A health warning should be attached to the Consumer Association of Ireland's (CAI) kitemark for special savings incentive accounts, according to Mr Douglas Farrell, a director of authorised investment advisers National Deposit Brokers.
Mr Farrell said the kitemark system was "grossly unfair" to institutions offering special savings incentive scheme products and to the brokers selling them and was "dangerous" for consumers. He argued that customers could be "misled" as many investment products not awarded the kitemark - because charges, including commission for brokers, were deemed too high - were available through brokers at significantly lower charges.
This was because many brokers had negotiated deals with product suppliers to construct more competitive products, Mr Farrell said. Some of these deals involved brokers completely forgoing or taking reduced commission from the product suppliers, he said.
Reacting to the criticism, CAI finance spokesman Mr Eddie Hobbs stressed that products not put forward for assessment could not have been awarded the kitemark, adding that up to the time the report was produced, no intermediary had presented a special product for assessment.
He accepted that the kitemark was "not a perfect measure" and that products which did not qualify could offer good value for money. But he said consumers needed some basic measure as "a guide" on pricing and fair terms.
Mr Hobbs said brokers AON Consulting had just presented a product for assessment which had been negotiated with Eagle Star and had no entry charge, a 1.5 per cent annual management fee and a £50 (€63.49) minimum contribution. It compared with a 5 per cent entry charge on the standard Eagle Star product. Eagle Star said AON had forgone commission to offer this product and said it was available to all large affinity groups. The kitemark in the investment category was awarded to only two products suppliers - Quinn Life and the EBS. Both sell directly to customers and not through the broker channel. Hibernian Life and Pensions, which is offering 21 different products and did not get a kitemark because its charges were considered too high, said it had not expected to qualify.
"From the day we saw the guidelines we knew that no company selling through the broker channel would be able to get the kitemark," according to marketing manager Mr Ian Veitch.
He felt the criteria were "set a bit high" and expressed confidence that the products Hibernian sold through brokers would be at the top quartile based on maturity values at the end of the five-year savings term.
"The kitemark concentrated on charges, but fund choice, flexibility and fund performance will be crucial for the saver, and many savers would benefit from getting advice from their brokers. Advice costs money but it would be money well spent when you are investing for five years," he said.
Irish Brokers Association chief executive Mr Paul Carty described the kitemark as "useful as far as it goes". But he warned that it should not be used as "an absolute barometer" of the savings incentive scheme products. "There are a huge range of products, and savers will lose out if they limit their investigations to products carrying the kitemark. Savers should take advice to get the product that suits them best. Charges are modest and in any event have to be fully disclosed," he said.
Mr Farrell was critical of the kitemark setting of minimum monthly savings amounts of £40 for investment accounts and £10 for deposit accounts. These criteria could push investors who wanted to save larger amounts towards the wrong products, he warned.
He criticised the seven-day access criteria for deposit accounts, citing it as an irrelevant condition because savers would face tax penalties on funds withdrawn within the five-year savings period. The CAI should stress that this was a five-year scheme, he said.
