# First consultation with Advisor



## monagt (25 May 2016)

Listens attentively to needs.
Picks best option from his list of companies (independent, not tied, 6/6 companies to choose from)
Presents "best option" for them
No mention of Fees or how he gets paid for visit to home and policy.
No mention of "cooling of period"
Has documentation ready to sign - following day.

Is this OK?

I'm NOT casting aspersions on the advisor but just wondering is it fast with not enough info of fees?


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## Steven Barrett (25 May 2016)

Did you not ask about fees? And what are they paying for? Is it a pension, life cover, investment?

Is having everything ready for you quickly a problem? Should it take longer? I'm confused as to why this would be an issue.



Steven 
www.bluewaterfp.ie


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## Dan Murray (25 May 2016)

Hi Monagt

I have a big issue with advisers not explaining their remuneration basis (and the charging structure of products). Sounds like this guy is going to receive a commission payment.

Why don't you record here what the product is, its charging basis and what investment recommendations were provided (if relevant)? [It will be useful to calculate the difference between the "wholesale" cost and the "retail" cost to see how much yesterday's meeting actually cost you! To do the exercise more accurately, one would need approximate premiums and age!]


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## monagt (25 May 2016)

It's not for me, and they did not ask for fees and the information wasn't offered.
It's a joint policy to cover life.
Everything ready quickly - no I don't see it as a bad thing.

No it's not an issue, just wondering about the process.

Is there one set out by anyone?

Sorry I have confused you, Sean And not an issue, more a "I wus jus wondering"


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## monagt (25 May 2016)

Dan Murray said:


> Hi Monagt
> 
> I have a big issue with advisers not explaining their remuneration basis (and the charging structure of products). Sounds like this guy is going to receive a commission payment.
> 
> Why don't you record here what the product is, its charging basis and what investment recommendations were provided (if relevant)? [It will be useful to calculate the difference between the "wholesale" cost and the "retail" cost to see how much yesterday's meeting actually cost you! To do the exercise more accurately, one would need approximate premiums and age!]


I will get details when I get home from abroad


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## Steven Barrett (25 May 2016)

For protection cover the advisor fee is built into the contract. Each insurance company has a number of different commission structures for life cover plans. The one the advisor picks has no effect of the price for the client. 

Paperwork with commission payable to advisor should be given to the client at the second meeting. 

As setting up life cover etc is something we do a lot, most of the paperwork is templated, so it can be completed quick enough. 

I would see nothing wrong in the steps the advisor has taken so far. As long as the clients are happy with the level of cover they are taking out and how that figure was arrived at. 


Steven
www.bluewaterfp.ie


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## Gerard123 (25 May 2016)

Would you buy a car and not ask for the price?

While the advisor should of course have been clear on fees, there is also an expectation that people apply a bit of common sense.  Did they think the guy was working for free?


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## Gerard123 (25 May 2016)

SBarrett said:


> For protection cover the advisor fee is built into the contract. Each insurance company has a number of different commission structures for life cover plans. The one the advisor picks has no effect of the price for the client.
> 
> Paperwork with commission payable to advisor should be given to the client at the second meeting.
> 
> ...



Normally I agree with this poster but not this time.  Should be upfront on fees, should have been set out in meeting 1, fine for the paperwork to be in meeting 2 as it has to be prepared.  Above almost reads like "its in the small print" sotospeak.  There should be an openness and clarity on fees, it should be in plain English so that a reasonable person, not necessarily financially literate, can understand.


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## Dan Murray (25 May 2016)

Gerard123 said:


> .......Should be upfront on fees, should have been set out in meeting 1, fine for the paperwork to be in meeting 2 as it has to be prepared.  Above almost reads like "its in the small print" sotospeak.  There should be an openness and clarity on fees, it should be in plain English so that a reasonable person, not necessarily financially literate, can understand.



This is my opinion also and related to the point I made on an earlier thread today
http://www.askaboutmoney.com/threads/avc-questions.199080/



SBarrett said:


> For protection cover the advisor fee is built into the contract. Each insurance company has a number of different commission structures for life cover plans. The one the advisor picks has no effect of the price for the client.



