How can I investigate a financial advisor

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Initiative for common guidelines / honorary advisor congress in March 2016

By Eric Czotscher

The sole remuneration of the advisor by the client eliminates a crucial conflict of interest in financial advice. For the customer, fee-based advice is not yet a guarantee of excellent advice. With selected “commission consultants” he would possibly get better advice than with any other fee-based consultant. In addition to the neutral remuneration model, the quality of the content must also be added. But what determines the quality of financial advice, and how can this quality be ensured and made visible to a customer seeking advice?

Survey among practitioners and experts

In order to determine criteria for the quality of advice, the editorial team of “Der Honorarberater” carried out a survey among financial advisors, consumer advocates and service providers. The basis for this is a working paper drawn up by the editorial team: “Guidelines for more quality in financial advice”. It includes a preamble with desirable quality objectives and six guidelines. All respondents were able to submit suggestions for improvement and comments. These have already been taken into account in the current draft. Selected comments and remarks by the experts questioned can be found here in this post.
As a reader, you can also take part in the discussion about the quality of advice (see info box). On the “11. Honorary Advisor Congress ”on March 3, 2016, the results will finally be presented to a broader public. In order to limit misunderstandings and possibilities for interpretation, the text of the guidelines is relatively extensive. A short version is planned.

Lowest common denominator

The aim is to find the lowest common denominator in order to get the different groups in independent financial advice around one table. Many groups in financial advisory have already developed their own guidelines and codes. As far as possible, these were taken into account in our guidelines. Since fee-based advice is a "delicate little plant", unity and a certain boost are necessary to make this new form of independent financial advice better known. However, quality criteria also help to strengthen customers' trust in independent financial advice as a whole.

Mixed models included

In addition to fee-based advice, the guidelines also cover mixed models in order to increase the number of users. In the opinion of the editors, this will better reflect the reality of financial advice. The numbers for officially registered “fee consultants”, ie fee (financial) investment consultants and insurance consultants, are still very low. Most fee consultants work with approvals that also allow commission payments and mixed models. For many consultants who are still commission-dependent, mixed models are an interesting way of making their way into fee-based advice.
The aim is to provide financial advice that is product-independent and as free as possible from conflicts of interest, and that puts the client's interests first. But the way there is not uniform. Fee-based advice, as a term that is not legally protected, also has many facets. It ranges from expense-related remuneration models and flat rates to volume-dependent prices to contract-related fee brokerage, which is very close to commission advice. The proposed guidelines are also intended to provide a decision-making aid in the interests of the customer and the consultant - in the direction of more sustainable business models.

Your chance: Politicians leave the definition of standards to the industry

Perhaps the quality criteria of these guidelines will also lead to a seal of quality or the establishment of an interest group of independent financial advisors. Such an interest group would advocate that its members actually implement the quality criteria.
Incidentally, the suggestion for developing such standards came from State Secretary Gerd Billen from the Federal Ministry of Justice and Consumer Protection (BMJV), who in an interview with “Der Honorarberater” asked the industry to develop its own quality standards instead of expecting corresponding specifications from the legislature .
The industry had expected such specifications based on the coalition agreement of the federal government. Because there it says: “We will promote the introduction of fee-based advice as an alternative to advice on a commission basis for all financial products and set high standards for the quality of the advice. The professional titles and training standards of fee-based consultants will be further developed. ”However, the previous regulations for fee-based advice only build on existing specifications (for example, in the case of fee-based financial investment advisors, the proficiency test for financial investment brokers) and hardly go beyond them.

What is quality?

But what is the quality of financial advice? It is about reliable and transparent advice that helps the customer to clarify his goals and shows the best ways to achieve them. If you want to reduce it to two points, it is about holistic financial planning as well as a customer-oriented selection of financial products, if products are necessary to achieve the goal. Selection criteria are return, risks, flexibility, costs and transparency. The Federation of German Consumer Organizations (vzbv) uses these criteria to check the suitability of financial products. The training of the consultant, his communication skills and the avoidance of conflicts of interest are three determinants of the quality of advice. Or as Gerd Billen put it in his interview with “Der Honorarberater”: “The consultant must be able to understand the life and financial situation of his customers. He must bring customer expectations to a realistic level and should also examine their financial behavior. He also has to know the product properties. This should be covered by the proficiency test. ”It is questionable whether this proficiency test is sufficient. The "guidelines for more quality in financial advice" are intended to form the basis for better, new financial advice.

The use of standardized investment products such as easyfolio also contributes to the quality of financial advice when the advisor adapts the standard solutions to the individual needs of his customers.

This article was published in the current issue of “Der Honorarberater”.

Register for the 2016 Honorary Advisor Congress via easyfolio and buy your ticket at the special price of € 59.00 (€ 20 discount). To do this, enter the registration code “HBK16easyfolio” under the "Guest of Honor invitation" option.

The Honorary Advisor Congress - the leading event for independent financial advice in Germany, will take place on March 3, 2016 in the Congress Park Hanau and is aimed at independent brokers, asset managers, financial and insurance advisors, bankers, CFPs and all those who want to advise openly and fairly . The 2016 event is aimed primarily at the Quality of financial advice as well as the practical implementation and optimization of fee-based consulting models. for registration

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