How Insurance Are Sold in Germany
Expats, especially from countries with strong financial regulation, are often shocked by the unscrupulousness of German insurance agents (Finanzberater/Versicherungsvertreter).
This is mostly due to comparatively weak regulation. Reforms that were implemented in the UK in the mid-90s only started rolling out in Germany in 2007, and are still not finished. Until robust regulation is implemented here, trusting a financial or insurance adviser, as you would a financial adviser at home, can lead to nasty surprises.
Germany remains a mostly commission-based market for insurance advice, though there are some entirely fee-based advisers available. A good independent broker should offer the same level of service and advice as a fee-based adviser, in contrast to a purely sales-oriented tied agent.
Learn more about the financial advice market in Germany, and what you should know when meeting an insurance adviser here in this video.
Take special note of what licenses and registration information you should check for upfront.
Before anything else, you need to understand the different types of financial adviser in Germany, and be able to tell into which category a potential adviser falls:
– Independent financial adviser: An independent adviser can advise you on products from the whole of the market, and must advise based on the “best advice” principle. The British FSA defines the core of independent advice like this:
“Independent advice is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market. This is designed to reflect the idea of genuinely independent advice being free from any restrictions that could affect their ability to recommend whatever is best for the customer.”
Independent advice can be obtained two ways in Germany. The first is through an independent broker (Makler), who receives commissions from insurance companies or investment funds. The other way to approach fee-only financial adviser (Honorarberater), who will charge a flat-rate for services. This latter option will either involve no commissions computed into the final costs, or reimbursement where commissions can’t be avoided because they are an integral part of the product.
– Restricted adviser: The direct opposite of an independent adviser. Restricted advisers, comprising about 85% of the German advice industry, can be divided into two sub-groups:
– – Multi-tied adviser (Mehrfachagent): Most large financial distribution organisations belong to this group. These advisers can only recommend products pre-selected by their organisation. They are still obliged, however, to recommend the most suitable products from this limited selection.
– – Tied adviser (Gebundener Vertreter): This group of advisers can only recommend the products of one financial organisation.
A particularily bad additional example of „tied advice“ is getting insurances from a bank advisor. The bank advisor nearly always can only offer you a very limited selection of insurances from certain companies that either belong to the bank or are closely connected. Therefore the advice can never be independent. But in contrast to a true tied agent, the bank advisor can/will also not help you in case of claims (as a tied agent and a broker will), which makes himi the worst oiption you can pick when looking to get fincancial advice.
How is restricted advice so different from independent advice?
Once again we’ll quote from the British FSA guidelines:
“Advice that is not independent will need to be labelled as restricted advice; for example, advice on a limited range of products or providers. Firms that give restricted advice are still required to meet suitability requirements even if they offer restricted advice. Where a firm providing restricted advice chooses to limit their product range to a certain range of investments or providers, there will be clients for whom this is not suitable.”
In short, a broker is liable if he or she has not advised you in your best interest. Tied agents, however, are only responsible to their employer.
We are fully licensed insurance brokers, acting solely in your best interest. See more about our status HERE. We offer mainly independent, commission-based insurance advice. Depending on the nature of your desired investment strategy, we also offer a fee-based service (flat fee as a percentage of the AUM), and an hourly rate for a general assessment of existing investment portfolios.
For more information, contact us HERE