Consumers should be pleased with tightening of financial advice rules
At present almost everyone offering financial advice can declare themselves independent
Consumers are not always aware that it’s not the life company that pays the commission to the adviser – it’s them, the product purchasers
There is one cohort of Ireland’s financial services sector that is likely to be pleased from this week’s proposals from the Central Bank on tightening the provision of financial advice. But it may not be who you’d expect.
Yes, consumers should be pleased that the Central Bank is tightening up rules around how advisers and brokers can earn commission when they advise and sell them financial products; too often consumers aren’t fully aware the impact insidious trail commissions can have on their savings and investments. Nor are they always aware of the fact that it’s not the life company that pays the commission to the adviser – it’s them, the product purchasers.
So the regulator’s proposal to display just how much commission can be earned on products they may invest in, and from whom they earn this commission, is a giant leap forward in giving consumers confidence and information to make their own choices.
Remember how you used to feel about going to the dentist before they were forced to display their pricing structures both in their surgeries and on their websites?
And according to research also published by the regulator this week, consumers will likely also be pleased that the option of paying for a product via commission is not going to be closed off to them. They will have still have the option of doing this – they just won’t be able to if they go to an “independent” adviser.
Which raises another issue: independence.
At present almost everyone offering financial advice in Ireland can declare themselves independent; if the Central Bank’s proposals become rules only those who don’t take commission will make the grade.
And even if they don’t Mifid II regulations will exclude another bunch of putative independent advisers, given the onerous requirements for fair market analysis; requirements which may be (unfairly?) above and beyond what could be asked of a a small adviser .
So what does this mean? A potentially greater number of advisers and brokers – one adviser estimates about 95 per cent – will go non-independent. This means that they may not fulfil Mifid market analysis requirements, so rather than offering a suite of exchange –traded funds etc, it means they’ll be restricted to selling life-wrapped products.
So who’s going to have a smile on their faces? The life companies.