27th April 2020
This Article Was Written & Submitted For Sunday Times, For Publication April 2020 – Paddy Delaney, Informed Decisions
Time For The Financial Advice Profession To Pull It’s Socks Up?
How would you feel if you discovered you were paying double the level of fees on your pension or investment that you were led to believe? ‘Clarity On Fees’ is the #1 thing consumers say would improve the level of trust they have in Financial Advice.
76% of people do not know how or what their Financial Advisor is paid. Most pension holders have no idea they are likely paying over 2% fees every year.
These are just a sample of the startling results from consumer research we recently conducted. As someone who is hell-bent on finding a win-win for both Consumers and the future of Financial Advice, these results are pretty terrifying, for everyone involved!
There is an urgent need for the Financial Advice profession to pull it’s socks up, and to start playing fair with you the consumer. Either it does, or it’ll be sat on the Sub’s Bench for eternity.
One recent change that has been forced upon Financial Advice firms, aimed at improving the levels of transparency for consumers, were a set of new Central Bank of Ireland rules. This ‘addendum’ to the Consumer Protection Code came into force at the end of March. There was obviously other news making the headlines back then, so most people didn’t hear about it.
Financial Advice Firms, and intermediaries across the board must now show on their website how much commission they get from insurance companies when they sell their products to you. The new rules prohibit Advice Firms from receiving any ‘soft commissions’ such as golf-trips or business supports from providers. These were one of the ways a provider encouraged an Advice Firm to sell more of its products.
Advice firms are now only allowed to call themselves ‘Independent’ if they do not receive any form of commission from any provider. As a result there are now a handful of ‘Independent’ firms like ourselves who deliberately provide on-going advice on an ‘Independent’ basis to suitable clients. Clients pay transparent and agreed fees for the services they receive from their advisor, instead of commissions and fees via products they are sold.
As Irish people we all like to know what we pay for a service, and what we receive in return, right? It’s parts of our DNA! Every client that works with us knows what they pay us for the benefit of our on-going counsel and guidance, what they pay the Trustees for over-sight on their schemes, what they pay the Custodians for the safe-keeping of their assets, and what they pay the Funds we select to achieve the desired results. There are several independent specialist parties involved, which typically totals a fraction above or below 1% per year.
A Department of Social Protection research paper found that most pension holders are actually paying an average of 2.1% each year in total fees on their pension pots, when you include financial advice, custody, fund fee, admin etc. What is more worrying, is that the fee is often twice what you are being told you are paying. Don’t get me started on ‘Private Client’ offerings which charge you 2.5 to 3% per year, particularly where they deliver the same or often lower returns than a pure investing approach.
In euro terms, an extra 1% in fees on a pot of €300k, over the past 10 years alone, has reduced your current pot by approx. €45,000. If you have achieved proper fund performance that figure will be higher. High costs don’t correlate at all with great consumer outcomes when it comes to pensions and investments. Every fraction of a % matters, don’t let anyone tell you otherwise.
As a consumer of financial advice, you have not traditionally been told how much you pay in total fees on the pensions, protection and investments you have. You have not been told that you pay for commissions indirectly through layered fees within the products. And to add insult, too often you are told; ‘The Insurance Company pays us for setting this scheme up for you, it doesn’t cost you a cent, sure tis grand!’. That’s utter nonsense. To run a country-mile in the opposite direction, kick them off the pitch, is the only next advisable action I can offer.
Ultimately, if your advisor is paid commissions, it does not mean that they are a ‘bad’ advisor. Similarly, if your advisor instead provides services on an Independent basis, it doesn’t guarantee they are a ‘good’ advisor! In my view at least, a ‘good’ Financial Advisor is one whom is technically competent to help you to achieve results and avoid costly mistakes in your investment and retirement planning. Possibly more importantly, their intent is focused on ensuring your interests and financial goals are the #1 priority at all times. They offer these valuable roles within financial advice at a transparent and agreed rate.
If you already have one, or happen to find one with these qualities, you should hold onto them for dear life! Call or mail them right now to thank them for the peace of mind, the financial advice, and ultimately the clarity they give you – they will think something is wrong with you, but do it anyway! I believe they were put on this lovely planet of ours to help you achieve your financial life goals, and secure you and your loved-one’s financial futures. Keep them on the pitch, heck, put them in at full forward!
Thanks for reading,
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