This week we are aiming to share some slightly different insights, and reveal some major news in the world of Financial Services in Ireland! Last week the Central Bank released a proposal which is due to come into force next year (subject to Dept. of Finance), which is aimed at maximising the protection consumers get when it comes to buying any financial products....we have dissected all the Publications released by Central Bank to determine the details, and it's an interesting one!Firstly, thanks for checking out Ireland's award-winning Financial Planning Blog & Podcast, we're delighted to have you join us. We'd be thrilled if you had the time to check out our 'why', and to learn a little about what we are trying to do, for you our reader.

The Green-Grocer!

Indulge us for a few moments, trust me it'll make senseshortly! Imagine that you are walking down the road after getting off your busfrom work, and you notice a shiny new green-grocer shop on the corner. It'scalled 'Gerry's Independent Stores'...sounds good to you!

You walk in and the friendly green-grocer welcomes you witha big smile, a warm welcome, and inquires as to how he can help you.....you aretaken aback at his hospitality and part of you reckons 'I'm gonna be soldsomething here'....therefore you reply in the usual way and state that you are'just in for a look'!

The shelves are stacked high with produce, so much choice ofall your staple items, different versions of everything......you are confusedwith the level of options and so ask for some help with regards picking the 8items you actually do need, milk, bread, broccoli, ham, cheese, yoghurt, apples& grapes (you healthy divil you!).

Before you know it the kind shop keeper picks out a versionof each of the 8 items, in addition he tells you that he has a special rategoing on the eggs, asparagus, Mars Bars, and Ice-Cream and he encourages you tobuy those as well. You reckon that you actually probably could use these otheritems so you agree to buy them. You go to the counter, pay for your stuff andhappily head on off home with your shopping for the next few days done, andaway home to make the dinner!

How Did the Green-Grocer Get Paid?

It is only the next day that you hear from a mate that theGreen-Grocer actually makes more profit on certain options than on others. Hepicked the options for you that result in him getting the most profit.

He also invited you to buy more stuff, because it turns outhe gets a large bonus from the provider of the eggs, asparagus, Mars Bars andIce-Cream if he sells a certain amount of it. In fact, he actually also gets aholiday every year if he sells certain amounts of it to his customers. He mightalso actually get support to pay for advertising and marketing if he agrees toonly sell that particular producer's product....how do you feel now?

Some people might feel like that is what they expect, othersmight not care less, while others might feel that they were being encouraged totake and buy stuff that might not have been the things that they needed orwanted! Again, how would you feel?

How Are Financial Advisors Paid?

It will be no surprise to majority of you to hear that mostFinancial Advisors & Intermediaries, Banks, Brokers are paid in a similarway. Majority of Brokers, Banks & Advisors (also known as Intermediaries-i.e the seller of products on behalf of a product producer) get paid commissionwhen they sell a certain product. It is also known that some get paid more forselling a certain product, and indeed get paid bonuses if they sell a certainamount of certain products from certain providers....all very certain!!

It appears to us that the Central Bank are on a mission toincrease the transparency that you the consumer has in regards how your'Green-Grocer' is paid by the providers. In fairness that makes total sense. Aswe keep banging-on-about here, the focus of the industry has for too long beenlazered onto selling products as opposed to delivering the real outcomes thatconsumers need and want....more often than not a product is required, but itshould not be the starting point of the conversation!

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What Will Change For You, The Customer?

In essence what the Central Bank appear to be aiming towardsis a situation where there is a full and clear menu available to the customeras soon as they look up the 'Green-Grocer' online....you the customer will beable to see exactly what the grocer is paid from each provider, in advance ofyou actually going into the shop.

The impact of this would be that the next time you go into'Gerry's Independent Stores' you will know how much Gerry will make if he sellsBrocolli A, Brocolli B, or Brocolli C.....again all about improving thetransparency for the shopper.

Also, when it comes to mortgages, the Green-Grocer iscurrently paid a % of the loan that the customer takes out (Green-Grocer beingbank/broker/any intermediary), so the more you borrow the more commission thegrocer gets.....well they are looking to put an end to that it seems, byintroducing a cap on commission which the grocer gets, irrespective of theamount being borrowed....again our take is that The Central Bank are aiming toreduce the chance of a consumer being 'given' more of a loan than they need,which would mean that the grocer gets a bigger commission. Them days appear tobe at an end.

Is Gerry Independent?

As you have heard, Gerry's store is called 'Gerry'sIndependent Stores'......however if you are looking at how he is getting paidand the bonuses he can make by selling more product from a certain provideretc, then you could argue that he is not independent!

If the Central Bank's recommendations come into force infull next year Gerry will have to remove 'independent' from his store name! TheCentral Bank appear to be very keen to ensure that only a grocer who isreceiving no form of commission from a provider can class themselves asindependent. Meaning if you go to an independent store once theserecommendations come into force that you will have to pay out of your ownpocket for the advice and recommendations.

If they do state that they are not charging you commissionbut that they are charging you a fee, which is being paid to them out of yourproducts, via the provider, this will be classed as not being independent fromthe provider, and hence not independent in nature.

How Can I Get Independent Financial Advice in Ireland?

In simpler terms only a grocer who does not take commissionof any sort, whose only income is the income he or she gets from charging a feedirectly to the customer, will be able to call themselves independent under thenew Central Bank recommendations. That is quite different to what is and isn'tclassed as independent in today's world of financial advice! If you think aboutit it makes lots of sense to only allow an advisor who is totally, financiallyand otherwise, independent of the product provider to be able to callthemselves independent......

How Will This Impact On Us Getting Financial Advice?

Some are saying that it might reduce the number of financialadvisors in the country. Others are saying that financial advisors whotypically have lots of providers to choose from will reduce the number ofproviders to just 1, so as to remove the need to choose between different onesbased on something other than the commission. Others say that it will openconsumers eyes to the level of commissions that are being paid, and willdisillusion them about financial advice altogether.

The last point, from our perspective would be a huge shame.The benefit of true financial advice and financial planning is usually way waybeyond the cost associated with it. The avoidance of huge mistakes, the puttingin place of plans which support your long term goals and lifestyle aims isworth so much more than the cost, again usually! We, for what it is worth, hopethat the impact will be the rise of much more customer focused approaches frommore and more of the industry. If that happens, and much like the investmentmarkets nobody knows, then the recommendations will have been a rampantsuccess.

We're hoping.

Thanks for reading.

Paddy Delaney QFA | RPA | APA | Qualified Coach

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