Bad review

The German magazine Finanztest recently carried out a study of financial advice offered by 21 large banks, savings institutes, and credit unions - and the results were less than impressive.

"We were surprised. We thought there would be some good examples and some bad examples - instead, we got no good example at all," Finanztest Editor-in-Chief Hermann-Josef Tenhagen told Deutsche Welle.

The test included some of the biggest names in the German banking world, including Deutsche Bank, Commerzbank, City Bank, Sparda Bank and Sparkasse.

Not one bank earned a grade of "good" or "very good". Only three institutes received a grade of "satisfactory", and the majority - 16 banks - got a mere "pass". Two were deemed "poor".

"It's a disgrace," said Stephan Kuehnlenz, an expert at the Foundation for Financial Services in Berlin, on Tuesday.

According to the study, most consultants do not fully assess the current financial situation of their clients, nor do they adequately inform about potential financial risk.

"Mystery" consultation

The results are based on the analysis of 147 consultations between "testers" posing as clients and consultants at 21 German banks. In every meeting, bankers were told their client had 30,000 euros they wanted to invest and keep secure for the next five years at a return rate of four percent per year.

"Given the current German financial market, that was not possible," said Tenhagen. "So the bank would have had to explain: either you take a certain risk - then 4 percent or more is probably possible - or if you don't want to take any risk, you'll end up with a rate of return below four percent."

But the banks didn't respond as expected, according to Tenhagen. Instead, the study revealed banks recommended their riskiest products - such as certificates, real estate or equity - or offered low-risk products that yielded low interest rates but attracted high commission fees. And most did so without sufficient knowledge of their client's background.

"The thing is: banks are not paid for consulting...so consulting their customers is not a top priority," said Tenhagen. "Actually, there's a legal obligation - if you have a new customer and he asks you for a consultation on money he or she would like to invest - you have to ask that customer about his income, about other assets, about his job, etc... The idea is you can only consult properly if you know your customer."

In response to the study, the Association of German Banks said banks and savings institutions placed great value on good investment advice and were taking the report published by Finanztest "very seriously".

Author: Vanessa Johnston
Editor: Sam Edmonds