Financial advisors in German banks could receive an unpleasant visit from undercover investigators under a government plan aimed at protecting consumers against inadequate investment advice.
Financial advisors need to think carefully about what they say
German Consumer Protection Minister Ilse Aigner plans to tighten controls on financial advisors selling shares and other investment products.
"In the future, undercover investigators will be deployed by the government – and they won't only be checking general terms and conditions," Aigner said in an interview with the German business newspaper Handelsblatt.
Rather than simply inspecting the fine print of contracts, investigators posing as potential customers would be able to assess whether financial advisors provide transparent explanations of the products they are selling.
Many private investors in Germany who lost a chunk of their personal wealth in the financial crisis complain they were insufficiently warned of the risks attached to their investments.
Financial advisors, they charge, like to sell high-risk investments not only because of the high commissions they collect but also because of the healthy margins they generate for their bank employers.
Many private investors saw their savings go down the drain in the financial crisis
Aigner envisions a state-run control program to complement "mystery shopper" tests already conducted by the independent German consumer research foundation, Stiftung Warentest. The foundation conducts spot checks of products and services - including investment advice provided by banks and other financial institutions - and publishes the results.
In July, it released the results of a test of financial advice offered by 21 banks. Six banks failed and not one received the rating "good" or "very good."
But the problem with the Stiftung Warentest's program, Aigner said, is that because informants can't be identified, banks frequently question the validity of its findings.
Penalties still unknown
By launching a state-run program, the minister hopes to keep financial advisors on their best behavior.
"Laws only help when someone ensures that they are enforced," she said.
Aigner said she would like Germany's Federal Financial Supervisory Authority (BaFin) to administer the undercover checks.
The minister gave no details about the penalties banks providing poor advice could face.
Author: John Blau
Editor: Sam Edmonds