Anyone who recommends an investment to investors must provide them with investor and property-specific advice. An overview of the most important obligations and the possible consequences of incorrect advice.
Whether planning for retirement, building wealth or investing an inheritance – many people rely on the recommendations of their bank or advisor when making financial decisions. If the investment develops differently than expected, the question arises as to whether the advice met the legal requirements.
Not every loss is due to an error in advice. The investor generally bears the economic risk of an investment. However, the prerequisite is that he has taken this risk on the basis of proper advice.
How a consulting contract comes about
The basis of the obligations is usually a consulting contract. This does not have to be concluded in writing. According to case law, it often comes about tacitly when an investor contacts a bank or an advisor about an investment decision - or vice versa - and a consultation is then started.
A distinction must be made between pure investment brokerage, in which the main requirement is to provide accurate information about the investment, and advice-free business, in which the customer places his order independently. The distinction can be difficult in individual cases, but is important for the scope of the obligations.
Advice suitable for the investor
The recommendation must fit the investor’s personality. The advisor must therefore first inquire about the relevant circumstances if they are not already known to him. These include in particular:
- Knowledge and experience with financial instruments
- the financial circumstances and the ability to bear losses
- the investment goals, such as security, income or retirement provision
- the willingness to take risks and the planned investment horizon
Anyone who clearly wants a secure investment for retirement provision should generally not be recommended a product with a significant risk of loss as suitable.
Property-specific advice
In addition, the advice must be appropriate to the investment property. The investor must be informed about the characteristics and risks that are important for his decision. This applies to general risks such as economic and market developments as well as the specific risks of the specific product, such as a possible risk of total loss, restricted tradability or long terms.
The information must be correct, complete and understandable. According to case law, a bank that includes a product in its advisory program must first examine it with the usual critical expertise. Simply handing over a brochure does not automatically replace oral information; What is crucial, among other things, is whether the investor had sufficient time to read the documents before making his decision.
Compensation, conflicts of interest and documentation
Investors should be able to assess whether a recommendation is made solely in their interests. According to case law, banks must therefore provide information about reimbursements that they receive for selling a product from a third party. The Securities Trading Act (WpHG) also contains requirements for dealing with donations and conflicts of interest as well as for disclosing costs.
From a regulatory perspective, investment services companies are also obliged to check the suitability of a recommendation in accordance with Sections 63 ff. of the WpHG. Private customers receive a declaration of suitability explaining how the recommendation was tailored to their goals and circumstances. For many products, a short information sheet must also be provided.
Consequences of incorrect advice
If the consultant culpably breaches his duties, a claim for damages in accordance with Section 280 of the German Civil Code (BGB) can be considered. The investor must then be placed in the position he would be in without the incorrect advice. This often results in the reversal of the investment: reimbursement of the capital invested against the transfer of the investment, whereby any distributions received must be taken into account.
In principle, the investor must explain and prove the advisory error. The statute of limitations should also be taken into account. According to Sections 195 and 199 of the German Civil Code (BGB), the regular limitation period is three years and begins at the end of the year in which the claim arose and the investor became aware of the relevant circumstances or should have become aware of them without gross negligence. Regardless of knowledge, such claims become statute-barred no later than ten years after they arise.
Conclusion
Investment advice is bound to clear legal standards: the recommendation must suit the investor, and the risks of the product must be presented accurately and understandably. Whether there is an error in advice in an individual case and whether it can be proven depends on the course of the conversation and the documents available. An examination should not be postponed unnecessarily because of the statute of limitations.
Frequently asked questions
No. Price losses alone do not constitute a claim, as the investment risk is generally borne by the investor. Liability requires that the advice was incorrect and that this error was the cause of the investment decision.
Usually yes. According to case law, a consulting contract can be concluded tacitly by starting a consultation about an investment. A written agreement is not required for this.
The regular limitation period of three years applies, which begins at the end of the year in which the investor became aware or should have become aware of the circumstances giving rise to the claim. Regardless of this, the statute of limitations occurs no later than ten years after the claim arises.
