Independent investment advice in Ireland is a rare thing, at least under current Central Bank of Ireland regulations. Currently, only an investment advice firm in Ireland that does not receive any form of commission can call themselves ‘Independent’. So does that mean getting independent investment advice in Ireland is deeply flawed, not at all! This week I’ll help you learn about;

• Key considerations before you invest
• Knowing the source of your advice
• If any investment advice is truly impartial?

Investing 101

I know you’re keen but before you jump into an investment, I believe in considering it from a few different perspectives. And while it might be tempting to just get invested ASAP to avoid inflation eating into your purchasing power, or to get it out of miserly deposit accounts, the following questions ought to be considered;

• Why am I investing this money? There ought to be a purpose to the investment. That will help determine what might be the optimal approach, and to help keep you on-plan. If there is no clear rationale for investing, it can often lead to mistakes and poor decisions with invested money, in my experience.
• What are the future intentions with the money? Will you want to access portions of it each year or will you need an income from it, or will you want to access it all at a future date? This will also feed into what type of investment may be most suited.
• When will you need access to it? This is crucial. If the chances that you need access within a few years, it may be prudent to keep your money in a short-term account and/or something with limited or no volatility. Last thing many of us would want is to have to access an investment if it happened to be down significantly in value at that time. And the probability of having to do so is higher if our investment timeframe is short (less than 3-5 years).
• What is my capacity for loss and for volatility? Can you handle the value of your investment rising and falling above and below the amount you invested, or would that cause you to lose sleep and make rash decisions in future? Can you financially afford to potentially get back less than you invested? If the answer is a firm ‘no’, then consider taking a very cautious approach.
• What happens to the investment if I die? While we might not intend on dying during the investment window, some of us will! Knowing what will happen to the asset, and who will benefit are important to know about.
• Do I need or want advice or not? There are plenty of online platforms that offer cheap investment solutions for those that don’t need or want personal advice on their investments. If you prefer advice and guidance, there are lots of routes. Independent investment advice is one-such route, while the majority of investment advisors in Ireland are not independent. More on this in a bit!
• Can I stay the course of the investment? Getting into the right investment for you is usually the (somewhat) easy part. Staying in it is often much more challenging – particularly when the news headlines are telling you that the world is coming to an end! Would you find an independent investment advisor worth their weight in gold at times like those, or would you be well able to ride the storm?

All of the above might seem basic, and they are! However, many smart people don’t consider these points before getting into an investment, and they stand to achieve better outcomes if they do.

The source of your investment advice in Ireland

Investing can be complex for people not familiar with it, so I believe that seeking professional advice is often a prudent step to making informed decisions! And a critical aspect that investors in Ireland need to be aware of is the model in which their investment advisor operates. 

While independent investment advice is a desirable attribute, it is crucial to understand that not all advice is truly impartial. Here we explore the reasons why most investment advice in Ireland is not independent, and highlights relevant rules and laws governing the financial advisory industry.

1. Commission-Based Compensation Model

One of the primary reasons why investment advice in Ireland may not be entirely independent is the commission-based compensation model. It also explains why investment advisors will happily meet, examine, explore and give you full recommendations and advice, and won’t charge you a penny!

Many financial advisors receive commissions from financial products they recommend and eventually put investors into. This arrangement is obviously full of conflicts of interest.

Insurance companies create and develop investment products, and market them to the thousands of brokers/investment advisors in Ireland. They bring them to events and meet them individually to promote their new investment range, and show them how to sell the product to their customers.

Commission-based Advisors and brokers are paid by the product provider whose products they put investors into. And some product producers pay the advisor more commission than others, which will obviously influence an advisor’s recommendations to you the investor.

These commissions are ultimately paid by the investor through fees built into the investment over the period you remain invested. It is not that this advice is ‘free’, it’s just that you don’t get to see the fee you pay! That is how these advisors are paid, and that’s how it works.

2. Tied Agents and Restricted Advice

In Ireland, some financial advisors may be tied agents, meaning they are associated with specific insurance companies or product providers. They only recommend and implement investment products from their chosen insurance company.

For example, when I set up Informed Decisions Financial Planning, I had the option to become a Tied Agent of some of the insurance companies. Had we done so, we would have received inflated commissions from our chosen company for any products we sold.

