Tax savings: It's all about making the right choices
THE returns and the tax on savings are proving disappointing. This means that people with some money saved may be considering investing it to get a better return. This is where good financial advice becomes important.
There are lots of financial advisers out there, but it pays to know the different types and what exactly they will offer you in terms advice, or whether they are merely sales people.
The Central Bank maintains a list of firms and individuals authorised to sell and to advise on investment products. To find this go to www.centralbank.ie and click on “Registers” on the left-hand side of the home page. Alternatively, if you do not have access to the web, you can call the online register at 01 2244000.
Many people selling investments are called brokers. Basically, there are three types of investment sales agents and/or advisers:
These people sell products from one company. Crucially, they can tell you only about the features of the products they sell for that company.
These people can offer advice about products from a range of selected investment firms, as they have a relationship with each one. The list of firms the intermediary has a relationship with will be set out on the Central Bank register.
This is someone who supposed to consider all the financial products that meet you needs, and act in your best interests at all times.
It makes sense to go to an authorised adviser as you will get advise tailored to your needs. You will probably have to pay a flat fee, as opposed to paying commission, which some people see as a downside. But a fee is the price for getting impartial advice.
From the outset of your meeting with an adviser you must be provided with a letter setting out the terms of business. This will clearly outline their status and the companies, if any, they are tied to. At the conclusion of your business, the adviser/agent must explain in writing why they made the recommendation they did.
You need to be aware that most agents are paid through commission, instead of charging a fee. This means it can be difficult to be absolutely sure they are acting in your best interests.
Some countries, including Britain, have banned commission-based investment sales. There are plans to do that here in 2017. Be aware of the different types of commission that can be charged if you do not opt to pay a fee for advice.
Types of commission include:
Initial, or upfront, commission
This is the money the adviser receives when the sale of the product is made.
This is paid from your regular investment, or from you lump-sum.
This is an annual percentage of your overall investment fund. Commission payments represent big bucks for advisers. And this, in turn, has given rise to what is known as churning. This is where a customer is encouraged to switch their funds out of one fund or investment into another, mainly to generate commission for the agent.
Churning has been a significant problem in the Irish market over the years. It is one reason why it makes sense to seek out an authorised adviser who is paid from a fee, rather than from commission.
An adviser’s fee will range from €200 to €800. Often the amount you pay in commission is much more, but people do not realise this because they cannot see the money being taken from their investment.