Why not have non-commission rates like they do in the UK? This ensures complete transparency. For example, is it true that in PHI policies, the standard commission is a flat 30% for the entire term? So, say the premium is €3,000 a year - the advisor is getting €900 each year. This is fair enough for the first year but thereafter I really don't think so.

So are non-commission contracts available in Ireland and if not, the question is why not?


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## T McGibney (25 May 2016)

Gerard123 said:


> Would you buy a car and not ask for the price?



When you buy a car of course you know the price, just as you know the price of the pension/investment policy you're buying. But will you expect the garage salesman to tell you his own margin or commission he's earning on the sale?


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## monagt (25 May 2016)

Gerard123 said:


> Would you buy a car and not ask for the price?
> 
> While the advisor should of course have been clear on fees, there is also an expectation that people apply a bit of common sense.  Did they think the guy was working for free?



Common sense...Work for free....... Not as simple as buying a car...I think the onus is on the Professional to cover all the bases and more importantly answer all the questions that were unasked.


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## Dan Murray (25 May 2016)

T McGibney said:


> When you buy a car of course you know the price, just as you know the price of the pension/investment policy you're buying. But will you expect the garage salesman to tell you his own margin or commission he's earning on the sale?



You have, I believe, inadvertently, stumbled on the point.

Someone selling you a car is a............salesman.

Financial advisers want to be considered as "professionals" and share the attributes of professionals. I can't understand how you don't understand this. Your fee is not a function of the client's tax bill, right?


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## monagt (25 May 2016)

Gerard123 said:


> Would you buy a car and not ask for the price?
> 
> While the advisor should of course have been clear on fees, there is also an expectation that people apply a bit of common sense.  Did they think the guy was working for free?





Dan Murray said:


> You have, I believe, inadvertently, stumbled on the point.
> 
> Someone selling you a car is a............salesman.
> 
> Financial advisers want to be considered as "professionals" and share the attributes of professionals. I can't understand how you don't understand this. Your fee is not a function of the client's tax bill, right?




Exactly....... You expect more from a financial advisor consultant than a salesman.


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## T McGibney (25 May 2016)

Dan Murray said:


> You have, I believe, inadvertently, stumbled on the point.
> 
> Someone selling you a car is a............salesman.
> 
> Financial advisers want to be considered as "professionals" and share the attributes of professionals. I can't understand how you don't understand this. Your fee is not a function of the client's tax bill, right?



Is that really true of them all though? A car salesman may count himself as a professional too. Auctioneers certainly do.


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## Steven Barrett (25 May 2016)

Gerard123 said:


> Normally I agree with this poster but not this time.  Should be upfront on fees, should have been set out in meeting 1, fine for the paperwork to be in meeting 2 as it has to be prepared.  Above almost reads like "its in the small print" sotospeak.  There should be an openness and clarity on fees, it should be in plain English so that a reasonable person, not necessarily financially literate, can understand.



The fee structure to risk benefits is completely different to that of pensions and investments. It is built into the price, like it is for house or home insurance. The advisor in this case may very well be completely up front with the commission he is being paid at the second meeting when he goes through all the paperwork with the client. The client knows the price of the product already and the commission the advisor is being paid will not alter that. I pay commission on my own protection plans. 





Dan Murray said:


> This is my opinion also and related to the point I made on an earlier thread today
> http://www.askaboutmoney.com/threads/avc-questions.199080/
> 
> Why not have non-commission rates like they do in the UK? This ensures complete transparency. For example, is it true that in PHI policies, the standard commission is a flat 30% for the entire term? So, say the premium is €3,000 a year - the advisor is getting €900 each year. This is fair enough for the first year but thereafter I really don't think so.
> ...



The regulator in the UK banned commissions, so you will have to ask the Central Bank in Ireland why they haven't banned commissions. 

