What are acquisition brokerage, investment advice, financial portfolio management, financial planning, investment brokerage and prospectus liability?

Investment brokerage:
Investment brokerage (also called acquisition brokerage, especially in the insurance sector) is the pure brokering of a third party’s investment (no products created by the client). What is owed is the provision of information and the execution of the mediation, but no advice. The investor has a limited expectation here, because he only gets objective information and no personal subjective evaluation of the product.

This form (cf. § 1 Ia 2 No.1 KWG, § 2 III No.4 WpHG) is in the process of dying out, because as soon as the appearance of advice is given (e.g. by the company addition ‘Wirtschaftsberatung’, ‘Consulting’), advice may be expected.

Investment Advice:
The investment adviser owes not only information (as in the case of an intermediary, i.e. information about facts), but also expert assessment and consideration of the client’s personal circumstances.
Once the client has made an investment decision, the duty to advise normally ends: this can change in the event of a claim. The investment adviser also does not manage his client’s assets, so he has no authority to make dispositions. The guideline for the obligations is the “BOND ruling” of the Federal Court of Justice (BGH) of 6 July 1993 (Ref. XI ZR 12/93).

This form (cf. § 1 III 1 No.6 KWG, § 2 III a No.3 WpHG) is particularly fraught with 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. The securities area is an exception – there are legal recording obligations according to § 34 WpHG.
Asset management: Asset management, also referred to as financial portfolio management in the case of securities, means the permanent, independent management of the investor’s assets – usually in accordance with previously agreed investor guidelines. In the sector of bank executorships or foundation transactions, investment guidelines are all too easily forgotten by some advisors. The asset manager therefore has a power of disposition, in addition to duties to inform and advise, and the duty to safeguard the interests of his client.

This form (cf. § 1 I a 2 No.3 KWG, § 2 III No.6 WpHG) requires special approval by BaFin. A business licence is therefore not sufficient. The running costs of the necessary involvement of an auditor are in the five-digit range p.a., cf. §§ 32 f. KWG. This is much cheaper in German-speaking countries.

Financial Planning:
Financial planning includes the expert elaboration of a (re)design of the asset structure, a preliminary stage of asset management, so to speak. As a rule, it should be a fee-based advisory service. In this area, financial planners are liable like expert witnesses. Financial planning is particularly dangerous because some of the training seems grossly incomplete (e.g. many bank products, hardly any insurance issues), some software calculated incorrectly, and the scenario technique was missing from the planning ? including controlling with benchmarks for an exit from certain investments. Many a major bank was sued and lost good private banking clients: Software for risk minimization and revenue optimization, e.g. in the securities area, is still missing for many private banking advisors today.

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 enforced a cease-and-desist letter from a major bank after its financial plan revealed gross deficiencies on the part of a client’s tax advisor. In this case, cooperation with a tax advisor or legal counsel solves the problem in practice. The situation is similar 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 even more so for gross negligence) cannot be effectively excluded if essential contractual obligations are involved. At this point, some providers stand out from the start as unprofessional or unserious. The serious thing to do is to insure the residual risks adequately – after taking advice on them.
Liability-free activity without a contract? Not concluding a (written) contract with the customer is at least as negligent as not creating documentation. Even without a contract, a contract is usually concluded; and even then, unfortunately, in case of doubt, liability is assumed for anything and everything. Another trap can arise from a missing cancellation instruction in the case of doorstep selling.

Liability reduction through contract content: It is precisely through written contracts that the responsibility of the activity can be limited. This starts with describing your own achievements ? and point out what is not to be done. To the extent that performance and responsibility are not desired, delegation can help, or true 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: The initiators, product providers, founders, managers, designers of investment and public companies are liable ? even without a contractual relationship. This can also include backers and guarantors (StB, RA WP) under special circumstances (more on this below). It is little known that ?prospectuses? are all written documents, also internet pages and ?sample calculations? (e.g. “false IRR yield forecast” or “glossed-over leverage yields”, created with the initiator’s sales software). The initiator is regularly liable for only 3 years (statute of limitations), whereas the intermediary or advisor is liable for 10 years (statutory “peasant victim risk”). If the intermediary creates his “own” leverage model by combining a life insurance policy with a foreign loan, he also becomes the 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 statute of limitations is 10 years – in the area of securities, however, only three years (§ 37 a WpHG). This is where the “investor-appropriate” (can the customer afford it?) and -object-appropriate? (are the details legally, fiscally, economically plausible?) advice, as can be found in the BOND ruling and in Section 31 of the German Securities Trading Act (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 (structural) sales organisation. Then, a lawsuit against the employee is regularly dismissed if the investor does not present anything to the court regarding the employee’s personal liability. The connecting factors are “personal trust” (the intermediary has presented himself as an expert, specialist, etc.) and “economic interest”, but not pure commission interest. Economic interest may exist, for example, if the customer is charged a special fee in addition to the “usual” commission. Whether the product provider or distributor, who may be solely liable (externally), can then nevertheless enforce recourse against the employee is another matter.

One thing is certain, however: the Federal Court of Justice (BGH) has recently judged it to be “intentional immoral damage” under § 826 of the German Civil Code (BGB) if employees are “incorrectly” trained. are trained. Even gaps can lead to ?wrong? training. It is therefore all the more important for the employee to archive all sales and training documents for his own relief; ideally to store them in two places as a backup copy.
The following example shows how important this is:
In the model country, a doctor invests DM 2 million in an LV; equity capital DM 150 thousand – the rest is lent to the investor by a bank. In the event of a claim, the intermediary is made out to be a “fraudster” by his product provider, and the bank and investor are advised to press charges: This only goes well until the intermediary pulls out a leverage business training document from his archive: Speaker was v.a. also the sales director of the product provider -;).

Experts Archive:
The old hands among financial service providers have boxes of old sales and training documents in their garage, attic or basement. A space-saving alternative is the expert archive (to the archive: click here). Examples of liability cases, some of which are older, can be found in occupational pension schemes (liability for zillmerisation or lack of equal value) or can still be identified today in some time value account concepts. Do you ask your legal counsel about the risks and side effects, but not the sales manager of your product provider?

No competition from honorary professions:
It applies to the StB, WP, RA that they must exercise their profession ?independently and on their own responsibility? (also in terms of liability). Activities as real estate or insurance brokers, financial brokers, agents of financial services are not compatible with these professions: This leads to the withdrawal of the license. Accepting commissions is also detrimental, as the StB/WP is prohibited from engaging in commercial activities. If the StB/WP prepares an isolated financial plan without essentially taking care of the tax aspects, a (prohibited) commercial activity can also be assumed. A cooperation offers itself here, because straight for legal and tax consultation the Finanzdienstleister is never insured over its VSH policy: Here, the involvement of an honorary professional can relieve and exonerate the financial service provider. The honorary professional also almost always lacks product knowledge, so that a supplementary partnership is possible here, as it were. If the wife of the honorary professional is not sent forward to hold both hands open, one can assume fairness.


by Dr. Johannes Fiala

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About the author

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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