The European Union plans to use the "Retail Investment Strategy" to motivate small investors to make more profitable investments. Independent counseling is to be promoted by banning commissions. A recent experiment by Fachhochschule Dortmund shows that German consumers prefer offers that include all costs.
The "retail investor strategy" is a planned European legal act that will amend existing directives. One of these is the Insurance Distribution Directive ("IDD"), which is important for the sale of life and pension insurance. The trialogue between the European institutions - the Commission, Parliament and Council - began this week, meaning that it is expected to be adopted in the first half of 2025.
Avoiding conflicts of interest through partial commission bans
Europe wants to avoid detrimental conflicts of interest in the counseling and brokering of capital-forming life and pension insurance policies. Insurance intermediaries who describe themselves as independent should not be allowed to accept commissions or other remuneration from insurance companies. They must be paid by the customer, which is known in Germany as fee-based advice.
Insurance brokers are considered independent in terms of their legal status, but usually receive commission for their work. In future, they will be required to inform their customers that they are "independent" and receive commission. EU member states will also be allowed to issue stricter national requirements.
"The planned changes affect the self-image of insurance brokers, who see themselves as independent of individual insurers and their offers despite commission payments," says Prof. Dr. Matthias Beenken, who teaches insurance economics at Fachhochschule Dortmund.
"In addition, fee-based advice has not yet been accepted to any significant extent in Germany," adds Prof. Dr. Lukas Linnenbrink, Endowed Professor of Insurance and Risk Management at Fachhochschule Dortmund.
There are currently only just over 300 insurance advisors in the register of insurance intermediaries who are only allowed to advise and broker for a fee. In comparison, there are a good 181,000 insurance intermediaries, including around 134,000 insurance agents who can only work for a commission. Around 47,000 insurance brokers can choose to work for a fee instead of commission.
Does a fee make the decision to retire easier?
The aim of a recent study by Fachhochschule Dortmund is to investigate whether outsourcing counseling and brokerage costs to a fee agreement makes the decision to take out pension insurance easier. To this end, an online experiment was conducted with over 2,000 German citizens between the ages of 25 and 55 who were representative of the population and who could imagine taking out pension insurance to improve their retirement provision.
The participants were counseled by an avatar generated using artificial intelligence (AI) and were offered the choice of taking out pension insurance with commission included ("gross tariff") or a cheaper option without such costs ("net tariff") plus a fee. The premium savings over 20 years were stated as a total. The participants were divided into several groups that were offered different levels of fees. One fee offer was significantly cheaper than the savings that would be achieved with the net rate compared to the gross rate. Another fee offer was equivalent and a third was higher.
Two experiments were also carried out. In the first experiment, the two variants "gross tariff" and "net tariff" plus fee were presented without further justification. In the second experiment, the avatar also explained the time required for counseling and mediation.
A control group was only offered a "gross tariff" in order to determine the general willingness to take out pension insurance. The seven different groups thus comprised just under 300 participants each, whereby attention was also paid to a distribution that matched the overall sample.
Positive effect of alternatives on the purchase decision
An initial result was that the mere option of choosing between two variants - gross and net tariff - significantly increased the willingness to take out a policy. While 69% of the control group rejected the offer of a gross tariff, only 28% of the experimental groups with an alternative offer did so.
This confirms the results of other research, according to which consumers prefer alternatives when deciding to take out a policy. "For insurance sales, making alternative offers can be an opportunity," concludes Prof. Linnenbrink.
Irrational decision-making behavior
However, it also showed that many consumers do not make a rational decision. 54% of participants who were offered the lowest fee still opted for the more expensive gross rate. Conversely, 21 percent of those who were offered the highest fee, which was too expensive, still decided against the cheaper gross rate.
In the case of pension insurance, the advantage of a net tariff is often only realized over decades, during which less premium has to be paid for the same benefit. However, the fee is due immediately upon conclusion. Unlike commission, brokers are not legally liable for fees. If the annuity insurance is canceled early, the fee does not have to be paid back, whereas commission is only fully earned after five years. Prof. Beenken comments: "I am aware of cases from court opinions in which consumers retained debts from separate remuneration agreements in the event of early cancellation. There can be no such situation with a gross tariff with included commission."
Nominal comparisons do not help and are not used appropriately
In the follow-up survey, most customers stated that they had compared the premium savings over 20 years in this case with the fee due immediately when making their decision. However, the time difference between the payment of the fee and the realization of the benefits makes the comparison between a gross tariff and a net tariff with a fee more difficult. "The problem is that many customers simply nominally compare the amounts stated in the counseling," states Prof. Linnenbrink.
But even in clear-cut situations, many customers make the wrong decision. For example, 74% of those participants who opted for the already nominally higher fee than the premium savings said that a comparison had been decisive for them.
Effort is not sufficient justification
The second experiment shows that justifying the fee with the effort it pays for does not lead to greater acceptance of the fee. "Most consumers find it difficult to recognize the value of independent counseling," summarizes Prof. Beenken. "The assumption often used in consumer policy that decisions are made rationally does not stand up to reality."
71% of customers consider it fundamentally more attractive if all costs are included in an insurance offer. In addition, 65% of all participants do not find the fees offered to them reasonable.
No commission ban and a level playing field
According to the authors, the results speak against a ban on commission and against forcing clients to pay a fee for advice. "As economists, we think it is right for customers to decide for themselves which form of remuneration they choose," argues Prof. Linnenbrink.
"However, there should be a level playing field," demands Prof. Beenken. "In the past, measures were taken against disadvantageous commission structures, but none against disadvantageous fee structures. More balance is needed here to protect those consumers who are easy to take advantage of."
About the study
The study "Value of independent insurance advice" by Matthias Beenken and Lukas Linnenbrink, authors and professors at Fachhochschule Dortmund, is based on an online experiment with a representative sample of 2,034 people between the ages of 25 and 55 who could imagine taking out (possibly additional) pension insurance to secure their retirement provision. The sample is representative in terms of age, gender and income distribution. The participants come from an established panel.
The Cologne-based market research institute HEUTE UND MORGEN GmbH conducted the experiment online in February 2025. The participants were given advice on pension insurance by an avatar generated using artificial intelligence (AI) and then asked to make a purchase decision. The project was funded by the Dortmund University of Applied Sciences and Arts. The study is available digitally free of charge at https://doi.org/10.26205/opus-3914.