Elimination of Private Supply through Commission Restriction
In a significant move, the Social Democratic Party (SPD) and Alliance 90/The Greens in Germany have proposed abolishing the commission-based remuneration system for financial advice and instead introducing a fee-based advisory system. This change, if implemented, could have far-reaching implications for citizens across the country.
The new system, under consideration, would see citizens paying either based on the advice effort or a flat rate directly to the advisor. However, this transition has raised concerns, particularly among low-income individuals and consumer protection advocates.
Michael Heuser, the scientific director of the German Institute for Asset Accumulation and Old-Age Provision (DIVA), has criticized the proposed shift. He implies that the move might not be solely about consumer protection but also about abolishing private provision.
One of the key concerns is the potential increase in costs for most citizens, especially income-weak individuals. Unlike commission-based advice, fee-based advice requires immediate and upfront payment, which could burden the customer's liquidity. This could lead to a virtual disappearance of affordable advisory offerings, given the decline in bank branches and the transition to digital platforms.
Even those who understand digital mechanisms may receive little support in prioritizing and correctly sizing financial products online. Advice that is not readily available online could be difficult for low-income individuals to access, as they may struggle in a jungle of offers, advertising, and comparison portals. The scarcity of affordable advisory services could lead many citizens to forego existential risk coverage.
The Left Party wants to strengthen the responsibility of consumer centers in advisory matters and plans to develop a legal fee order in collaboration with consumer centres and the industry. They aim to replace commission-based financial advice with fee-based advice, addressing concerns of transparency and consumer protection.
However, the supporters of fee-based advice argue for consumer protection, but the shift could lead to a scarcity of affordable advisory offerings. Citizens who use financial advice under the new system would have less freedom of choice, as the availability of free advice could diminish.
Michael Heuser, in his critique, has also criticized the pension reform plans of the Greens, SPD, Left Party, Union, and FDP. Heuser's concerns reflect a broader debate about the role of private provision in Germany's financial landscape and the potential impact of the proposed changes on citizens' financial wellbeing.
As the debate continues, it is crucial to consider the potential implications for all citizens, particularly those who may be most vulnerable in the transition to a fee-based advisory system. The need for affordable, accessible, and transparent financial advice remains paramount in ensuring financial security for all.