There are a number of different commission structures for all risk products. Some income protection plans go as high as 160% of the first years premium as commission (this can be clawedback if the policy is cancelled in the first 3 years). That 30% option is to encourage brokers to ensure that policies stay over the long term (the average term of a life policy is just 7 years). The standard commission for that product is 100% of the first years premium. 

There are one or two providers who allow you to reduce commission. The reduction in premium is only quite slight and clients tend not to want to pay the cost of setting up a policy. 


Steven
www.bluewaterfp.ie


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## Steven Barrett (25 May 2016)

T McGibney said:


> When you buy a car of course you know the price, just as you know the price of the pension/investment policy you're buying. But will you expect the garage salesman to tell you his own margin or commission he's earning on the sale?



I have lots of clients who import products into Ireland. The margin they make is truly staggering but people are happy to pay the inflated price. 

It's all down to what you perceive as value. If you don't think an advisor adds value, you won't use one. 

Steven
www.bluewaterfp.ie


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## Dan Murray (25 May 2016)

.


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## trasneoir (25 May 2016)

T McGibney said:


> When you buy a car of course you know the price, just as you know the price of the pension/investment policy you're buying. But will you expect the garage salesman to tell you his own margin or commission he's earning on the sale?


With a salesman, the relationship is nice and clear. He's an intermediary who is paid by the seller, so the customer should beware.
Happily it's easy to buy independent advice from an independent adviser (ie mechanic) who works for the buyer. If he were to receive a kickback from the seller, it would be considered fraud.

Given that financial advice is so much more important than motors, it's a little maddening that we have allowed sellers to muddy the water through legal kickbacks to advisers.
Steven, do the insurers offer commission-free pricing options to facilitate fee-based advice? Failing that, is is possible for fee-based advisers to pass commissions on to the buyer?

Are there any legal safeguards against indirect kickbacks, such as volume-based bonuses? Are they allowed? Do they have to be disclosed to buyers?


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## Steven Barrett (25 May 2016)

For pension and investment clients, I offer clients the choice of fee or commission and show them the difference (higher management fee in the commission option to recoup the payments).

For risk products, I get paid by commission and I tell clients that. I don't offer fee based life cover as reduction in premium is only slight and clients do not want to pay fees for life cover, especially bigger cases that involve a lot of work. 

What I am paid is disclosed in the Reasons Why statement, just above where you sign your name. 

You can pay back commission to clients but clients have to declare it to the revenue. You also have to remember that as well as providing advice, we are running a business and need to make a profit. I don't see why we should give someone a kickback when you wouldn't ask other people you buy products from?

The volume based kickbacks are largely gone. I don't receive any. Not sure if any of the older firms still do. 


Steven
www.bluewaterfp.ie


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## Dan Murray (25 May 2016)

T McGibney said:


> When you buy a car of course you know the price, just as you know the price of the pension/investment policy you're buying. But will you expect the garage salesman to tell you his own margin or commission he's earning on the sale?



It is a disclosure requirement for fees and commissions to be declared



T McGibney said:


> Is that really true of them all though? A car salesman may count himself as a professional too. Auctioneers certainly do.



Are you taking the proverbial? You go to a financial advisor for advice - you don't ask the auctioneer for advice if you're buying - as in, would you recommend Mr. Auctioneer that I buy this house? Do you feel it's aligned to my long-term goals? etc.


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## Dan Murray (25 May 2016)

Steven,

Firstly, thank you for taking the trouble to engage on this one - my criticism below is not, in any way, intended to be personally directed at you.

Quick initial question, is the re-imbursement of commission to clients allowed under the Consumer Protection Code?



SBarrett said:


> The fee structure to risk benefits is completely different to that of pensions and investments. It is built into the price..........The client knows the price of the product already and the commission the advisor is being paid will not alter that.



My view is that it suits advisers to keep the status quo of commission payments. We have agreed that one commission option for PHI policies is 30% of the premium each and every year. *To put this another way, the policyholder is paying 40% more in premiums that the equivalent non-commission contract should be*. Let's take an example as to how a more transparent process might look:

1st year: Client would be asked for a premium of €2,100 and the advisor seeks a separate establishment fee of €900

2nd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x

3rd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x

and so on it goes.......

