The German Connection

Key Takeaways

  • A small, but growing cadre of advisors in Germany is moving away from the commission-based compensation model in order to serve their clients better.
  • It’s rewarding to help talented advisors in other countries adopt our philosophy of putting the client’s best interest first and foremost, and accept the role of a fiduciary.
  • Thanks to the international exchange of ideas and best practices, clients on both sides of the Atlantic will benefit from our collaboration.

One of my career highlights has been working with colleagues in Germany to make the world a better place for investors. You see, the German financial services industry is still very much like the U.S. financial services industry was a quarter of a century ago. It’s heavily dominated by the traditional commission-based advice model–a model that creates a conflict of interest between the advisor and the client.

This conflict stems from the fact that the vast majority of German advisors are still paid commissions for each transaction their clients make, rather than earning a straight fee on assets under management. In that traditional model, the advisor is incentivized to encourage frequent trading by clients and to recommend high-cost financial products to them. That’s because doing so increases the advisor’s compensation—and their firm’s profits. It reduces the return of the client, however.

The good news is that a small cadre of fee-only advisors is emerging in Germany. It reminds me of the financial services landscape in the U.S. 25 years ago when we started Independence Advisors. It has been an honor to help my German colleagues transition to the fee-only advisor model that puts the client’s best interests first and foremost.

As part of this effort, I had the pleasure of making two presentations in Munich last week, at the invitation of Dimensional Fund Advisors. As part of those presentations, I shared the story of my personal evolution as an advisor over the past 33 years. I also talked about the evolution of the financial services industry in the United States. In one of the presentations, I shared specifics about our firm’s advice model and the tools we use to manage our practice. All free of charge.

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Of course, the sharing of ideas is not a one-way street. The German advisors I know are very smart and highly motivated. Those traits foster a wellspring of fresh ideas. The conversations and experiences that I have shared with my German colleagues motivate me to continue making improvements to Independence Advisors. And for that reason, both sides of the Atlantic benefit. In addition, my experiences in Germany have allowed me to develop highly valuable and rewarding friendships. Plus, the post-conference dinners in a Biergarten are hard to beat!

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Conclusion

I look forward to sharing ideas with my German colleagues for years to come. We all benefit from the experience. But, it is our respective clients that benefit most from this global perspective about doing the right thing for clients. For that reason alone, both German and American investors have a brighter financial future.

 

 

Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience.  Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.

About Chas Boinske

Charles P. Boinske, CFA, is a 30 year investment management veteran overseeing the strategic direction and portfolio management process for Independence Advisors, LLC. Have a question for Charles? CLICK HERE TO ASK CHARLES

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