Follow the incentive (Interessenkonflikt)

Level 1 · Basics⚖ Judgment

German termInteressenkonflikt

Used byRed flag catalog · Commission-driven "free" advice · Building-savings contract (Bauspar) · Credit payment protection insurance

Follow the incentive is a procedure for tracing who benefits when a financial product or action is proposed. Identify the payer, recipient, amount, timing, and conditions of every reward. Then ask whether the seller earns more from one outcome than another. An incentive signals a possible conflict; it does not prove misconduct.

Why it matters

Advice and sales can sound identical. EU insurance rules require distributors to act in customers’ interests and prohibit remuneration or targets that encourage a worse-fitting product [1]. The rule exists because disclosure alone does not remove product bias.

The five-question trace

1. Who is proposing the action, and in what legal role?
2. Who pays them: the customer, product provider, employer, or another party?
3. Is payment fixed, hourly, asset-based, commission-based, or conditional on a sale?
4. Which alternatives pay less or are unavailable to this seller?
5. What evidence would change the recommendation?

Worked scenario

A representative calls a consultation “free” and proposes a 30-year insurance-based investment. The customer pays no invoice, but the provider pays the representative after signing.

The incentive trace does not conclude that the product is unsuitable. It creates verification tasks: obtain total costs, surrender values, commission disclosure, a demands-and-needs explanation, and a comparison with alternatives that the representative does not sell. If the recommendation survives those tests, the analysis rests on evidence rather than the word “free.”

Check yourself

A representative is paid only if a 30-year policy is signed. What does the incentive test establish?

The policy is automatically fraudulentThe recommendation needs cost, commission, and alternative-product verification

An adviser charges the same fixed hourly fee regardless of the product chosen. Does that eliminate every conflict?

Yes, all incentives disappearNo, it reduces one sales incentive but the full incentive map still matters

A household is reviewing an adviser before signing. Which facts belong in its incentive trace? Select all that apply.

Who pays whomWhen and on what condition payment occursWhich alternatives pay less or are unavailableHow confident the salesperson sounds

A consultation is advertised as free because the customer receives no invoice. What is the missing question?

Whether a provider pays commission after the saleWhether the meeting lasts under one hour

Sources

1. EIOPA — Insurance Distribution Directive, Article 17: general principle and remuneration, https://www.eiopa.europa.eu/rulebook/idd-insurance-distribution-directive/article-2660_en (updated 2024)
2. EUR-Lex — MiFID II, Articles 23–24: conflicts of interest and client interests, https://eur-lex.europa.eu/eli/dir/2014/65/2024-03-28/eng (consolidated 2024)