The point is that under the current commission based approach, the client is paying fees for an ongoing service in a manner that is not transparent and/or may be paying for "service" that he is not really receiving. In any event, is there really much work involved 3 or 4 years into such a policy's life?

In addition, commission payments give rise to possible conflicts. Say the client after year 3 says: _I'm thinking of stopping my policy because of some financial constraint_. The advisor is conflicted in that such an action by the client would reduce the advisor's income and consequently gives rise to a potential conflict of interest.

The bit about "it being built into the premiums" (together with the associated remark that non-commission contracts are not that much cheaper) is disingenuous as, if the broker network was sufficiently motivated, it would demand appropriate net of commission risk products as has been done for pension/investment products - i.e. where the non-commission premium reflects fully the removal of commission payments. (Earlier, I spoke to a friend who advises me that this is already established practice within the group risk market in Ireland). This would lead to significantly improved transparency in the client/advisor relationship.


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## trasneoir (26 May 2016)

Steven, thanks for your answers, you're the man. I just hate that the water you swim in is muddied in this way.



SBarrett said:


> You also have to remember that as well as providing advice, we are running a business and need to make a profit.


This is a point well made - if we were to decouple the selling of advice from the selling of products, it would probably be bad news for advisers. Lots of customers would balk at the cost of advice if it were an optional extra, rather than built into the cost of the products. 



SBarrett said:


> I don't see why we should give someone a kickback when you wouldn't ask other people you buy products from?


Here's the crux. The world has trained us to mistrust "people [we] buy products from". 
If my trainer recommends a protein shake, i'll take his recommendation a lot less seriously if he also happens to sell it.


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## Dan Murray (26 May 2016)

trasneoir said:


> Here's the crux. The world has trained us to mistrust "people [we] buy products from".
> If my trainer recommends a protein shake, i'll take his recommendation a lot less seriously if he also happens to sell it.



Nail on head, trasneoir

When I go to my GP, I have massive trust in her advice due to a combination of:
- her intelligence, education and experience;
- the length of this trusted relationship; and
- the clarity of her remuneration basis*

*As opposed to: _Dan, you need loose a bit of weight. Try these new miracle tablets. They're a little expensive but amazing. Hey, you take these and let's forget about the consultation fee!!_


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## T McGibney (26 May 2016)

Dan Murray said:


> When I go to my GP, I have massive trust in her advice due to a combination of:
> - her intelligence, education and experience;
> - the length of this trusted relationship; and
> - the clarity of her remuneration basis*



That's peculiar as a high and ever increasing proportion of a typical GP's practice income is derived from the extremely opaque GMS system. Remember when the HSE defended continued payments to GPs for patients who had died?


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## T McGibney (26 May 2016)

Dan Murray said:


> Are you taking the proverbial? You go to a financial advisor for advice - you don't ask the auctioneer for advice if you're buying - as in, would you recommend Mr. Auctioneer that I buy this house? Do you feel it's aligned to my long-term goals? etc.



Advice in my book is something a customer pays a fee for. Many people refuse as a matter of principle to pay fees to a financial intermediary, especially if they're specifically seeking a particular type of product such as a pension or live cover. If an intermediary charges by the minute or the hour, that doesn't in itself guarantee better value to the customer.  What matters is the overall value inherent in the product they are buying from the intermediary. My butcher might recommend the fillet today or  the rib-eye tomorrow. I learned to trust my butcher's recommendations but it doesn't bother me if he's making a bigger margin on the fillet than he would on a lamb chop. If he recommends a bad cut to me, my trust will be gone and I won't be back to him.


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## trasneoir (26 May 2016)

T McGibney said:


> My butcher might recommend the fillet today or  the rib-eye tomorrow. I learned to trust my butcher's recommendations but it doesn't bother me if he's making a bigger margin on the fillet than he would on a lamb chop. If he recommends a bad cut to me, my trust will be gone and I won't be back to him.


