Wealth management including tax and legal advice

Welth management including tax and legal advice ! * Sales models with consulting practice in the financial industry
*by Johannes Fiala, Lawyer (Munich), Mediator (Univ.), MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer (Univ. of Cooperative Education), Banker (www.fiala.de)
You can still govern with bad laws and good officials. With bad officials, however, the best laws are of no help. (Otto von Bismarck)
Financial planning in Germany If you look to neighbouring countries, you will see that Germans are not only keen to move their money out of Germany. Abroad, extrajudicial tax and legal advice, for example in Holland, is permitted to practically everyone. It is therefore not surprising that in wealth management, for example, clients can also easily purchase the services of a tax advisor or legal counsel from the Swiss bank they trust.
In Germany, a major bank was prohibited by the competent chamber of tax advisors from offering financial planning, including the necessary tax appraisal. similar difficulties arise in estate planning, unless the estate planner provides his services through a tax advisor or legal counsel.
The German professional law for honorary professions (e.g. tax advisors, lawyers) will continue to assume that financial services (i.e. contracts on a profit or commission basis) are incompatible with the honorary profession. In this respect, the abolition of the Legal Advice Act will obviously not change the legal situation. Apart from that, a freelance lawyer working in sales is not insurable.
The Federal Court of Justice (BGH) ruled in its judgement of 15.05.2006, Az. Anw(Z) 41/05, currently confirmed that lawyers – even employed ones – are not allowed to deal with the distribution of financial products on a full-time or part-time basis. Independence and integrity stand in the way of sales activities, because the information obtained by the consultant could be used for sales purposes. In fact, this means a ban on lawyers selling financial services.
The BGH thus prohibits any trust advertising for financial products by honorary professionals on the sales front. It is apparently irrelevant at which level the honorary professional is active in sales and how the financial services provider appears (e.g. intermediary, occupational pension advisor), as long as no pure fee-based advice is offered.
Necessity of the holistic approach in financial and estate planning The economic damage caused by the separation of legal advice from financial advice, as dogmatically “incompatible” areas according to the BGH case law, is likely to be enormous. This is shown by numerous case studies from practice, in which the financial expertise was not complemented by legal advice.
It is a completely different matter whether individual training courses for CEP/CFP are considered unsatisfactory precisely because, for example, the area of “risk management” together with insurance solutions has been underweighted.
This now gives reason to present those solutions which have been legally possible for some time in order to offer the client financial services with tax and legal advice “from a single source”, as it were.
Legal cooperation Honorary professionals and tradesmen, i.e. lawyers and financial fee consultants, have always been able to enter into a cooperation in order to jointly handle those cases which one partner alone would not be able to handle with his skills. In July 2005, the BGH also expressly approved a joint advertising presence. Of course, the honorary professional will have to ensure, for example, that the advertising remains factual and that the initiative to commission him comes from the client.
In concrete terms, therefore, succession and financial plans can always be marketed in this way. There is also no reason why another person (e.g. the sales department) should not get to know the finished design later on on behalf of the customer and then implement it with financial services, because this is done outside the cooperation. The partners just have to “line up” in a manner befitting their status.
Legal expert opinions Today and in the future it will remain possible for anyone to offer or sell so-called scientific expert opinions. Three requirements must be met: – The expert opinion must contain a justification for the recommendation for action. Mere advice, without giving reasons, is not an expert opinion. – The preparer of the expert opinion must have some legal background. However, a state examination in law is not necessary. – The expert opinion itself must be scientific. It is, if it deals with case law and legal doctrine, and presents the legal position impartially, disregarding considerations of expediency.
It is precisely this latter point that market participants in the financial industry stumble over by offering one-sided partisan opinions without scientifically sound source citations. Typical examples are void assignments to occupational pension consultants dealing with tax or labour law issues. Good visuals can’t make up for “too flat” content. A completely different question is whether the property damage insurance cover, which is hardly available for legal experts, in fact suggests that it would be better to cooperate with a legal adviser (who is by no means employed).
Legal flight abroad The competitive disadvantage of domestic financial service providers may suggest a link to the financial industry abroad. For example, insurers in Liechtenstein have already had legal opinions on typical constellations drawn up for their clients on various occasions. This supports the financial service provider on site, in the acquisition of competence and in the promotion of trust. Increasingly, one or the other client is being transferred to a foreign institution – but the cost of legal services need not be cheaper there.
Legal cross-border advice under EC law Directive 2000/31/EC of 8 June 2000 (eCommerce) allows legal services to be provided within Europe. The most important restriction is that the contact may only be conducted in electronic commerce. In the case of such offers, it will have to be ensured that they do not deliberately constitute a circumvention of the legal advice law applicable in Germany. An example known to the courts is probably a debt counselling service in Belgium, which is aimed specifically at Germans only (BGH, Az. I ZR 7/04). Nevertheless, this EC Directive also represents a solution option for “one-stop” financial and legal solutions.
Legal “one-stop solution” according to constitutional law Since the 1990s, the Federal Constitutional Court (BVerfG) and the Federal Supreme Court (BGH) have also dealt with legal advice. If a trader combines his services with legal or tax advice, the latter does not necessarily have to be at the level of an “ancillary” business. Rather, what matters is whether the legal service is the “core and focus” of the offering. In this respect, there has been the possibility to design corresponding offers for years.
The new Legal Services Act (RDG) also provides for this possibility of contractual arrangement “as an ancillary service”. The case law of the Federal Court of Justice (BGH) and the RDG require an extrajudicial compulsory representation by a lawyer as soon as “a special legal examination of the individual case is required according to the perception of the market or the recognisable expectation of the person seeking legal assistance”. It is possible, however, that this restriction will not be upheld by the Constitutional Court, as it would probably impose a disproportionate restriction on private autonomy.
Legal litigation financing, debt collection transactions, debt purchase With the model of litigation financing, the “contingency fee for the lawyer” was introduced through the back door, so to speak. At the BVerfG there is currently a case in which the legal counsel did this without the involvement of a litigation financier. Those who hold a debt collection permit are not only allowed to collect debts – they can also legally advise their clients in this regard, without being admitted to the bar. And finally, the purchase of receivables is allowed to anyone without permission anyway. Some market participants have implemented this, for example, within the framework of “CLI retro-billing collection” or “social security clearing”. The courts have not objected to “50% and more” as profit sharing.
For initiators and institutions, distributors and financial advisors, numerous pitfalls can arise. In the absence of a necessary licence, for example for certain financial services or the insurance business, a liquidator is appointed by BaFin in case of doubt. Even innovative market participants often discover too late that their concepts have decisive gaps, with the result that all contracts are then often null and void. It is particularly common for statutory prohibitions and remote case law to have been ignored in the design process.
Recently, rulings on prohibited kick-backs from Switzerland became known – cases which German courts had long dealt with. The transparency requirement can also give rise to a risk of reversal – even in the case of financial services that are otherwise faultless. Practice shows that innovative concepts first need to be put to the test, so that courts do not later certify that they violate legal prohibitions.

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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