"Ban on commission would eliminate private supply"
In a recent development, the Greens and Left Party in Germany have proposed to abolish commission-based financial advice, aiming to reduce conflicts of interest and increase transparency. The proposal seeks to replace the current system with a transparent fee system directly paid by clients instead of hidden commissions from product providers.
The core argument of proponents of fee-based advice is consumer protection, but critics, including Michael Heuser, the scientific director of DIVA, question its intentions. Heuser suggests that the proposed plans may not be primarily about consumer protection, pointing out potential drawbacks such as a significant decline in affordable advisory services.
Under the new plans, citizens would pay either based on consulting effort or a flat rate directly to the consultant. However, this shift could lead to a reduction in accessible advisory services, particularly for low-income individuals. The lack of such services could potentially leave many citizens overlooking existential risks in their financial decisions.
To address this concern, the Left Party wants to strengthen the responsibility of consumer centers in advisory matters. Additionally, a statutory fee order in collaboration with consumer centers and the industry is planned. This collaboration aims to ensure fair and accessible fees for all citizens.
One of the contentious issues is the potential loss of freedom of choice for citizens seeking financial advice. With the proposed plans, advice would be exclusively fee-based, which could limit the variety of options available. Advice that is not available online can leave consumers in a complex market with little support in prioritizing and adjusting financial products.
The commission practice in debt insurance from banks and savings banks has already been restricted. However, it's worth noting that the VAT of 19 percent must be paid on fees, while commissions are tax-free.
Interestingly, the parties planning to abolish professional remuneration for financial advisors are not explicitly named in the search results. However, political discussions about reforming the structure of financial advisor compensation have been ongoing.
Another notable point is the Greens and Left Party's advocacy for a state monopoly on old-age provision, care, and health, which would eliminate the need for advice and provision. This aspect of the proposal adds another layer of complexity to the ongoing debate.
As the proposal moves forward, it will be crucial to consider the potential impacts on consumers, the advisory industry, and the overall financial market. The debate promises to be a lively one, with important implications for the future of financial advice in Germany.
