Commission-based vs. fee-only adviser

The two fundamentally different models of financial advice compared (Germany).

Commission-based adviser (financial adviser, bank adviser, insurance broker):

• Direct costs: €0 (you pay nothing for the advice)
• Hidden costs: commissions built into the recommended products
• Typical: 5% front-end load on funds (with €50,000 = €2,500!)
• Ongoing trail commission: 0.3–0.8% per year
• Acquisition commissions on insurance: often 1 year's premium

Fee-based adviser (Honorarberater):

• Costs: €150–250 per hour (open and transparent)
• Typical initial consultation: 3–5 hours = €450–1,250
• No commissions at all: only recommends what's best for YOU
• Full market access: all products on the market available

Cost comparison (€50,000 in funds, 20 years):

• Commission-based adviser: €2,500 front-end load + ~€4,000 ongoing commissions = ~€6,500
• Fee-based adviser: €800 one-off + a cheap ETF instead of expensive funds = ~€800
• Savings: ~€5,700 – and that's WITHOUT the better return of the cheaper products

Conflict of interest:

• Commission-based adviser: earns MORE if you buy a MORE EXPENSIVE product
• Hence: active funds (1.5% TER + 5% load) instead of ETFs (0.2% TER, no load)
• Fee-based adviser: gets the same fee regardless of the product

Where can you find fee-based advisers?

• VDH: Verbund Deutscher Honorarberater (vdh24.de)
• BVVB: Bundesverband der Vermögensberater
• Quirin Privatbank: fee-based bank advice
• In Germany there are only approx. 200 licensed fee-based investment advisers (vs. ~200,000 commission-based advisers!)