I can't resist pointing out that with financial products, the steaks are a little higher 

Also in the case of life insurance, it's a little late to change advisers when my executor finds out that it doesn't taste as good as it looks. I think we all know people who have been burned by whole-life policies which offered great commissions and disappointing returns.


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## T McGibney (26 May 2016)

trasneoir said:


> Also in the case of life insurance, it's a little late to change advisers when my executor finds out that it doesn't taste as good as it looks. I think we all know people who have been burned by whole-life policies which offered great commissions and disappointing returns.



Still, I ramble into Tesco and I see colourful display and flyers urging me to buy life assurance, with not an advisor in sight. I continue to the bank, where I may or may not see an actual human being, but I definitely will see more material promoting the virtues of life assurance. And I conclude that Tesco and the bank are doing this because there's plenty of money in it for them.  Otherwise they'd be sticking to cabbages and deposit accounts, respectively.


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## Dan Murray (27 May 2016)

T McGibney said:


> Advice in my book is something a customer pays a fee for.



At least we agree on something 

It will be interesting to see what the practitioners make of the points raised.


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## monagt (27 May 2016)

As my old professor used to say, Free advice is worth the price".


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## Gordon Gekko (27 May 2016)

What we need is RDR...it is now illegal in the UK for the cost of the financial advice to be bundled with the investment management. In addition, the traditional remuneration model of life company paying broker is also a no-no. My understanding is that the Central Bank aren't pushing for RDR in Ireland and that in their view a long way off.

Much like Frank's authorisation, this appears symptomatic of a regulator with zero interest in the wellbeing of the consumer. Far easier for them to make robust firms jump through ridiculous hoops whilst con artists remain free men, and even dare to practice as pension advisers.


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## Dan Murray (28 May 2016)

Gordon Gekko said:


> What we need is RDR...it is now illegal in the UK for the cost of the financial advice to be bundled with the investment management. In addition, the traditional remuneration model of life company paying broker is also a no-no. My understanding is that the Central Bank aren't pushing for RDR in Ireland and that in their view a long way off.
> 
> Much like Frank's authorisation, this appears symptomatic of a regulator with zero interest in the wellbeing of the consumer. Far easier for them to make robust firms jump through ridiculous hoops whilst con artists remain free men, and even dare to practice as pension advisers.



Well, you seem to have changed your tune over the years.
















Whatever happened to greed is good and all that?

On a serious note, great post.

Regarding RDR, I wonder if you can help me out on some points of detail please? [My googling is not conclusive!]

1. Is it possible for UK brokers to still receive commission for risk benefit policies?

2. For investment and pension products, is it possible for UK brokers to add a fee to the assets under management? i.e. say the fund manager's charge is 0.5% p.a., can the broker say: _and my charge is a further 0.5% p.a._ or is such an asset management fee for brokers (i.e. where expressed as  a % of assets) now outlawed in the UK?

Fully agree with the comment regarding the ineptitude if the Central Bank.


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## monagt (6 Jun 2016)

Thanks to everyone for their input.


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## cremeegg (7 Jun 2016)

monagt said:


> Exactly....... You expect more from a financial advisor consultant than a salesman.



Only if you are a fool.


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## cremeegg (7 Jun 2016)

Dan Murray said:


> Nail on head, trasneoir
> 
> When I go to my GP, I have massive trust in her advice due to a combination of:
> - her intelligence, education and experience;
> ...



The naivety and complacency in this is staggering.

GPs are running a business and if they don't run it successfully from a financial point of view their children won't get new shoes.

Being subject to the same pressures as other businesspeople they make the same compromises as other businesspeople.

GPs income from the GMS has been hit badly in recent years, this has added to the financial pressures they face.

Having spent longer in college doesn't make them immune to this.

The point about the length of the trusted relationship can cut either way, most businesses are complacent about the level of service they offer to long term customers. Insurance companies, cable tv companies, banks are obvious examples. why would GPs be any different. And how would you know if they were offering you a poor level of service.

