Financial Advice: How to Spot and Protect Yourself from the Tricks Used by Bank and Insurer Sellers

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If only I hadn't...

many financial products don't exactly generate high returns, but they are expensive

Photo: Violeta Stoimenova / Getty Images

manager magazin:

Hartmut Walz:

No, we don't think so at all.

Why do you think that?

Well, commission-based financial sales have been under criticism for a long time.

Inflation is rising rapidly, real incomes are falling, the propensity to save is declining, the stock markets are extremely nervous and we will probably not see the high returns of the past for a long time.

You might lose interest in reading and investing, right?

That is why the book comes at the right time.

Should the gloomy forecasts of poorer returns come true, efficient and, above all, inexpensive forms of investment will be all the more important.

In the future, citizens will hardly be able to afford to have their hoped-for returns reduced by bad products and self-interested sales.

Our book can therefore help readers to help themselves and better represent their own interests in sales talks about financial investments and insurance products.

The average financial benefit should be in the range of several tens of thousands of euros.

A full-bodied promise that you are making here.

We are looking forward to seeing the happy customers that you will then present to us.

If one follows a thesis of the book, advice in the customer's interest and commission-based financial sales are basically mutually exclusive.

That's why you don't call savings bank or bank advisors and insurance brokers that, but rather "financial product salespeople" who have to meet "tough sales requirements" - mostly at the expense of the customer.

You often hear the narrative, what are your sources

?

This isn't just a narrative - it's undisputed and supported by many sources that almost all financial services firms have hard-hitting sales targets.

Individual dropouts from the scene, for example, have published their experiences in books.

For me, however, even more authentic are the many personal testimonials from my working students who work in the financial sector and hope to qualify with a bachelor's or master's degree in private customer sales.

What are the sales specifications, how is pressure built up?

Quite simple specifications are usual - for example the volume to be sold or a certain number of contracts as part of sales campaigns such as "building savings weeks".

Somewhat more sublime are specifications that require certain volumes of commission or product contribution margins based on the volumes invested by customers.

For example, "customer advisors" report that they have to achieve annual gross earnings of one and a half to two percent on the customer volume they look after in order to avoid sanctions such as additional "motivational training".

And it gets really psychologically nasty when the losers of sales competitions then have to cook and serve the winners at their victory celebrations...

A ban on commissions in financial and insurance sales could not win a majority in the traffic light coalition.

The Netherlands, Great Britain and Australia have a strict ban on commissions.

In Denmark and Finland, too, most intermediaries are no longer allowed to accept commissions from product providers.

There, the customers pay the consultants directly.

Has the tide really turned for the better there with fee-based advice for customers?

Depending on their interests, observers assess the development after the introduction of the commission ban differently - which is hardly surprising.

The saying goes: "If you want to drain a swamp, don't ask the frogs."

As a result, after the ban on commission, there will probably be less, but much more qualified advice.

Overall, the costs of financial sales, which have to be financed by the customer, are falling considerably.

And the possibilities of digital information and advice are being used more, which also brings efficiency advantages.

from bad contracts to other bad contracts

then that is only positive from a macroeconomic point of view.

As you can see, I feel that the advantages of the commission ban are considerably greater than the disadvantages.

Instead of a ban on commissions, the discussion about limiting commissions, at least for life insurance and fund policies, is now reviving.

The Financial Supervisory Authority intends to make a final statement on this later this year.

Would you support a commission cap - as the lowest common denominator?

At what level should he limit the commission then?

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Bosetti, Ulrich, Walz, Hartmut

Advising instead of betraying: This is how you confidently fend off manipulations in financial advice

Publisher: Frankfurter Allgemeine Buch

Number of pages: 256

Publisher: Frankfurter Allgemeine Buch

Number of pages: 256

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A general answer to this question is very difficult.

First of all, we should consider that every answer already represents thinking "in the box", i.e. within the set thinking framework.

The refreshingly simple alternative "out of the box" would be to separate the two needs "insurance" and "saving" and, for example, to carry out all capital-forming savings processes for old-age provision consistently outside of the cost-intensive product world of the insurance industry.

If we stay within the set framework, we propose a mixed model: Because with a flat-rate amount in euros - regardless of the contract volume - savers and pensioners with high contract volumes would benefit, with a percentage value in relation to the investment or sum insured it would be the other way around.

Is there a compromise for such a mixed model?

Such a compromise appears to be a viable option.

So a fixed amount per contract to cover the inevitable costs regardless of the volume plus an amount dependent on the volume of the contract.

These are two cost components – it shouldn't be more complicated, but it shouldn't be simpler either, in order to avoid false incentives.

Unfortunately, the "Riester pension" example shows that there can be a world of difference between well-intentioned and well-done, and that the politically desired promotion of saving small amounts simply cannot be worthwhile due to the high fees and costs.

