of course, such kick-backs and commission pass-throughs are against the law and settled case law. Money does not even have to flow if Mr. X is an insurance consultant for a fee, and then his wife brokers the contracts – for additional high commissions. Whether the customer can then still trust that the insurance advisor will advise him on the cheaper but commission-free tariff?


Admission question: Conflict of interest pre-programmed

Recently, intermediaries of banking or insurance products, in particular subsidiaries of financial houses, have succeeded in obtaining a licence to provide insurance or pension advice. The fact that such advisors serve two masters becomes all the more obvious when they present themselves as “independent experts in occupational pensions”. The model of some sales companies and pools works similarly when they first send their own pension, tax or insurance advisors to promote trust among potential customers. Another popular consulting model is one in which the client first pays a fee for the examination of the company pension plan (bAV) – but when insurance products are later brokered, this fee is cross-subsidized by a “commission fee” that is prohibited by law. So in the end the client pays no fee for the supposedly independent advice – but a multiple in hidden commissions.


Invalidity question: No responsibility towards notary, tax advisor, lawyer as client

The Federal Court of Justice (Case IX 238/06) had already decided on 20.03.2008, using the example of a tax consultancy as a client, that the client was not entitled to damages because it had to recognise the infringement of a prohibition law (such as prohibited legal or tax consultancy) by the commissioned BAV consultancy. A prominent consulting firm had established a tax-deductible benefit fund “for pension and compensation purposes.” Vice versa according to the BGH: Other customers are entitled to compensation for the loss of confidence.


Liability issues: from accusations of fraud to reversal of the transaction

Currently the OLG Munich (judgement of 02.08.2010, Az.19 U 3319/09) a financial house to the back completion, among other things for lack of clearing-up over its business model to let the tax advisor for feed of investors a part of the selling remuneration come. There it says “Also the tax adviser has to orientate himself – within the scope of the valid right – strictly and exclusively at the interests of his client. If he is remunerated by the ( future) contractual partner, there is a danger of an uninfluenced safeguarding of interests.”


Professional question: Deception by “succession planner” or “BAV business consultant

The occupational titles “succession planner” or “BAV management consultant” already have the illegality written all over them. Because such activities lead inevitably to the treatment of often difficult tax and/or legal questions, which leads these activities into the deliberate immoral customer damage, as for instance decided by the chamber court Berlin (judgement of 14.12.2006, Az. 23 U 128/04). “Assumed competence” of such impostors with a void offer of advice sometimes leads to suspicion of fraud.


Prohibition question: Void consultancy contracts from bank and insurance distribution

It is relatively easy for the person in charge of the personnel department to recognize whether he or she has been taken in by a dubious consulting offer. For those intermediaries and consultants who use “model documents” (e.g. pension commitments, formation documents for front companies abroad, pension regulations in occupational pension schemes, etc.) as adapted and personalised individual agreements vis-à-vis customers are already providing prohibited legal and tax services. Financial institutions make such samples of no particular value available to their intermediaries and advisors free of charge as sales support. It may be worthwhile to think about this before paying the consultant’s invoice, because there is no claim to remuneration for void consultancy contracts, but there is a claim for damages from the consultant.


Damage issue: Annual damage to small and medium-sized businesses of up to 90 billion euros

Experts estimate the damage caused by the lack of separation between product sales and consulting at up to 90 billion euros annually. Entrepreneurs often only notice consulting errors on the occasion of a tax audit by the tax authorities. A further cause may be liability for incorrect selection of financial products as an employer towards employees. A typical experience for small and medium-sized enterprises is that after the company has become insolvent, contrary to all the intermediary’s assurances, at best the social security office will now pay for their own living expenses. Nobly, it is then succinctly stated that no needs-based independent advice had been given.

Quote: ” They disguise themselves as objective pension consultants. But in the end they sell their own expensive insurance policies. That’s how they can double-cash in the billion-dollar market for company pensions – at the expense of companies and employees.”


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of (published on 21.10.2010)

and (published in (Computern im Handwerk, issue 11/2010, pages 5-6)

and (published on, 13.09.2010 under the headline: Financial advice on a fee basis – opportunities and risks from the point of view of investors and advisors).

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Dr. Johannes Fiala Dr. Johannes Fiala

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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