Why the wrong advice can be expensive

Bad advice on money issues.

Financial advisors can be held liable for damages if they make mistakes.

(Photo: dpa)

Munich False information can cost a financial advisor dearly. Even if you only advised your clients verbally and didn’t even provide the information in writing. This was the experience of an insurance broker who checked with a candidate for civil service whether he could insure himself with private health insurance despite a previous illness.

He informed the interested party of the negative result of his investigation, who was then insured in the compulsory health insurance, which was more expensive for him. The broker had overlooked an opening campaign by the private health insurer. The officer candidate sued the broker for damages. He thought he was on the safe side because he had given the information without a written brokerage agreement. However, the Dresden Higher Regional Court ruled in favor of the applicant in its judgment of March 10, 2021 (file number: 4 U 2372/20). According to the judges, a brokerage contract does not necessarily have to be in writing.

Insurance and finance professionals are not immune to mistakes. Financial loss liability (VSH) insurance protects you from financial consequences. However, the offer is not great, says Stephan Schmidt, managing director of the VCU24 broker in Niddatal, which specializes in professional liability insurance: “The selection of companies for the area is small. We use Allcura, Allianz, Axa, HDI, Ergo and R+V”.

If there are cases of liability in financial advice, it is often due to incorrectly completed or submitted applications by the adviser. According to Schmidt, the damage also includes an underdetermined sum insured, incorrect risk descriptions, and perils that were not flagged. Those starting their careers in financial consulting are overwhelmed by their own responsibility for financial losses.

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“Typical complaints from financial advisors are usually due to insufficient advice or information from their clients,” says Gesa Fritz, spokesperson for R+V Versicherung. Typical harm occurs when the advice is not suitable for the investment. “For example, when a financial adviser recommends a high-risk investment, even though the client wants a safer investment.” Liability insurance is also claimed due to incorrect information. This is the case if, for example, there is no indication of a risk of total loss.

coverage obligation

For brokers, the prerequisite for registering a company is that, in addition to their experience, they also have a VSH. Only then can the broker on his own account contract or advise on insurance (Article 34 d of the Industrial Code – GewO) or financial investments (Article 34 d of the GewO).

>> Read here: Your investment advisor will soon have to ask you these questions, and you will probably get very upset about it.

Therefore, clients should be able to assume that registered consultants or brokers have professional liability insurance. The legislator has decided to make insurance mandatory so that clients who have suffered damage can also be compensated for their damage if it exceeds the estate of the agent or consultant. There is also professional liability insurance for doctors, architects, lawyers or tax advisers because it is required by law or by your professional association.

Customers who want to check whether a broker is registered can find this out in the broker register of the German Chamber of Industry and Commerce (DIHK). Anyone registered there must also have property damage liability insurance. Insurers may terminate the broker’s or consultant’s policy. “It is extremely rare for insurers to divest policyholders in this area due to a high loss ratio,” says VSH expert Schmidt. However, due to a cyberattack, the registry will not be publicly visible again until January 1, 2023 at www.vermittlerregister.info.

Many intermediaries have not adjusted their policies to the new needs since they registered. “As the saying goes, shoemakers wear the worst shoes. To prevent something similar from happening in our industry, we have developed a checklist on the subject of property damage liability insurance,” says the Federal Association of Financial Services AfW. “We recommend checking your own insurance coverage regularly or doing have it reviewed by competent specialists,” advises Norman Wirth, the association’s executive director.

After taking out insurance or selling a financial product, laws, employees, or activities may have changed. After all, the industry has changed a lot. While some consultants have specialized, others have expanded their range. Needs-based protection benefits all intermediaries and their clients.

More: Financial advisors seek buyers for their client base


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