Can banks offer investment advice
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What does typical investment advice look like?
The consultation takes place regularly in four steps:
- The counselor asks you for information.
- He will inform you of all essential circumstances.
- He recommends a suitable product based on customer information.
- He documents the recommendation.
What information does the investment advisor at your institution ask you for?
Your investment goals
- Are you pursuing special goals with your investment (e.g. building up assets in order to acquire a property at a later date or to finance a study)?
- Are you interested in retirement provision, asset or liquidity accumulation or speculation?
- How strong is your willingness to take risks?
- Is the system subject to a time limit?
Your financial circumstances
- How high are your securities assets, how high are your financial assets?
- Do you have other assets (e.g. real estate)?
- What regular income do you generate (e.g. salary, rental income, capital income)?
- What regular obligations do you have (e.g. rent, loans, maintenance payments)?
Your knowledge and experience
- How well do you know about financial instruments and financial services?
- Which financial instruments and financial services do you have experience with?
- How long did you gain experience?
- How many deals have you done in the past few years?
- What amounts did you bet?
- Do you have experience with investments in foreign currencies?
These are common questions. The advisor may also ask for more information. You can also identify other investment goals that are important to you. It is important that the investment advisor receives as comprehensive a picture as possible through his questions. You should therefore answer his questions conscientiously and in detail and notify your advisor of changes or updates. Your advisor will only receive all relevant information through your cooperation. The investment advisor cannot and may not advise you without information about your investment objectives including your risk tolerance, your financial situation, your ability to bear losses, and your knowledge and experience.
What information does your advisor need to give you?
Before starting advice, you must be informed whether the advice will be provided as an independent fee-based investment advice. If this is the case, the consultant is not allowed to accept or keep any commissions, but has to have the advice paid directly by you. In the case of fee-based investment advice, the commission must be paid out to you in full and immediately.
You need to get information about all the circumstances of the plant that are material to you. This also includes information about all costs of the financial instrument and service offered and their effects on the return. Donations, such as commissions paid by third parties, must also be disclosed. This information must be printed out or made available to you electronically in front of your system, for example. If you so request, your advisor must also give you a breakdown of costs according to the individual items.
Your advisor is also required to provide you with an information sheet prior to entering into any trade in financial instruments. This provides information about the main factors of the respective financial instrument and contains, among other things, information on the type and functionality as well as the risks and costs. In the case of so-called packaged investment products, such as certificates and structured bonds, one speaks of a basic information sheet and, in the case of investment funds, of key investor information.
Which products can the investment advisor recommend to you?
Your advisor may only recommend financial instruments that are suitable for you. The recommended deal must meet your investment objectives, the investment risks must be manageable, and you must be able to understand the risks with your knowledge and experience.
What is the purpose of a declaration of suitability?
Every time you receive investment advice, you must be given a declaration of the suitability of the recommendations - for example, printed out or electronically.
This suitability declaration is intended to enable you to understand the reasons for the recommendation before concluding the contract so that you can make an informed investment decision. In this way, you can immediately identify and address discrepancies in your information. Even after some time and during follow-up advice, you can still refer to the documentation and the reasons for recommendation given therein. The declaration of suitability also provides BaFin with important information on whether the requirements for investment advice are being met.
You must also be provided with a declaration of suitability if you use the advice several times or at regular intervals or if you do not buy a financial instrument after the advice.
The contract for the recommended transaction may generally only be concluded after you have received the declaration of suitability. Exceptions only apply if the advice is given by telephone, for example, and you insist that the contract be concluded immediately. Then the consultant may provide you with the suitability declaration even after the contract has been concluded.
What other records are there?
If you give your advisor an order after the consultation, the time and place of the meeting, those present, the initiator of the conversation and information about the order itself (such as price, scope and type of order) must be documented. You can request that this documentation be given to you. Companies can combine this information with the suitability statement.
If advice is given or an order is placed by telephone or electronically, the company records the content (taping). They must inform you of this in advance. You can object to the recording, but then the company is not allowed to provide the service in this way. In principle, the company must keep the records for five years. You can request a copy of the recording at any time.