As to the clarity of their remuneration, GPs are also subject to huge pressures from drug companies. How clear are you on what free holidays your GP has had from drug companies in the past.

I went to my GP recently. I am not in a position to comment on the quality of the medical advice I received, though certainly I have no reason to doubt that it was good advice. 

However I can certainly comment on the fact that the receptionist was indifferent to the point or rudeness. There are so many places where you get a "good morning, what can I do for you" welcome nowadays that it is striking when a person in a reception role barely looks at you and grunts. this receptionist wouldn't last 5 minutes in a hotel.

I was also kept waiting 22 minutes past the appointed time. No apology, no acknowledgement that my time had been wasted.

My GP is a lousy recruiter and a lousy timekeeper, how do i know that they aren't a lousy doctor too.

Sorry, I should probably have posted this in letting off steam. But your post got under my skin. Forgive me.


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## monagt (7 Jun 2016)

cremeegg said:


> Only if you are a fool.



Nice 1 .................. so all (99.999) the Financial Advisors are basically Salesmen?

The big problem is finding an advisor who in the 00.001%?


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## cremeegg (7 Jun 2016)

monagt said:


> Nice 1 .................. so all (99.999) the Financial Advisors are basically Salesmen?



Of course. Financial Advisors sell financial products.

Solicitors are supposed to give legal advice, there is a widespread feeling that they encourage litigation to generate fees. This would be unsavoury bordering on unethical. Probably some solicitors do it probably most don't.

Its not like that with Financial Advisors, their raison d'être is to sell financial products. There is nothing remotely unethical about a financial Advisor selling financial products. The only problem comes in when customers believe something else is going on.


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## Dan Murray (7 Jun 2016)

I note, unfortunately, that a number of questions that I posed earlier in the thread remain unanswered - which is a pity.

Recent posts seem to be in relation to the extent that one can trust advice. One sure-fire way that I have found for receiving very direct and _gratis_ advice (in addition to being informed of the correct time as a kind of added bonus) is to ring any phone number at random in the middle of the night.


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## Steven Barrett (8 Jun 2016)

monagt said:


> Nice 1 .................. so all (99.999) the Financial Advisors are basically Salesmen?
> 
> The big problem is finding an advisor who in the 00.001%?



Everyone who works for themselves is a salesman, it is not restricted to advisors. If you don't sell, you go out of business. It is the quality of the advice you get from the "expert" that you have to assess, whether is be a doctor, solicitor, plumber etc. 

I am a Certified Financial Planner and as part of that qualification, I adhere to a , something that is very important to the way I want to run my business. 


Dan, I will get back to your questions too. Been busy lately and it will take more time to answer your questions. 


Steven
www.bluewaterfp.ie


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## Dan Murray (9 Jun 2016)

SBarrett said:


> Dan, I will get back to your questions too. Been busy lately and it will take more time to answer your questions.



Thanks Steven

Good that you are busy - I suspect it shows that plenty of folk are happy to partner with you as their trusted advisor. Also, the Code of Ethics provided seems like the sensible way to go.

I know on this particular topic - some of our views may diverge - but your willingness to engage openly and courteously is appreciated.


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## Steven Barrett (10 Jun 2016)

*Quick initial question, is the re-imbursement of commission to clients allowed under the Consumer Protection Code?*

Without re-reading the code, I cannot remember reading that it is not allowed. It should be declared to the Revenue as income. That is the clients responsibility, not the advisors.

*My view is that it suits advisers to keep the status quo of commission payments. We have agreed that one commission option for PHI policies is 30% of the premium each and every year. To put this another way, the policyholder is paying 40% more in premiums that the equivalent non-commission contract should be. Let's take an example as to how a more transparent process might look:

1st year: Client would be asked for a premium of €2,100 and the advisor seeks a separate establishment fee of €900

2nd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x

3rd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x

and so on it goes.......

