Hey there, it's great to be back after a few weeks of rest over the Christmas, it was probably good for all of us to have a break from listening to me! Anyway, very excited about developing what we are doing here, growing the community, and helping more people get the information they need to make good financial decisions for themselves. On reflection over the Christmas I am more keen than ever to keep trying to make a positive difference and to keep telling it like it is! Ever wondered how to get financial advice in Ireland?? This week in our first episode of 2019 I want to outline the options open to people who are perhaps hoping to get their financial lives sorted or who have some big financial decisions to make. Looking for financial advice in Ireland can be confusing; who to trust, how they can help, what they can do or can't do and what do they charge? Here I hope to outline the various options clearly, outline some of the possible pros and cons of each, and ultimately share some ideas that might help....I hope it is useful. If you haven't seen it then I suggest reading Blog 27 where I share ideas on what to consider prior to getting advice.
Where Should I Get Financial Advice?
This is a question that many who have had financial decisions to make have considered, some may have had an obvious answer and others less so. My intent with this episode is to outline the various options and help in your decision, if you have one to make. The answer to that question really revolves around the outcome you seek and the manner in which your advisor operates. For some people the way that your advisor works will be important, they will want to know how they are paid and what potential conflicts might be present in their advice. Others will not care one way or the other provided they get what they need in place.
Central Bank Research:
In 2018 Central Bank of Ireland released Consultancy Paper CP116 in which they outlined proposals to make it easier for people to find the type of advice they actually seek. It covered many aspects such as proposals to restrict any advisor who receives commissions from calling themselves independent. In addition to this they shared research they carried out on individuals:
63% had a preference for an advisor who described themselves as independent
55% felt that their advisor had their customers' best interests in mind when giving advice
61% agreed that advisors & brokers primarily advise on what will pay them the most commission
In summary only half of people feel that advisors are working in the best interests of the client, and nearly 2/3rds believe that advisors are trying to sell stuff that'll pay them the most kick-back! Pretty blunt feedback there on the financial services industry here in Ireland. Unfortunately the industry has a long way to go, in the eyes of these respondents at least.
What Are The Options For Getting Financial Advice:
The long and the short of it is that there is no one way 'the best' (irrespective of what I might think!), it is more-so a case of finding the one which is most suitable to you and what you are looking to do. It also depends on the complexity of what you are trying to figure out, if it is a simple 'I need €200,000 life cover' then some routes will suit you better than if your query is 'I need to figure out how best to maximise tax relief on my GP practice income and time my pension draw-down for maximum effect'. In addition different types of advice will cost you differently, some you might need to pay for up-front, others the advice will be 'free' (in the hope you buy a product) while others you might not think you pay for but you inevitably will indirectly via commissions etc, so it's a bit of a minefield!
Bank Advisor: Some Brokers and Financial Planners like to give the Bank advisors a hard time, often claiming that they are inexperienced and can only offer products from one insurance provider, and that the products they sell cost more than theirs. While the latter 2 points may be true most banks offer certain products that many brokers can't, and they have streamlined service models which can be very effective if you need a certain thing and want it done efficiently. If you know what you want you can meet an advisor and have your product, be that life cover, illness cover, investment or pension bought within 60-90 minutes, done and dusted. Not everyone wants to meet an advisor several times and get to know each other deeply before buying a product, some want a certain thing quickly, and this route serves them very effectively. All the advisors will have qualifications in order to deliver the advice and some have very very high level qualifications.
Advisors in this model are employed by the bank or insurance company they represent, and are usually paid a decent basic salary and package with potential to earn a bonus if they perform at a certain level on different aspects of their role (including sales). One bank in particular has made the move to not pay bonuses, instead paying really decent salary only, but you can rest assured that the amount of product they sell is still one of the core things on which they are measured! Every bank branch in the country will offer you the opportunity to meet an advisor in their offices, it is a key income stream for banks over the last few years.
Interestingly when Retail Distribution Review (RDR) came into force in UK a couple of years ago, which banned commissions on investment and pension products across the market all banks completely shut down the bank advice (Bancassurance) offering.
