Topic: Investment & Deal Activity

What exactly is the problem?

Crises that affect the capital markets have always led to short-circuit reactions among investors. Since stock exchanges have theoretically processed every piece of information the moment it ceases to be insider information, reactive action on the capital market is usually too late.

The usual advice in stock market crises such as those triggered by the current corona crisis is therefore always the same: „Don’t panic!“ Consequently, private wealth managers usually advise their clients to be patient and prudent in times of crisis. This advice is correct, but there are numerous legal stumbling blocks that you should avoid when communicating with your clients and choosing your course of action.

What do you need to do now?

Carefully review your clients‘ portfolios in light of the current situation on the capital market, taking into account various future scenarios. Pay particular attention to compliance with agreed investment limits, loss thresholds, investment guidelines and customer wishes. If you identify a need for action, do not act against your own advice: „Don’t panic!“, so this also applies to you.

Choose your communication with your clients carefully. Obtain instructions from your customers if necessary.

If there are several options for action, make your choice carefully and document it in detail.

What are the risks for you?

In investor protection processes, investors always bring up the same arguments again and again when investments prove to be loss-making in retrospect:

• „I did not understand the product, but blindly trusted my advisor’s advice“
• „If I had known that my investment strategy would have this effect, I would have chosen another“
• „I only chose this investment strategy because my advisor told me that it had to be designed in this way for efficient advice“
• „My counselor advised me to do this“
• „Despite the crisis, my advisor has not carefully informed me of its possible consequences“

The result is not only lengthy and therefore costly investor protection proceedings, which are usually conducted through several courts and therefore over many years. In the worst case scenario, clients may also claim damages, as a result of which they would ultimately have to pay for the losses caused by the Corona crisis.

What other risks exist?

There are also considerable regulatory risks in the medium and long term.

Particularly after the subprime crisis in the years from 2007 onwards, the regulatory and supervisory authorities spent almost 10 years drawing conclusions for the financial industry, some of which are still being implemented today. Even „investor protection lawyers“ have jumped on this bandwagon and have covered the financial industry with lawsuits.

Not least because internal and external processes, documentation guidelines and the information and reporting systems of numerous private wealth managers were not adequate, a very consumer-friendly legal system has emerged, which has cost the financial industry billions. The regulatory authorities have derived numerous measures from this, which have been reflected in MiFID and MiFID II, for example.

The corona crisis has the potential to have an even more serious impact on the real economy and thus on investors than all crises in the past 50 years. If this potential has a corresponding regulatory impact, the financial industry will also face some regulatory challenges in the coming decade.

What can we do for you?

We have many years of experience in defending numerous investor protection lawsuits and the first test case in the financial services sector. In addition, we know what you need to pay attention to in your daily business due to our consulting practice. In addition, we communicate with the regulatory authorities on an equal footing and can also proactively influence them.

We make this accumulated know-how available to you in the well-known quality and speed, even in times of „Don’t panic!“

When communicating with your customers, customer advisors and external sales staff, we ensure that it is not only comprehensible but also legally sound.

When selecting the right courses of action and developing internal and external processes and documentation guidelines, we ensure that your records, procedures and decisions are legally sound.

Finally, we are happy to coordinate with the regulatory authorities in order to agree on packages of measures and to reduce or, in some cases, completely eliminate intervention by the authorities „ex officio“.

Please do not hesitate to contact us!