The point is that under the current commission based approach, the client is paying fees for an ongoing service in a manner that is not transparent and/or may be paying for "service" that he is not really receiving. In any event, is there really much work involved 3 or 4 years into such a policy's life?
*
What happens when their is a claim? Especially one that is complex and requires a lot of work by the advisor (a lot of which is unseen by the client. Advisors do a lot of work for clients in the background to save clients a lot of hassle.) Ongoing commission covers the potential additional costs in processing a claim for a client. Or would you prefer a bill for a few thousand? 

*In addition, commission payments give rise to possible conflicts. Say the client after year 3 says: I'm thinking of stopping my policy because of some financial constraint. The advisor is conflicted in that such an action by the client would reduce the advisor's income and consequently gives rise to a potential conflict of interest.*

How much influence do you think an advisor has? If someone is having financial difficulties, they will cut expenditure that they don't find important regardless (Sky will always stay though!). Advisors will rarely advise that a client stops a risk benefit but it is nothing to do with commission, it's to do with the fear of being sued. What if I advise you to cancel you income protection or life policy and a month later you die/ suffer a serious injury? Steven advised me to cancel the policy, I did and now my wife has to live on the widow's pension instead of having a massive lump sum payout. 

You also have to understand the context of the 30% a year commission structure. That provider, Friends First, have 4 different commission structures (same price for the client). At the other end, they will pay 200% of the first year premium to the broker. There is a 4 year clawback period for that period. A broker who opts for that structure is going to be much more tempted to advise you to change provider after the 4th year than someone who is looking to build up a decent recurring income over the long term.  

*The bit about "it being built into the premiums" (together with the associated remark that non-commission contracts are not that much cheaper) is disingenuous as, if the broker network was sufficiently motivated, it would demand appropriate net of commission risk products as has been done for pension/investment products - i.e. where the non-commission premium reflects fully the removal of commission payments. (Earlier, I spoke to a friend who advises me that this is already established practice within the group risk market in Ireland). This would lead to significantly improved transparency in the client/advisor relationship.
*
Products have mark ups. When I sign up to my contract with Eir, built into their price is profit. Same with my ESB bill. It is how commerce works. Insurance products have profit too. If I don't make a profit, I get shut down by the Central Bank (under Central Bank rules, my assets much be greater than my liabilities. As my laptop is my only asset, I must have cash in the bank to show a positive position each year). 

Pension/ investment products is different in that insurance companies have allocation rates to attract business. People believe they were having more money invested than they were actually giving the company when it was being taken back through high management fees. I have had people from this site call me wondering how much my fees are and then say another advisor said they'd do it for free i.e. they take the additional allocation and there is a much higher management charge. 


*If my trainer recommends a protein shake, i'll take his recommendation a lot less seriously if he also happens to sell it*

It's not the same. People generally come into me looking for advice on a pension or investment. I have all the tools, expertise and processes in place to help them understand about pensions, investments, risk etc. Once I have worked with them through that, should I send them off to an insurance company to implement the plan...where someone from direct sales will come out and charge them a commission to implement? 

And giving financial advice is not like going to the doctor either. When you go to the doctor, he diagnoses you, tells you the prescription and off you go. He doesn't teach you about medicine. Financial advice is about explaining personal finance to people, teaching them that investment risk isn't danger, it's a method of gauging potential losses and gains, that is an ongoing process that can go on for decades. When a 30 year old wants a pension, they need to be given advice all they way to retirement and beyond. The value of the advice isn't quantifiable immediately but will be seen over the long term; like talking people off the ledge when people wanted to move to cash in January. How much would that bad decision cost them in the long run? It's impossible to know right now. 


*What we need is RDR...it is now illegal in the UK for the cost of the financial advice to be bundled with the investment management. In addition, the traditional remuneration model of life company paying broker is also a no-no. My understanding is that the Central Bank aren't pushing for RDR in Ireland and that in their view a long way off.*

From what I have read, the Central Bank have no interest in banning commissions. It is more likely to come from the EU rather than here at home. It wouldn't bother me if it was introduced. I don't run my business where I am reliant on big, up front commissions that clients could never possibly pay. 


