Trust, they say, exists at the intersection of ‘Character’ and ‘Competence’. In this week’s piece I’m sharing a short story about a fictional accountant (Steady-Eddie), a fictional Financial Advisor (Friendly-Fiona), and you!

Through this short story we’ll look at at trust, and whether it is deserved or not, and we’ll look at the murky world of unregulated financial advice and unregulated investments in Ireland. Before I start, I want to reiterate that I know and trust quite a few accountants and financial advisors!

The Story

I want you to imagine that you are a successful business owner. You’ve been running your business for 15 years now, and are in a solid financial position. You have significant personal assets, business assets and cash, and retirement plans. In order to get where you are now you had to take calculated risks, leaving your old PAYE job, deciding to locate your business in areas that required big investment. You hired staff at great expense and invested in the business in the hope of reaping the rewards in years to come. You are now at those ‘years to come’, and are happy with how you stand financially. You are starting to really organise and boost your assets, with an eye firmly on your business exit.

You have your annual meeting with your accountant to review your accounts before year-end. You’ve had a great year in business, and as a result have significant sums of cash in the business. You’re minded to maximise the contributions you can make to pensions – which your accountant doesn’t disagree with, nor do they jump up and down about. Ever since you’ve been working with your accountant they have always been steady-eddie, they have always seen their role as one of compliance. As a result they were never proactive in their suggestions – they focused on documentation, on ensuring every cent was accounted for and properly allocated to the correct line-item on the accounts. Never once did they suggest or proactively advise you to do anything outside of requesting documentation or checking numbers with you. You trust them, as they do what they do well and on time and correct any errors quickly and openly.

However, this year they do something different. This year they go out of their way to say that yes indeed, putting the excess cash in the business account towards pension may be a prudent strategy – however they also subtly add that you should look at ‘other options’ and that a ‘few of our clients have started looking at ESG investments that look very attractive’. This sounds interesting to you and is aligned to your priorities, so you suggest you’d like to know more. Nothing more is said of the subject for the rest of the meeting with your accountant. But before you get back to the office that afternoon you have had a call from a financial advisor ‘Friendly Fiona’ from some local insurance brokerage that you have never had any dealings with. You are informed that Steady-Eddie has told ‘Friendly Fiona’ that you are interested in their range of ‘very popular ESG investment funds’. You kinda feel obligated at this stage – you’d don’t want to embarrass Steady-Eddie so you say yes to meeting Friendly Fiona to find out more.

You meet Friendly Fiona – who is indeed very friendly and appears well meaning. You are impressed with the fact-sheets and magazines you are given, and the fact that the investments you can ‘get access to’ appear to be renewable energy projects across Europe – wind-turbines and solar energy stuff. You’re no expert in these things (you run a small specialist packaging company) but you are environmentally conscious and keen to invest in things that you feel might be making a difference and positively impacting the future environment. All you read about of late is how you should be investing in ESG (Environmental-Social-Governance) Funds, or you risk being left behind from an ethical and financial returns perspective (which is nonsense tbh, see Blog 189 – but that’s not the point here!). As a result you are really compelled.

All the factsheets suggest that the project you are being offered access to is prudent – really good projections for future – seems like an experienced team that are running it – returns on offer seem very attractive – the pictures look amazing too – Friendly-Fiona tells you that some ‘very smart clients’ have already invested in it – the ‘offer’ is only valid until the end of the week – nobody has every lost money with this type of investment with this firm apparently – you can get your money back whenever you want apparently – even Friendly-Fiona’s mam has invested in it apparently! What could possibly go wrong!? What do you do?

Remember, your accountant told you about this – so it’s solid right??

What You Might Want To Know Before You Decide?

• What’s in it for the accountant?
• Why did they suggest this this year, but never before?
• How deeply did the accountant look into this themselves before recommending it for your cash!?
• What’s in it for Friendly-Fiona and her insurance company?
• What’s in it for the project team running the projects that your money will fund?
• What guarantees are actually there for you if the project is not a success (despite what the projections suggest!)?
• Where does your money actually go, and can you really access it if you/your business needs it?
• What recourse do you have if things go terribly wrong?
• Accepting that the accountant suggested it, is this actually a sensible option for you and your business’ cash?

What’s Not To Like About All This?

