Ever wonder about Financial Advice in Ireland? Are financial advisors worth their salt? Are financial advisors worth paying? Should I bother getting financial advice? My take is that it totally depends on what you are hoping to achieve, and what support you are hoping to get.
Client A, by his own admission, has simple needs. He wants to buy life cover and income protection to protect his loved-ones. He has given his financial future a lot of thought and planning, and his every other aspect of his present and future financial life well prepared and catered for. He is confident in the planning he has done, has selected options that he will be able to stick to and has educated himself on all major aspects of these plans. Might he and his partner benefit greatly from the services of a caring and knowledgeable financial advisor/planner for anything other than getting the protection he needs in place? Perhaps he would, perhaps he would not.
Client B, having worked for the past 30 years, has accrued significant investment and retirement assets. She is planning to transition from full-time employment to part-time over the coming 12 months. She intends to be spending most of her time playing tennis, golf, travelling and minding her grand-kids within the next 3-4 years. She is unsure of how to structure her assets now and into the future, and is fearful of investing, and more-so the potential volatility that she is so conscious of. Might she and her partner benefit greatly from the services of a professional, caring and knowledgeable financial advisor/planner? Perhaps she would, perhaps she would not!
The thing that strikes me about both of the examples above is that both Client A and Client B are probably already PAYING for financial advice, irrepsective of whether they are actually benefiting from it or not! In pretty-much every retail financial product relating to financial planning (investments, protection, pension, savings) there is probably a commission going to the advisor or agency that you bought it through, even if you have not seen sight nor sound of them since! Unfortunately this it totally true, and what I believe is as equally as unfortunate is that you could potentially be benefiting from the equivalent of an extra 3% in investment returns per year!
It may be hard to believe, and I do myself question the suggestion that it applies for every client, but that is the % additional returns that clients who actively engage with a competent and client-focused advisor will achieve each year.
This additional return is also known as Advisor Alpha. Alpha is defined as ‘the first, or most significant occurrence of something’. Are you letting your advisor deliver you some Alpha? The reason I ask that is because I firmly believe that the majority of advisors in this great country do care, are knowledgeable and can add significant value, if you let them! If you do not engage with them, do not trust them, do not open up to them, then you are inevitably very unlikely to realise the benefit of them. And this will be the case even though you are more than likely paying for it anyway!
New Central Bank Rules
Speaking of ‘paying’ you probably heard about an announcement made last week by Central Bank of Ireland about commissions in the financial advice industry. As of March 2020 an advisor who earns commissions on the sales of products will be obliged to make it very clear to you how much they are getting, and from whom they are getting it! Needless to say, for some of the less client-focused advisors in the industry this is very upsetting news. The ones who are most peed-off I guess are the very ones that you might be best avoiding! From now on, you will be able to see exactly how much you are paying for the advice should be getting, and believe me when I say that it might come as a shock to you how much you are paying!
I am led to believe that the broker representative groups have lobbied and made submissions to Central Bank. These actions were supposedly to try reduce the level of information that advisors will need to disclose to clients about the commissions. However, it seems the CB are pressing ahead. Full addendum to the Consumer Protection Code here.
Personally I believe there will definitely be a market for the commission-led approach within the industry. This is in large part because many clients prefer to not have to pay for the advice out of their own pocket. They often instead prefer for the costs to be added to their on-going fees and implicit charges, which they don’t usually see anyway. Out of sight, out of mind so to speak!
I have written about it before, about the fact that an advisor who is not at all independent in their advice can still call themselves ‘Independent’. As of March 2020 only an advisor/planner who does not receive commissions from any provider will be permitted to call themselves ‘Independent’. I am not saying independent is better than commission, but I am personally looking forward to retaining my ‘Independent’ title in 2020!
How Does Advisor Alpha Come About?
According to a recent Vanguard survey there are 3 main aspects to how working with an advisor can add value. Importantly the research also notes that it is subject to properly engaging with the advisor on an ongoing basis, not just buying a product and never engaging again!).
There were 3 key areas in which a competent (and the research suggests, ideally a fee-based) advisor will bring value:
Portfolio Construction – Selecting optimum assets, investments, funds and utlimately creating the portfolio that will deliver long term results, instead of complexity and over-the-top fees
Value for Money – Whether finding and selecting the most costs effective solutions, and/or the most tax efficient solutions
Behaviour Coaching – While it might sound a bit grandiose, this aspect of the research points towards an advisor guiding you and enabling you to stick to the plan. When temporary market declines make you want to do everything BUT stick to the plan. the advisor will help you stay put and to benefit from the long term upward curve.
All of the research points towards the concept of Professional Stewardship being the central value of a competent advisor. If, for whatever reason, they are not capable of delivering this for and with you, you will unlikely reap the potential benefits.
Assuming you advisor is competent, prudent, focused on your needs and capable of communicating clearly, the only reason that you would not benefit from their stewardship is if you did not allow them. If you did not engage with them.
I’ve said it before and I’ll say it again; you are already likely to be paying for advice, most likely via commissions on some product that you own. You are already therefore entitled and owed the value of an advisors stewardship. Most advisors that I have worked with over the years are keen to help you. They are keen to make a difference in your life, but are so often not let to make that difference. They are most often prohibited due to clients’ indifference or lack of trust!
It is like a boy and a girl at a dance. He wants to dance with her, she wants to dance with him but neither are willing to ask the difficult question! Instead they are standing at either side of the hall pretending not to look at each other! For heavens’ sake, go and ask them to dance, you’re already paying for it!