Steven
www.bluewaterfp.ie


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## Dan Murray (10 Jun 2016)

SBarrett said:


> *Quick initial question, is the re-imbursement of commission to clients allowed under the Consumer Protection Code?*
> Without re-reading the code, I cannot remember reading that it is not allowed. It should be declared to the Revenue as income. That is the clients responsibility, not the advisors.



Steven

I had hoped for a detailed answer to my queries. Ok, just kidding!!, thanks again for taking the trouble to provide such a detailed response. 
I will review again your full post in more detail later.

Just one point for now - my understanding from an adviser that I was dealing with is that he simply was prohibited from returning commissions to me (his client). In correspondence I received from this adviser, it stated: _Under the Consumer Protection Code, I am prohibited from paying or sharing a fee or commission in respect of regulated financial services to individuals or entities (unless those individuals or entities are also regulated financial services providers themselves).
_
So - can anyone clarify this?  Can commission be rebated to a client or not? [I appreciate that the Revenue should be made aware of commission rebates].


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## North Star (10 Jun 2016)

Dan, we interpreted that section of the CPC as intending to prohibit soft commissions or introducing fees paid to a third party who isnt regulated. It is silent on the main point as in a refund of fees or commissions directly to the client. I do hope our interpretation is correct as we have refunded/rebated  commissions directly to the client in some instances. We make a distinction between paying a fee or commission to a third party as opposed to a refund/rebate directly to the client in that the second option has to be considered as client friendly which we all would hope is the main objective of the Code. Have a good weekend all.
Regards Vincent


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## Steven Barrett (10 Jun 2016)

I do know my old employer has given rebates to clients and on the advice of his compliance officer, put in:




> Please note that this payment is gross of any tax liability that you may be liable for. You should seek advice from an accountant on the treatment of this payment.



The compliance officer he uses is top notch. 

Dan, maybe your advisor needed the money to buy his kids new shoes 

Steven
www.bluewaterfp.ie


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## Dan Murray (10 Jun 2016)

North Star said:


> Dan, we interpreted that section of the CPC as intending to prohibit soft commissions or introducing fees paid to a third party who isnt regulated. *It is silent on the main point as in a refund of fees or commissions directly to the client.....*



Hi Vincent

I hope you are keeping well. [Good contribution in one of the Sunday papers recently.]

Me, not lawyer, not legal speak understand - so not do have attack on heart please.....

However, I decided to have a gawk at the CPC. Only sensible reference (in this context) that I could find in relation to commission was in Section 3.25

_A *regulated entity *may pay a fee, commission, other reward or remuneration in respect of the provision of *regulated activities only* to a *person *that is:_ [and then goes on to list a pile of categories - all of which relate to non-consumers].

So, this seems consistent with what my adviser told me, as in:
_.....Under the Consumer Protection Code, I am prohibited from paying or sharing a fee or commission in respect of regulated financial services to individuals or entities (unless those individuals or entities are also regulated financial services providers themselves).
_
That said - I can understand the rationale for Vincent's interpretation.

So where to go with all this? Well, for me personally, I am happy that my adviser did not just invent stuff! (....in order to buy his kids new shoes!) However, whilst getting definitive clarification is of interest to me, it would seem to be of critical importance to the practitioners amongst us given our respective callings in life?!


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## North Star (7 Jul 2016)

Hi Dan,  
Following on from this discussion I sent a query to the Central Bank asking for confirmation of our understanding in relation to refunding fee or commission directly to clients. The response included the following; 

"The intention of this provision is to prevent the payment of fees etc., to unregulated entities in respect of activities that require regulation.  The refund  or rebate by a regulated entity to a consumer of commissions paid by a product producer does not fall into this category, as the consumer has not been involved in the provision of regulated activities.  Therefore, we do not see any issue with the rebate of such commissions or fees to a consumer, provided it is carried out in the above manner and regulated activities have not been undertaken by this consumer."

We will work on the basis that this is a definitive a clarification. 
All the best Vincent


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## Alan Considine (12 Jul 2016)

Yes I believe all of the kickbacks on volume are gone.. Override is a thing of the past!


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