• There are hundreds of wind and solar projects being launched around the world at any one time – who is to say that the particular one you are investing in is going to be a good one . It may turn-out to be a great investment but every cent of your capital is at risk if it doesn’t
• It is a lot of your hard-earned being invested in one undiversified project reliant on a management team that you don’t know anything about, beyond what the brochure says!
• When you do invest in it, Friendly-Fiona and her insurance firm will likely get a kick-back commission of c5% of whatever you invested in it from the project team – but the problem is that you’ll probably not see this written-down anywhere
• Steady-Eddie will most likely get a finders-fee of a couple % of whatever you invested in it, for having introduced you to Friendly-Fiona – again, you’ll likely not see this written-down anywhere either
• The investment is mostly likely Unregulated – meaning there is no come-back for you or your business if it all goes belly-up. Being unregulated, there are no obligations on the intermediary or the project-managers itself to ensure that you get treated fairly, or in accordance with Consumer Protection rules, or that you get the documentation and clarity that you would get if it were a Regulated Investment. The Central Bank of Ireland have in the past few years started to express serious concerns about the volume of Unregulated Investments that regulated advice firms are ‘selling’. The issue here is that firms, whom are regulated by CBI are doing lots of activity that is actually unregulated and over which the CBI cannot protect consumers on. I’m not sure where this will all end, but CBI appear very nervous about it
• If it all goes wrong, Steady Eddie will no-doubt apologise and will be very sorry for your loss, but you will have no recourse with Steady Eddie nor Friendly-Fiona
• Your accountant may or may not be well intentioned in suggesting that you explore this ‘opportunity’ in the first instance. Their character is not called into question just because they suggest you explore this route. However, if they have not done their own due-diligence on it prior to doing so – then I believe their character and indeed their competence deserves to be questioned. If they suggested it without knowing exactly what may or may not go wrong with this investment, they deserve to be questioned. If their suggesting it was motivated more by the finders-fee of a couple % than by the desire to help you achieve better outcomes for your cash, would you trust them??
• To inform you as to how easy all of this is – as a Regulated Entity under Central Bank of Ireland regulations, Informed Decisions is on the CBI database, so any project team can find us and our address etc. As a result, every year we receive several cold-call letters from such project-teams who offer us 5-7% commission of any lump sums that we can introduce to them (presumably they hope we’d send some of our clients their way!). So if we were to act the same was as Steady Eddie, we merely suggest this ‘special opportunity’ to clients that trust us – if a client ends-up investing say €200k, we get €10k paid into our business bank account from the project team for the privelege – and nobody knows anything about anything that went on! Our client ends-up in an Unregulated Investment, in an undiversified investment, with no come-back, with no Central Bank protection or Consumer Protection. We get €10k per client that does this investment- we sit back, relax, and assume that the investment will be fine and that the yoghurt-project or whatever the hell is was, works-out over the coming years, and job done! You can see how easy it is, and who stands to win, irrespective of how it works out – I wouldn’t touch it, with mine or anyone else’s money…..least of all the people who trust us most! Even if I think the investment might be a good one – you can see the conflicts and the potential threats for you I’m sure.

What’s To Like About All This?

Lets not be so negative you may say – there are potential upsides to Steady-Eddie and Friendly Fiona’s proposition of course. I’ve no idea of the percentages, but one might argue that the majority of unregulated investments like this actually deliver great outcomes for investors. Perhaps they do. If we look at the potential upsides:

• The investment may work out as projected, and you’ll have earned a decent rate of return, plus a return of your initial capital, after the 4/5/6 years it’s proposed to last
• It may indeed be a project that develops some new solar and wind energy and support a cleaner and greener future for us all
• Steady-Eddie and Friendly-Fiona will have received their commissions but will have deserved them for having pointed you in the right direction – helped you remove some cash temporarily from your business account and delivered it back to your business bank account in a more fruitful manner
• If it does work out well, your accountant will have been indeed prudent and will have been proven to have been looking-out for you in recommending it in the first place at that meeting

But even if it does work-out, had your accountant had unbeknownst to you, been paid a commission for introducing you to Friendly Fiona and you subsequently investing, the conflict is large and would make most of us question the character, and potentially the competence of Steady-Eddie. If you are unsure of the character and/or the competence of your accountant, it’s a difficult bridge to repair. So what do you do??

The challenge for you is that a huge number of credible and established accountants either have their own financial advice ‘arm’ (where they sell unregulated investments) or they are commission-receiving introducers working with insurance brokerages (who sell unregulated investments). Looking at it from the accountant’s perspective, you can see why they do introduce their clients to these products – they can generate very significant commission income from it – have no paper-work, due-diligence, compliance or reporting on it – they simply introduce you and if you invest, they get paid from the brokerage via a comission-split. What’s not to like.

And to be fair – if you are introduced to solid and professional financial advice, then that’s a great outcome – but the reality from my experience is that some of the introducing accountants seem more focused on the commission cheque they’ll get from your actions, than on the quality of the advice, guidance, recommendations that you will get, as a result of theirs.

At the risk of pi##ing-off a lot of people (I’m no stranger to doing that with these Blogs!), I’m sharing this piece in the hope that you get a good outcome if you find yourself in this situation – and that this piece will help you avoid some of the less-than-great stuff that goes on.

Sermon over – go in peace 🙂

Paddy.