Fee advice, write, empower consumers and prevent conflicts of interest.

According to your understanding, the "honorary financial investment adviser", the "insurance adviser" - each with approval according to the trade regulations - and the "independent fee-based investment adviser" according to the Securities Trading Act qualify as "real" advisers - there are only a few hundred of these advisers in Germany.

There would have to be many more if the Germans really appreciated this advice.

Not the case.

Why?

Walz:

You're absolutely right, the consultants you mentioned, who represent customer interests, have a market share of just around one percent.

Superficially, the reason given is that the hourly rates charged by fee-based consultants are too high.

However, this is a deception and has a lot to do with a lack of transparency.

You have to explain that.

While the customer sees the consulting costs immediately and directly in the case of fee-based consulting, these can still be very well hidden in the world of commissions.

The fee to be paid is in euros and scares away many customers.

From the point of view of experts, the extremely high effective cost ratio of a commission-financed fund policy, for example 3 percent per year, seems completely harmless to inexperienced customers.

However, it leads to a much higher cost burden in euros, which is three to four times greater.

However, customers do not perceive these costs at the time of conclusion.

And if they then notice it ten to fifteen years later, a lot of money has already been lost and good advice is expensive.

However, sales are fine after five years at the latest, since the cancellation liability has then expired.

In short:

What makes a good fee consultant?

By far the most important thing is that the result of the consultation can also be that the customer does nothing, i.e. does

conclude a contract.

And that existing contracts that are not good are only canceled because the sales department wants to sign a new contract and needs the monthly savings from the old contract.

The real advisor brings additional added value by consistently showing the customer the products that meet their needs and are also the most cost-effective when there is a real need, which they would not have found on their own.

And finally, a good advisor is worth his money if he helps the customer to avoid the typical investment psychology mistakes between fear and greed as well as the eternal "procrastination".

"Even fee-based consultants are not angels," she says in her book.

Individual fee forms – you name seven alone – also offer potential for false incentives and even abuse.

Presumably, conflicts rarely reach the public here.

How often does this happen?

If conflicts with fee-based consultants come to the public less often, this is certainly also due to the fact that the market share of fee-based advice is still very small.

Nevertheless, we know of some negative cases.

When there were?

Walz: For example, when fee-based consultants turn a small customer problem into a big one and persuade customers to commission a complex, comprehensive financial plan that they may not need in the specific case.

And if this advice is then provided with a high flat fee, it quickly becomes dubious.

As consumers, we have more experience with the fact that craftsmen or service providers prefer to sell us something larger.

We don't have a new engine installed in the car just because a spark plug is defective.

Which form of fee in financial advice should a customer avoid - such as the contingency fee, because the advisor might then advise taking higher risks?

Yes, the contingency fee has exactly the problem you mentioned.

Anyone who wants a success fee from me should reimburse me for part of the damage even if I fail.

Everything else is a false incentive.

Anyone who does not pay a fee for financial advice may turn to an intermediary.

You and co-author Bosetti see several dangers here that make it difficult to make a rational decision in a conversation - overconfidence, for example.

Why is this dangerous?

How do I become aware of this?

Overconfidence is indeed a trap.

Because just when we have dealt a little with the tricks of the sales process, we might think that we are immune to manipulation.

And the easier it is for us to fall into the next trap that we just haven't considered.

It is not the objectively best driver who causes the fewest accidents, but those who assess their driving skills most realistically.

In this respect, it is an effective trick when salespeople praise our specialist knowledge and our prudence.

And we're caught in the overconfidence trap.

No less problematic are factors that affect us unconsciously and influence our decisions.

What are we most unconsciously influenced by when it comes to financial decisions?

The two feelings "sympathy" and "feeling committed" have an enormous influence.

If we find a seller likeable, we tend to follow their recommendations to a large extent and like to switch off critical considerations and questioning.

We should be very careful when we find someone particularly likeable.

In turn, the subliminal feeling of being indebted to the other, for example because he has made an effort for us, also guides our decision in an unconscious way.

For example, if the intermediary tells us that he has worked intensively for several hours on our needs analysis or financial planning, it is particularly difficult for us to refuse his later expressed request for a signature.

You devote a lot of space in your book to the aim of describing the sales rhetoric and psychological tricks of the "financial product sellers".

As a reader, one cannot help but wonder whether the man or woman behind the bank counter really receives such detailed training in manipulation techniques.

A clear yes, unfortunately!

During my apprenticeship at a "good savings bank" I myself had a number of training courses on sales rhetoric.

We practiced the "Yes Street" again and again.

And I will not forget the training with the "residual stimulus effect": The customer comes with a clear wish - for example he wants to collect his account statements.

