Things You Should Keep in Mind When Buying Insurance or Financial Products
When buying insurance or investment products, it’s important to look beyond the sales pitch.
According to a recent campaign by Bafin, many advisors offer
- poor advice,
- fail to share all costs transparently, and
- the contract documentation is typically lengthy (200 to 400 pages) and confusing.
Here's what you should watch for to make informed decisions.
1. Understand All Costs Before You Decide
Always ask for a clear breakdown of all fees and charges. Many products come with high and often hidden costs that can significantly reduce your returns.
For example, some investment products charge up to 3.29% annually, while low-cost alternatives like ETFs typically cost between 0.1% and 0.5%.
These hidden costs can be very expensive in the long run.
So, don't rely solely on expected returns presented by the advisor. Ask for net returns after fees.
NOTE: You have the right to receive full cost information.
2. Make Sure the Advisor Understands Your Needs
Before recommending any product, the advisor is required to ask about your
- financial situation,
- investment goals,
- risk tolerance,
- experience, and
- preferences.
If the advisor doesn't discuss these topics, it’s a warning sign, and you should look for another advisor.
3. Don't Accept Products That Don’t Fit Your Profile
Advisors may only recommend products that are appropriate for your personal circumstances. Ask how the recommended product matches your goals and risk profile.
If the advisor cannot explain it clearly or hasn't documented it, the recommendation may not be suitable for you.
4. Always Request a Written Consultation Protocol
You are legally entitled to a written summary of the consultation. This document protects you in the event of any problems that may arise later.
Read it carefully and confirm that it accurately reflects the discussion. If it’s missing or inaccurate, follow up immediately.
At GermanPedia, we advise our readers to always obtain a written meeting protocol after a meeting with an insurance broker (Versicherungsmakler) or fee-based advisor (Versicherungsberater).
This protocol serves as your legal record of the advice provided. If in the future you find out that the broker offered unfavorable advice, you can sue them.
NOTE: Never get insurance advice from an insurance agent (Versicherungsvertreter). They are not liable for their advice.
You can check if someone is an insurance broker by checking their "Registrierungsnummer" on https://www.vermittlerregister.info/
Every insurance broker, advisor, and agent must mention their "Registrierungsnummer" on their website's "Impressum" page.
5. Review All Documents Before Signing Anything
Advisory and contract documents can be lengthy and challenging to navigate. However, you shouldn't sign the contract unless you receive all required documents upfront and understand their contents.
In Bafin's campaign, they found that documents were often confusing. Moreover, key documents, such as the product fact sheet and sustainability risk disclosures, were frequently missing.
6. Ask About Sustainability Preferences
When buying an investment product, the advisor must ask whether sustainability is important to you.
This is not optional.
If the topic is ignored, it signals that your preferences are not being properly considered.
Conclusion
Never feel pressured to decide on the spot. Ask questions until you’re confident, compare multiple offers, and don’t sign any agreement you don’t fully understand.
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