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How Banks Need To Educate About Commissions And Rebates

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A house bank has comprehensive disclosure obligations about reimbursements that it receives from a fund provider. It has to provide much more comprehensive information than a freelance investment advisor. A bank received 5,760 dollars in reimbursement for brokering a stake in a film fund. The plaintiff accused the bank of having clarified too much and above all not about it.

Investor accuses bank of wrong advice and demands reversal

The investor asked the defendant bank to reverse the stake in the amount of 80,000 dollars. The defendant bank advised him wrongly in the context of the advisory contract and in particular not cleared up about essential circumstances such as the reimbursement.

Consultation contract concluded tacitly

  • The subscription of the fund was preceded by two consultations between the plaintiff and the bank’s client advisor.
  • According to the court, a consultancy contract was tacitly concluded through the consultations. The bank violated its obligations under this investment advisory agreement for the following reasons:
  • it has not informed the plaintiff that it will receive a commission of 7.2% of the limited partnership capital subscribed by the plaintiff from the fund company named in the fund prospectus for the successful recommendation of the fund
  • a bank must inform an investor about rebates, so-called kickbacks, without being asked and, in principle, regardless of the amount, during a consultation.
  • Contrary to the view of the bank, there is also no obligation to provide information about reimbursements because the bank is the plaintiff’s house bank and the bank was the lender for the debt-financed part of the capital.

Bank has higher disclosure obligations than a freelance investment advisor and the court pointed out that there was a serious difference between a bank and a freelance investment advisor. Because for a customer who does not pay a commission to the independent consultant himself, it is obvious that he receives a commission from the fund and thus, from an economic point of view, from the investment amount.

What a customer can expect from their bank:

  • a neutral consulting service
  • that a bank provides the service for third-party products within the framework of the already existing customer relationship or upon initial contact as an acquisition free of charge or
  • that the bank expresses its interest in receiving a commission promised by the fund

Conclusion: The bank has to reimburse the investor for the remaining part of his equity step by step.

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