(epn) Mr. Fiala, we would like to start by introducing you to our readers.
- You have started your professional career as a banker at Bankhaus H.Aufhäuser. Afterwards you studied economics with a focus on financial services (Master of Business Administration, University of Wales) and law (lawyer for over 10 years).
- They sit on the examination board of the IHK for financial advisors and financial services specialists.
- After working for Allianz-Versicherungs-AG (department of the Chief Financial Officer) and Münchener-Rückversicherungs-AG (department for major losses), you have been awarded the certificate of “Certified Financial and Investment Advisor” from the Lloyds-Bank-London group.
Can our readers turn to you when it comes to brokering an investment?
(John Fiala) No, we carry out fee-based consulting – under no circumstances will we take away an agent’s client, so to speak. Clients come to us who feel that they are being “advised in land and soil” by faulty financial planning. My training as a so-called “financial planner” helps me to uncover significant omissions in consulting. A typical example are large banks that sold “private financial planning” for a lot of money, but unfortunately lacked the scenario technique, people were “richly calculated” and above all the basic coverage (e.g. in the case of private insurance products) was completely lacking.
(epn) Now tell me, why aren’t financial planners always your friends?
(John Fiala) One reason for this is that some universities forget to provide basic coverage – this is then training to become an “impostor with above-average language skills”. In the SZ such people were called Schmarozer, according to the motto “not knowing by being able to talk about everything”. Many simple financial service providers can do better what some banks offer their customers. The Effektenspiegel (issue 27.02.2003) commented on the problem with the words “Now it is clear that Germany and partly Switzerland (…) have the most incompetent bankers in the world, all of them lawyers, by the way, who lack any feeling for economic connections. But there are also excellent financial planners, some have already broken away from the associations and are doing a very good job.
(epn) What do you see as current trends in your profession?
(John Fiala) In the past, let’s say from the late 80s to the mid 90s, and in some cases even today, massively overpriced real estate was brokered as a retirement provision. Some banks finance two to four times the value of the property – this means that agents and banks, but also property developers and rent guarantors are liable.
Around the mid-1990s, the sales forces of British and German life insurance companies came up with the idea of selling customers a leveraged model. Let’s say there was 100 TEUR equity there, we take 600 TEUR credit (possibly in foreign currency) and invest this money in a life insurance. After the stock market bubble burst, the banks went into liquidation – the customers sometimes lost hundreds of thousands or millions in such arrangements, which were admittedly sold as completely risk-free. Here we get clients who have simply been “flattened” by the bank, or intermediaries who of course say that they have only been (falsely) taught this by an insurer’s sales department. You can imagine that no one as an insurer would like to be in the press with this.
(epn) Do the insurance companies have more problems ?
(John Fiala) First of all, intermediaries must be warned, because it is unacceptable for insurers to declare surpluses in the lower range of profitability and for high, almost double-digit returns to be pre-calculated for customers using sample calculations for new contracts.
In addition, insurers operate with so-called ratings without making sure that the rating agency is sufficiently insured in the event of incorrect information: Incorrect ratings can be vulnerable, especially if there is no rating for the tariff advertised.
Then we have the product of the fund-based CLV: The agent can only be strongly advised to document the investor risk or the investor-oriented advice in accordance with § 31 WpHG: In this case the investor has the full risk, as when buying shares or an investment fund.
There are also a particularly large number of consulting errors in the field of occupational disability or occupational pension schemes – the losses are considerable and lawsuits are usually successful. Unfortunately, there is often a lack of careful documentation on the part of the intermediaries, in which case the distributors and, of course, the insurer are in the fire.
(epn) When you think of our readers, i.e. the intermediaries, what should they pay attention to?
(John Fiala) First of all the documentation. Experten.de also offers a portal with brochures and information that is essential for survival. I’d say “The wise merchant has his file ready for trial at any time”. In addition, all possibilities for limiting liability should be used. Numerous intermediaries still work without “liability brake” (e.g. as a GmbH or real ! Ltd.) and, according to the motto “only the donkey advises itself”, fail to secure the house and farm, especially the own family. The trend here is towards foreign countries – but also towards professional coverage through liability insurance – but for cost reasons only with regard to the residual risk!
(epn) What is your core business in practice?
(John Fiala) We advise end customers and financial service providers. This will cover current legal developments, including the presentation as workshops. For end customers, the focus is on the remediation of failed investment projects (closed-end funds, real estate, bank advisory services), because the brokers want “healthy” customers who they can continue to build up as far as possible without “legacy liabilities”.
At the level of financial service providers, it is not only a question of avoiding their own liability risks, but above all of their strategic positioning in the market. Many (structured) sales organisations know that they are not insurable as a so-called “bulk risk”.
– if one intermediary suffers a loss at the front, a single case can drive the entire sales force into insolvency. For the intermediary it is not only a question of whether an insurer “only” has an “AA” rating (the “-” means negative prospects, the AA is far less than an excellent credit rating !, there are four better levels), but also whether the direct contractual partner (sales) is one of the companies at risk of insolvency with not even a “CCC” rating (highly dangerous, e.g. with “insolvent” DM foreign bonds).
(epn) Can you give us an example ?
(John Fiala) Of course, last week an agent called me and reported that last year he received a great software, let’s say with a return of 8.5% p.a. for the investments in a KLV. The sales company was still training in the direction of borrowing in foreign currency or tolerated this. Almost one million euros was invested – unfortunately, the financing bank “flattened” the model this year. And now, in the event of a six-figure loss, we have a credit report that makes it questionable whether the sales company alone will survive this loss. The broker has even more damage in his luggage – and then it will probably be a secondary matter when the sales company “flattens out” the assets of the managing directors. This is not a piece of cake for those involved.
(epn) What advice would you give to a free agent ? Where is the trend heading?
(John Fiala) Well, I would say big is beautiful. As an intermediary, you should obtain information from a credit agency about the creditworthiness of your structured sales organisation? When the information comes, many intermediaries require a vial of smelling salt – hardly any substance. The next approach would then be to prove that the distributor is actually insured for the content of training courses – in most cases this is not the case. By this I do not mean the serious distributors – they know the signs of the times and are well insured or well capitalized. However, even the larger sales organisations of renowned insurers have a lot of catching up to do in this respect.
(epn) With so much law, do you still feel like a financial services provider?
(John Fiala) Of course, I love this business. The future belongs to the independent financial services provider. He has had customer contact for decades – in my training company, the average length of time employees stayed with the company was over 30 years. This is where trust is built up, you have customers for a lifetime – bank customers are not satisfied with job rotation in the credit institutions, and trust in the banking industry has never been so bad on the part of consumers and entrepreneurs as it is today. I know the view from the other side of the counter, with the attitude “Dear customer, we want your best, your money!
(epn) Mr Fiala, thank you very much for the interview !
with friendly permission of www.experten.de
published on 21.07.2004
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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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