We largely fulfilled the wish - that is, we took the pull-outs out of the large drawer and held them in our hands.

But before we handed over the excerpts, we said our little saying about the special premium savings contract or the fund campaign week with a discounted front-end load.

And woe betide, you didn't wind down this process smoothly.

I know from my students who work in the financial services industry that the scope and intensity of this behavioral training has increased over time - often with the inclusion of the findings of NLP, the so-called neuro-linguistic programming.

This is standard in many financial services companies.

It all starts with the first impression, the first meeting - right there, they claim, the manipulation begins.

How do I notice that at this stage?

How do I protect myself from this?

The manipulation does not necessarily have to begin with the first contact, but this often happens.

While customers may concentrate in the actual closing phase, they expect more of a warm-up and non-binding small talk in the greeting phase.

However, it is precisely in this phase that experienced salespeople set the rules of the game – i.e. the rails that the train will later travel on by itself.

The protection consists in being clear as a customer about the possible conflicts of interest and attempts to influence them from the very first moment.

And to actively lay the groundwork yourself, i.e. to propose rules.

Just one of many examples:

What is the plausibility trap in the sales pitch, and why do we fall into it so quickly?

Quite simply because we have experienced that plausibility often leads to the right decisions.

The big stone is usually really heavier than the small one and the big villa costs more than the small wooden house.

However, the plausibility trap can be used in the sales pitch to persuade customers to make unfavorable deals.

Too expensive, too large volumes, too long running times and unsuitable combination products.

So customers should always try to check the apparently obvious plausibility in the sales pitch.

An important phrase is: "What sounds plausible is far from true."

Especially not if the plausibility was explained by a seller.

You briefly mentioned the term earlier: the "Yes Street".

What is the purpose of this, what are the consequences?

The Yes Street is a classic that has been known for many years and was also explained to me during my banking apprenticeship.

The background is that after a series of identical answers or partial decisions, we say the same word or walk in the same direction when it comes to the ultimately central decision.

After a series of five or six "no answers" that would work as well.

Only the intermediary would prefer a "yes" to the question about the signature than a "no".

Try it out for yourself in your environment: simply ask the person you are talking to to say the color "white" out loud ten times in a row.

After that, ask the question: "What is the cow drinking?".

The answer will be "milk" nine times out of ten,

although the correct answer would be "water".

Rest assured, in the end everyone is laughing: Because they recognized the manipulation.

Inflation, negative interest rates, bitcoin, a crash – terms from the financial world conveyed by the media can also trigger ideas and even emotions in people.

How do sellers of financial products use these trigger words - and - how do I arm myself against them?

Trigger words work as reliably as the hamstring reflex.

When the doctor taps you with a small rubber mallet directly under your kneecap, your lower leg involuntarily springs forward.

Words such as "tax savings", "guarantee", "safe", "financial freedom", "doubling of assets", but also "total loss", "poverty in old age" or "no one cares about your money" trigger knee-jerk decisions in almost everyone .

There are fear triggers as well as greed triggers - I think the assignment of the above examples is easy for all readers.

Your book addresses numerous other manipulation techniques.

The fact that "even fee-based consultants are not angels" does not make dealing with the topic and complex products any easier.

Even interested investors and policyholders could feel a certain powerlessness.

A few encouraging words at the end?

Oh – this assessment of yours hits me very hard right now.

Because the book is supposed to trigger a spirit of optimism rather than feelings of powerlessness.

Unfortunately, in current financial sales, citizens are often betrayed instead of advised - that's unfortunately a fact.

Nevertheless: danger recognized – danger averted!

Mr. Bosetti and I are convinced that most customers can save a lot of money simply by expressing their interests more clearly in discussions with financial product sellers - so that they act more cautiously and more strongly in the interests of the customer.

I didn't say the book left me swooning.

But maybe try a few recommendations or three "golden rules" for practice?

Walz:

Firstly: Trust in yourself more often than before, get information from really reputable (!) sources and become a responsible decision-maker in many financial matters, who at best does not need any personal advice at all.

For all questions in which you do not need personal advice, there is no risk of manipulation of this advice.

Second: avoid complexity!

Ultimately, complexity always benefits the financial services industry and intermediaries, not you.

The most common drivers of complexity, for example, are alleged tax benefits.

In most cases, however, many customers "buy" small tax advantages with high costs and sometimes unreasonable losses in flexibility.

The balance from the customer's point of view is mostly negative.

Thirdly: No one is so well informed and competent that good advice from a third party would not be of any additional use to them in the event of specific problems.

When you seek professional advice, it should really be in your interest and not in the interest of the financial services provider - i.e. purchase-oriented rather than sales-oriented.

If you can implement these considerations for yourself, then nothing stands in the way of an optimistic attitude.