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The Major Software Check: Why Standard Comparisons Often Fall Short

  • 8 hours ago
  • 3 min read

In financial advisory, the term "market comparison" is often used as a selling point. But how is the result your broker presents to you actually generated? Do they calculate it themselves? Or do they blindly trust an algorithm?

We take a look behind the scenes of the industry: at the role of broker pools and the mathematical weaknesses of common comparison software.



What are Broker Pools?

Very few brokers have direct contracts with all insurers on the market. That would be administratively nearly impossible. Instead, many independent intermediaries use so-called Broker Pools. These are large service providers that act as an interface between the broker and the insurance company.

Well-known broker pools in the German market include:

  • Fonds Finanz Maklerservice GmbH

  • blau direkt GmbH

  • Jung, DMS & Cie. AG

  • Netfonds AG

  • Apella AG


These pools offer the broker access to tariffs, handle billing, and often provide the comparison software. This is efficient but also harbors pitfalls.





The Problem: Market Overview vs. Pool Reality

Cooperation with a pool is standard industry practice. However, as a customer, there are points you should be aware of:


1. The Filter Effect (Who Pays, Gets Listed) A broker pool is a commercial enterprise. In the provided comparison calculators, primarily those insurers are listed with whom a cooperation exists.

  • The Reality: Even if a pool offers access to many companies, the quick comparison calculator might only display a specific selection. Niche providers or tariffs that are economically less attractive for the pool sometimes fall through the cracks unless the broker manually adjusts.


2. Dependence on Technology Many advisors rely on the "Top 3" spouted out by the software. But who programs the software? Large product partners often have influence on the presentation. A broker must actively steer against this to not lose their independence to technology.




The Sore Point: Approximation Methods vs. Real Financial Mathematics

Even more critical than the selection of companies is the way calculations are performed in the industry. Many common comparison programs use so-called approximation methods (Näherungsverfahren) for performance reasons.


What does "Approximation Method" mean? The software often does not calculate with the exact, complex cost formulas of the respective insurer in the background. Instead, it uses simplified assumptions:

  • Flat-Rate Costs: Instead of the real contract costs (Alpha, Beta, Gamma costs), calculations are often done only with a flat-rate effective cost ratio, as found in the statutory Key Information Document. This ratio is, however, often an average value and does not reflect the individual cash flow.

  • Distorted Compound Interest: With terms of 30 or 40 years, even minimal cost deviations (e.g., 0.1% p.a.) have gigantic effects on your final capital due to the compound interest effect. Simplified calculation cores often represent this inaccurately.

  • Static Projection: Calculations are often linear (e.g., "always 6% return"). The reality of stock markets (fluctuations) and their impact on cost deduction is often ignored in simple calculators.


The Danger for Your Retirement Provision: A standard comparison calculator spits out a "test winner" that looks cheapest on paper. However, if one were to calculate with exact financial mathematics (expert opinion quality), a completely different tariff, which looks more expensive at first glance, could end up yielding a significantly higher pension.


Note: A comparison calculator provides a quick overview. But it does not replace an individual financial-mathematical expert opinion.


Our Approach at Karmartha: We Calculate Deeper

We know the standard market tools, but we do not blindly rely on them.


  1. Actuarial Accuracy: We rely on analyses that go deeper than pure price comparisons. We align ourselves with standards like DIN 77230 (Basic Financial Analysis) to determine needs objectively.

  2. Critical Examination (BaFin Compliance): We critically question the reported effective costs (Reduction in Yield). We don't just rely on the label but check the actual cash flow.

  3. Transparency: We show you openly on which data basis we make our recommendation and which providers we compare.


Financial advisory is mathematics, not opinion. Demand more from your advisor than just a colorful PDF printout from the standard calculator.



Sources & Backgrounds



Legal Notice regarding this Article


General Market Observation: This article describes typical structures and operating mechanisms in the German insurance market (broker pools, comparison software). The companies mentioned serve solely as examples of standard market pool service providers. It is not implied that these providers operate erroneously; rather, reference is made to systemic mathematical limitations of standard software (approximation methods).


No Trade Secrets: The content is based on publicly accessible market information and technical expertise regarding the functioning of comparison software. No internal details of specific distribution companies are disclosed.


No Guarantee for Calculation Results: Statements regarding financial-mathematical deviations are generalized. The exact impact of cost ratios depends on the individual case. Liability for the completeness of third-party comparison calculators is excluded.

 
 
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