Remember: your participation is essential! Check carefully that the documents are correct. Above all, you should read carefully the information about your personal situation, i.e. your investment goals, financial knowledge and experience as well as your economic situation. Make sure you also check whether the advisor has made the right balance between higher earnings opportunities and the safety of an investment.
What can BaFin do for you?
If you feel bad advice from your advisor when buying financial instruments, write to us. If we have any indications that a complaint could be well founded, we contact the institute concerned and follow up. Your information helps us to uncover violations of supervisory regulations and to take action against them.
Please note, however: We can only examine your complaint if the company is subject to our supervision. BaFin is also unable to make binding decisions on individual disputes. Clarifying the facts and evaluating evidence in civil proceedings is the task of the courts. Only they can bindingly clarify disputed facts and legal views and oblige the company to make a payment.
You can also contact the ombudsmen of the banking associations. You can find out whether your bank participates in the ombudsman procedure on the websites of the associations or in the BaFin company database. If no private, recognized consumer arbitration board is responsible, you can also contact the arbitration board at BaFin.
What is to be made of recommendations and sample portfolios in stock market letters, via telephone hotlines, etc.?
Stock market letters reflect the opinion of their author. How the author came to his assessment should be clear from the stock market letter. The assessment should also be substantiated with facts so that you can understand them. If there is a lack of such facts and if the author only gives an unfounded, often extremely positive opinion, you should be extremely cautious.
Under no circumstances should you blindly follow recommendations and sample portfolios, from whomever. Don't let yourself be put under time pressure ("Buy quickly, otherwise the chance is over"). The basic rule is: do not buy something that you do not understand! Make sure you get an idea of the recommended securities for yourself. If you can't find reasonable information, keep your hands off the stocks. The shares of small, barely traded companies are often recommended in stock market letters. The market prices of these stocks can change rapidly. This usually only takes a few buy or sell orders. If, for example, a "herd effect" arises due to a recommendation in a stock market letter, that is, when many investors buy at the same time, the price can quickly soar to dizzying heights, only to collapse again a few days later. Many investors have already lost their money this way.
Last but not least: There is nothing for free on the securities markets. Where (apparently) high and fast profits beckon, there is always a correspondingly high risk - up to and including the total loss of your invested capital.
When is "wrong advice" available?
This question arises regularly when the securities recommended by an investment advisor have not performed as expected or even losses have been incurred. Whether there is "wrong advice" depends on the individual case. The decisive factor for assessing an investment recommendation is whether it was suitable at the time it was made. There is no “wrong advice” if, on the basis of new findings, it turns out afterwards that an investment recommendation would have been better not given or otherwise. The mere retrospective finding that it would have been better to invest in another equity fund or in individual stocks does not suggest that the investment recommendation made at the time was unsuitable.
Does the questionnaire about my knowledge and experience, my financial situation and my investment goals have to be signed by me?
No, the questionnaire does not have to be signed by the customer. It serves the banks as a basis for subsequent investment advice and as proof to BaFin that all information required by law has been obtained.
The information is intended to enable the company to inform customers about the risks associated with the investment and to recommend a suitable service or a suitable financial instrument.
A signature of the information by the customer is not required by law. The practice at banks and savings banks is different. Some institutes have the documentation signed by the customer and give him a copy. Others don't.
Can BaFin advise me on my investment decision?
No, BaFin is not allowed to advise you on your investment decisions. As a consumer, you are responsible for your investment decision. Therefore, find out what information must be made available to you about the various investment products. Check that you have received everything. Read carefully and ask until you understand everything. Before you subscribe to an investment, for example, you should carefully read the information sheet and, if applicable, the prospectus in full and make sure that you understand the business model. Statements in advertising flyers, brief brochures or presentations should be scrutinized and compared with the prospectus. Remember that only as a well-informed investor will you be able to weigh the availability, risk and return of an investment product and make an informed decision.
Which asset manager can BaFin recommend?
Due to the public administration's requirement of neutrality, it is not possible for us to make such recommendations. Since there must always be a special relationship of trust with an asset manager, it is advisable to hold discussions with several providers before concluding a management contract and to compare the costs and the services offered.
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