Pros: Well established processes and generally do things efficiently and compliantly
Cons: As they are 'tied' to offer products from one insurance company you will usually not get the lowest prices or fund fees, and you certainly won't get to pick from all products in the market. They might argue that that doesn't matter because they HAVE the best products! Some argue that if you seek a thoughtful plan and help with making big decisions that this is not the best route. May be a potential conflict of interest.
Tied Agent: Most insurance companies have an army of 'tied agents' who are 'mobile' advisors and will travel around, calling to clients at their home or office or hotels to service and offer them their wares. In many cases these are employees of the insurance company, and will offer similar service and processes to their bank advisor counterparts. In other cases they will be unpaid agents, only earning based on what they sell. For the latter unless they sell products to the people they meet they do not earn any income. This is a lot of pressure for an advisor to bare and some argue that it will mean they try to push square pegs into round holes, and that clients will be the worse for it.
Pros: They will come to you! They usually offer a broad range of product from that on provider. Often very experienced advisors.
Cons: Similar to the ones noted for bank advisors, except they will come to you! May be potential conflict of interest.
Broker: Brokers are all usually independent of individual companies but many will call themselves 'independent' and under current Central Bank rules they can do this on the basis that they offer products from majority of insurance providers and that they give you the option, even if only mention it buried in their Terms Of Business. Brokers can generally offer you products from all insurance providers in Ireland, and will claim to be able to offer you the best price on the likes of protection.
In terms of how they deliver the advice the processes will usually differ from broker to broker, some will have very streamlined and efficient processes and others will be more casual and informal in their approach. Either way a broker should be able to help you determine what you have, compare it to what you want to have and then make some recommendations about how best to bridge the shortfall or the gap. Again, they can offer products from usually all insurance companies and will claim that that is a huge plus versus other avenues you use.
Some brokers are self employed while others will be working on behalf of another broker. If they are self employed they can earn a lot of money in selling the products to clients, protection being one of the biggest payers. If they are an employee of another broker they may or may not be receiving a basic salary, the rest of their income coming from the sales they make.
Pros: Can give you access to all product providers and products in the market. Usually can get a good price on products.
Cons: May be potential conflicts of interest in their advice.
Robo-Advice: Essentially this is getting advice from a computer rather than a human. The funny thing is that when you get face to face financial advice the human advisor is often putting the data into the same computer and telling you the result, its the same computer but when it's face to face it is more interactive, you can ask more questions and be more fluid than with some of the online offerings (of where there aren't many here, yet). I am not sure if can be classified as robo-advice but there are no shortage of online sites that will allow you to calculate the amount of protection, for instance, that you should have, and to then begin the application process. It gets a little trickier and there aren't really any great solutions that I've seen when it comes to bigger picture financial planning that users can get access to and that will show them exactly what they should do regards their financial planning. Having said that the day isn't too far away I'm sure!
Pros: Very time efficient. No scope for any 'white lies' of selling of something that perhaps isn't the right solution for you, provided it was built right in the first instance!
Cons: Depends on your view-point but it removes the ability to 'look someone in the eye', particularly if you are talking about big financial decisions for you. There is no one proposition that does it all as yet.
Financial Planner: 'Financial Planning' has become all the rage recently, what with the growth of the 'Chartered Financial Planner' (CFP) designation, particularly in the US, UK and now here. Many brokers such as above are now using the title of 'Financial Planners' or 'Financial Planning', however most of them are still operating in the very same way as they did when they called themselves Brokers.....new title but nothing has changed in terms of how they work or how they are paid. Some real Financial Planning firms have adopted cash-flow forecasting and a deeper 'getting to know you' phase which is a step in the right direction if clients are looking for a 'bigger-picture' conversation and analysis.
It is not uncommon now to pay €1,200-€2,000 for a 'financial plan' which will set out for an individual the best ways of navigating the financial choices they have, be that investing, protecting, planning, estate planning or retirement planning. These plans will usually come with a set of recommendations, often which will be for products with insurance companies which if you take them out generates commissions for the planner. Any financial planning firm that I have come across has agencies and commission agreements with the insurance companies and so usually there is a vested interest in selling you a product at some stage.
