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Neobrokers in Hesse: Consumers complain about questionable practices

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Neobrokers in Hesse: Consumers complain about questionable practices

Neobrokers have gained millions of customers by offering the convenience of investing in stocks via app. However, in Hesse, complaints are now piling up at the consumer protection agency and the financial supervisory authority. The reasons: questionable advertising claims and problematic customer service.

From 4 % interest on savings: An advertising promise that didn't hold true

About a year and a half ago, Julian Michalk from Frankfurt was captivated by Trade Republic's advertising promise: four percent interest on his savings – with no limit. The 35-year-old wanted to invest his money and save for retirement. That's why he switched from his local bank to the neobroker whose advertising had convinced him. Through the Trade Republic app, customers could invest in stocks and also receive the promised interest on their savings.

But Michalk is now disappointed: "After a while, I realized that the four percent interest rate isn't unlimited." In reality, Trade Republic's interest rate is linked to the European Central Bank's deposit rate, which has since been lowered to 2.75 percent. For customers like Michalk, this means their savings interest rate is now significantly lower.

What are neobrokers?

Neobrokers are financial service providers that allow consumers to invest in the stock market easily and conveniently, often via a smartphone app. In addition to stock trading, they frequently offer supplementary services, such as interest on uninvested savings in an account. Among the best-known neobrokers are companies like Traders Place, Smartbroker+, Scalable Capital, and Trade Republic. The latter, the Berlin-based company Trade Republic, now has 8 million customers nationwide.

Consumer advocates are suing Neobroker

The Baden-Württemberg Consumer Center filed a lawsuit against Trade Republic last week, claiming its advertising regarding interest rates is misleading. According to the consumer advocates, the Berlin-based company does not adequately inform customers that the interest rate can vary.

Trade Republic, however, rejects the accusations. In a written statement, the neobroker explains that the interest rate offered has been tied to the European Central Bank's (ECB) interest rate from the outset. The term "unlimited" refers only to the amount invested. As soon as the interest rate changes, customers are informed immediately – for example, via the company's app.

Faulty documents and difficult relocation with neobrokers

Julian Michalk from Frankfurt criticizes Trade Republic not only for the insufficient information regarding interest rates, but also for his experience with tax matters. The 35-year-old had inquired whether he could claim losses from crypto transactions for tax purposes and obtain a corresponding document from the neobroker for the tax office. Despite repeated inquiries, he had to wait over six months for a clear answer: "As a layperson, you're left to deal with these kinds of problems on your own," says Michalk. "It's incredibly frustrating." He finally received the answer that such a certificate was not available – but only a few days ago.

Michalk has since contacted the Hessian Consumer Center. Other consumers there have also reported difficulties with neobrokers. Many complain that tax-relevant documents are not submitted or are issued incorrectly.

„We have recently received very strong complaints from some consumers,“ explains Katharina Lawrence, financial expert at the Hessian Consumer Center. „Customers who wanted to switch from one neobroker to another are particularly affected. The move has often been significantly delayed.“ Even switching from one neobroker to another can therefore be problematic and time-consuming, says Lawrence.

Flood of complaints to the financial supervisory authority

According to the consumer protection agency, many affected customers of neobrokers often feel abandoned. The providers frequently take a lot of time with their responses, which often consist only of standardized text modules. If customers cannot find a solution this way, the consumer advocate advises: "Check the legal notice of your neobroker to see if a competent dispute resolution body is listed and submit a request there."„

In most cases, this is the arbitration board of the German Federal Financial Supervisory Authority (BaFin), based in Frankfurt. The number of applications there more than doubled last year to approximately 1,100. The majority of these complaints relate to securities transactions, often involving neobrokers. These have significantly driven up the number of applications.

A solution is found in only one out of every five cases.

According to BaFin, there were numerous problems with the transfer of share portfolios, such as orders that were not executed or were only processed after considerable delays. Furthermore, there were incorrect calculations, for example, regarding profits from share sales. Such errors occurred particularly frequently at certain securities institutions, although the financial supervisory authority declined to name them specifically.

Of the approximately 1,100 applications, many were rejected on formal grounds, and in other cases, BaFin deemed itself not competent to handle the dispute. Therefore, only about 240 disputes could be resolved by BaFin's mediators – roughly one in five cases.