Bank cautions brokers on advice letters to clients
Investment brokers are using standardised letters to explain to clients why they are recommending particular products and transactions, according to the Central Bank. The Bank has written to more than 2,500 brokers informing them that this is an "unacceptable practice".
Under the terms of the Bank's code of conduct, authorised advisers and restricted intermediaries must state the reasons why a product or transaction is considered suitable and in the best interests of the client.
These letters must refer to the client's specific circumstances and needs and should include price comparisons with a range of other available products.
However, Central Bank inspectors have discovered that brokers are using template "reason why" letters, where the only difference is the name of the product, with no explanation as to why the recommended product is considered more suitable than other products. In some cases, different broker firms are using the same letter, thought to have been generated by insurance companies.
A spokesman for the Central Bank, Mr Neil Whoriskey, said the phenomenon was not occurring on an industry-wide scale.
"We don't think every broker is at this or even a majority of brokers. Standardised letters cropped up in less than 10 inspections but the fact that it turned up at all out of a small number of random inspections means the likelihood is that more brokers are doing the same," he said.
The Central Bank has also informed the Irish Insurance Federation and the Department of Enterprise, Trade and Employment of the practice. Mr Whoriskey said the Bank could not inspect 2,500 brokers on a single issue but would be "keeping a particular eye out for it" in future inspections.
The statement of suitability is part of a series of statutory obligations on insurance intermediaries that came into effect on November 1st last. The code of conduct was designed to provide greater protection to clients from brokers who simply sell the product from the insurance company paying them the highest commission.
Mr Diarmuid Kelly, chief executive, Professional Irish Brokers Association, said "reason why" letters for simple products would always include common elements.