With a Germany-wide test campaign, BaFin checked the investment advice provided by banks and savings banks. Result: There is a significant lack of legally required information.
The financial supervisory authority BaFin sees a need for improvement in advising private investors. Banks and savings banks were covertly tested for their investment advice on behalf of the authority.
According to the head of the consumer protection department and consumer protection officer at BaFin, Christian Bock, the deficits are particularly noticeable in the legally required information. On the other hand, positive results were obtained when querying customer-specific sustainability preferences. “But the result isn’t perfect here either,” said Bock.
“Mystery shopping” in investment advice
In the third quarter of 2022, BaFin launched a so-called “mystery shopping” campaign. Specially trained test buyers made a total of 100 test purchases in 16 banks and savings banks throughout Germany. The mystery shoppers pretended to be consumers who wanted advice on financial products. The focus of the campaign was to check whether the banks were complying with the legal requirements when providing investment advice.
Investors must be provided with certain mandatory information materials following the advice. Since 2018, institutions have been obliged to explain the expected costs for the selected financial product to their private customers (so-called ex-ante cost information). Furthermore, the customer must have a suitability declaration. This declaration must state why the recommendation of a specific financial product suits the customer.
Test action returns mixed results
In the test campaign by the financial supervisory authority, the test buyers had not received a suitability declaration in 40 percent of the cases. In as many as 67 percent there was no written cost information. However, there is no right of withdrawal for the sale of securities; therefore the test sellers could not enter into a purchase contract. “So we cannot completely rule out that the missing mandatory information would still have been handed over if the consultation had ended with an order being placed,” explained Bock.
Since the summer of last year, financial institutions have also been obliged to ask their customers about their sustainability preferences. At least 87 percent of the banks complied with this obligation in the most recent test campaign.
BaFin will continue to rely on test purchases in the future
With regard to the test results, the institutions concerned had shown themselves to be cooperative and constructive, reported Bock. They wanted to sensitize their advisors to always pass on the information required by law to their customers. The financial regulator plans to monitor the implementation of the measures.
A test campaign by BaFin was already running in the summer of 2021, in which the banks did significantly better. With 36 tests at twelve institutes, however, the pilot campaign was significantly smaller. At that time, the test buyers had received no cost information in 19 percent of the cases and no declaration of suitability in 22 percent.
According to Bock, the financial supervisory authority plans to carry out further test purchases in the future: “Mystery shopping has now become a tried and tested supervisory tool for us.”