Some planners operate on a 'fee' basis which means they will charge a certain fee or % of investment if you do ask them to manage your affairs, as opposed to taking commission. The same planners will often state that you can either pay the fee or the commission from the provider will pay the fee via commission...so still taking the commission in the vast majority of cases. It is always interesting to see how up-front a firm is about how they are paid and how they operate, as you can imagine some are less willing to be clear than others!
Pros: Should give you a clear road-map for any big decisions you have, and help you get your financial house in order, provided you follow the guidance! Usually less product-oriented than other options and should be more focused on helping you achieve your goals and to do the stuff that matters to you.
Cons: You may still face some confusion and blurred-lines in how some are paid, as a potential conflict of interest still exists if there is a product to be sold for a commission on the other end. Much like any product or service, it is almost impossible to fully remove potential conflicts of interest (perhaps more on that another week!).
'Independent Advisor': Differs from some independent brokers' or 'independent financial planners' in that they are independent in the truest sense, do not receive any commissions from selling products, the fee you pay for advice, implementation or ongoing support is the only income that they generate. They aim to operate in a fiduciary way. What is a Fiduciary you might ask! This is a way in which an advisor operates, most commonly found in the US. If an advisor is a fiduciary they will only make suggestions or guidance which they believe is solely in the interest of the client. Now that might seem like a given no matter who you deal with but based on the above descriptions you can see why it doesn't always happen unfortunately!
Many truly independent advisors also go by the title of 'Financial Planners' which means they are hard to spot among all the other 'Financial Planners' who operate on a fee/commission basis. There are not many of these type of advisors, and many believe the reason for that is because the commissions that can be earned from selling products is so darn lucrative!
Central Bank are suggesting that potential changes will mean only firms that do not receive any commissions from any source will be able to call themselves 'Independent'....and it is this cohort of firms that will be able to retain the title of 'independent'. Speaking of which I came across another blog last week on a national news website by the same 'wolf' that was featured in Blog 95, and he uses the title 'independent' in his description, and despite the fact that he is a hard-core commission over-charger, under current rules he is entitled to use the title 'independent'. Makes it nice and confusing for people to determine the independent from the independent!
Anyway, independent advisors are not of course operating for nothing, but instead of taking commissions on products they sell you they are aiming to provide a professional service and get paid for their efforts in delivering that service, I guess similar to how a solicitor might operate. You don't expect a solicitor to sell you a product and make commissions from it but you do expect them to charge you for their time and knowledge on a matter. This group are aiming to deliver a similar service proposition. If compares to the US it is similar to advisors who operate on a fiduciary basis, meaning that the advice is always 100% in the interests of the clients and not biased toward making commissions or sales for the advisor.
Like anything it ain't perfect, there can still be potential conflicts of interest and potential inaccuracies in what they do, no more so than any other service.
Pros: Potentially less conflict of interest and bias to certain products or providers than other routes. You should get advice purely based on the best outcomes for you, on a fiduciary basis.
Cons: The advice process can take weeks or months depending on the complexity of your circumstances, so it can take time if necessary. You will have to pay for advice and potentially for implementation and ongoing advice. In the other models you don't necessarily see that payment but ultimately you will most likely be paying for it indirectly via commissions!
I know I have probably rambled a bit here but when you are in the nitty gritty of it you could really write a paper on each of them and outline how it works, how they are paid, how they can potentially benefit you, what the limitations of each are etc etc. This was meant as an overview of each and hopefully answer some questions that you may have before embarking on your own.
For what it's worth the vast majority of advisors that I have worked with, and I've have worked with at least 400 at this stage, from brokers, to planners, to bank advisors, to tied agents, to independents, the vast vast majority of them have the best interests of their client to the fore. Yes some may make huge money on selling certain things but very rarely are those certain things not the right things for the client at that time. Many of those that are in the 'financial planning' or 'independent' space like to think they are holier than the rest of them but really they are doing largely the same thing, which is trying to help people make decisions that might benefit them in the months and years to come.
Until next week!
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