We would have got additional assistance from that company in terms of admin and running our business. It would have made life a lot easier for us basically. However, it was our intention from the outset to be fully independent, free from commission conflicts (which is harder to do from a business perspective!) so we obviously didn’t opt to be a Tied Agent.  

Tied agents have limitations on the products they can offer, restricting the scope of their advice to a particular range of options. As a result, clients may not receive a comprehensive view of the investment landscape, and that’s the fact of it.

3. Fiduciary Duty vs. Suitability Standard

Unlike some countries that require financial advisors to adhere to a fiduciary duty, Ireland follows a “suitability standard.” 

This means advisors are only required to recommend investments that are ‘suitable’ for their clients’ needs, but not necessarily in their clients’ best interests. This distinction can leave room for less-than-ideal advice, as long as it meets the standard of being ‘suitable’.

Therefore, if Informed Decisions was a Tied Agent, we would be recommending solutions that are ‘suitable’ to clients needs, as opposed to solutions that we believe are the very best that can be got!

This doesn’t mean that something can’t be both suitable and optimal (in your best interests). Having said that, the vast majority of what we see being recommended is not optimal.

It might often be ‘fine’, but it often isn’t great either. This is the core of the challenge. And one argument you’ll hear is, what investment exactly is ‘optimal’!? Independent investment advice in Ireland really ought to be looking at the full range of options, and identifying what is both suitable and optimal (in your best interests).

4. Transparent Fee Structures

Transparency in fee structures is essential for clients to fully understand the costs associated with their investments, and to enable trust in the advisor relationship. 

Unfortunately, there is a historical and sticky tendency in investment advice in Ireland to not fully disclose fees. Commission-based advisors are understandably a little coy in explaining the level of commissions they receive, particularly if they are fans of large up-front commissions.

If they take that approach, commissions can be upwards of 5% of the invested amount. On large investments that will be a fairly huge remuneration, which clients would balk at if they heard it!

All of this makes it challenging for clients to assess the impact of such fees on their investments’ overall performance, the value for money they might get, and the level of trust they have in their advisor. It helps nobody, and hinders everybody, unfortunately.

Ireland is not alone here – just have a quick read of The Evidence Based Investors recent piece about Saint James Place Investment firm in the UK – much of what you read there is currently common in Ireland.

If interest in hearing more about all this, we had Robin Powell of The Evidence Based Investor on our podcast a couple times, most recently in episode 204 here.

5. Limited Access to Independent Research

Financial advisors often rely on research and data provided by the financial institutions they are affiliated with. This lack of access to independent research may hinder advisors’ ability to offer a broad perspective on investment opportunities, potentially limiting the range of advice available to clients.

I spoke at an advisors’ investment forum a few months ago. And from speaking to many advisors after the event, all of whom are currently commission-based, they are all keen to be independent in their advice to ensure clients get best outcomes.

However, the switch from commission-based to independent is a daunting and commercially challenging one for them. And the fact that an independent has to have their own ‘house view’ of all of the available options in the country is another challenge that holds them back, it seems.

Final Thoughts

When seeking investment advice in Ireland, it is essential for investors to be aware of the potential challenges to independence. Read our Blog 96 where we outlined different ways to get independent advice in Ireland.

The commission-based compensation model, tied agents, the suitability standard, lack of transparent fee structures and access to independent research are all factors that can influence the format of investment advice you can get in Ireland. 

Some suggested questions to ask of your investment advisor in Ireland:

• How are you paid, by whom and when?
• What amount will you receive if I place this investment in what you recommend?
• What amount will you receive on an ongoing basis, if applicable?
• What total fee, including your remuneration, will I pay in year 1 and each subsequent year?
• Does that differ if I invest in another option?
• Why are you recommending this particular investment over all others available?
• How has it performed versus other comparable investments available to me, from different providers/fund managers? Give me total returns data to show me the performance, not generalities.

Advice doesn’t need to be independent in order to be effective for your financial future. However, as investors, I believe it crucial to conduct due diligence, ask probing questions, and work with advisors who prioritize transparency and act in your best interests.

By being informed and proactive, investors can make better decisions and safeguard their financial future. And that’s all that you can control!