The risky business of deciding to go for broke
Whether you are looking for a better financial adviser or you are considering a broker for the first time, it's best to do your homework first before making a call, writes John Cradden
If you have a long-established relationship with your broker and you are happy, then it may be a case of 'if it ain't
broke, don't fix it'
GOOD independent financial advisers can be worth their weight in gold. If you have one and you know it, the chances are you will stick with them for many years. As well as guiding you to strong financial health, a good adviser is someone who has taken the time to get to know you, your personal circumstances and your financial goals.
But like any relationship, a decision to break up and go with another adviser means investing time getting to know the new adviser and vice versa. It's also risky, as the relationship may not work out and you're on your own again.
"If you have a long-established relationship with your broker and you are happy with the service he or she provides, then it may be a case of 'if it ain't broke, don't fix it'," said Ciaran Phelan of the Irish Brokers Association.
He adds that all brokers are regulated by the Central Bank and have to abide by the Consumer Protection Code, which requires them to act in the best interest of the consumer. Financial brokers also have to prove they have the necessary competence through experience or qualification to advise all clients on their financial affairs.
So if you want to look for a better adviser or you're interested in seeking out an adviser for the first time, word-of-mouth recommendations are a good way to go.
But if you end up having to shop around, one potential way to narrow your search is to decide on the basis of how he or she gets paid.
All regulated advisers are required to provide you their 'terms of business' which, among other things, should detail how they are paid and whether they charge a fee or not.
The conventional wisdom is that using an adviser who is paid by commission rather than up-front fees means that the advice the client receives may not be the most independent or impartial.
For instance, the National Consumer Agency says the issue of whether or not they are paid commission can be important "as it can impact on the value of the investment or pension".
On the other hand, Karl Deeter, head of client advice at Advisors.ie, says that services that are fee-based only are a "little bit of a hoax, in some respects".
"For a start, many of the 'fee-only' advisers will still get trail commission, build in management fee costs to policies and charge the same amount as they would make by getting commissions.
"Nor does it guarantee better outcomes. Evidence from the Netherlands shows that fee advice is generally only attractive to the higher wealth clients, for whom the trade-off of upfront costs makes sense. For instance, if this was a 'fee-only' world you'd never see any of the cheap life assurance websites staying in business.
"It's really this simple, what is best for the client is what gets them the results they want at the best price. Fee-only can't do that, nor can commission-only. There is no perfect method."
Many brokers use a mixture of both.
Rachel Doyle, of the Professional Insurance Brokers Association (PIBA), says that most financial brokers will hold appointments with most of the seven main players in the life and pensions sector, and they are also required by regulations to conduct a fair analysis of the market with the best interests of their client in mind.
"Financial brokers will have access to competitive pricing on all products, so whilst it does make sense to assess who your financial adviser should be, it should not be done solely on the basis of finding access to the best product prices."
Brokers also have to demonstrate their impartiality by summarising the details of the companies they research and the results of their analysis in a 'statement of suitability', she adds.
You can also look at whether the adviser is classed by the Central Bank as an authorised adviser or a multi-agency intermediary, with the former required to provide broad-based investment advice on all the products in the marketplace, while the latter may only provide information on products supplied by firms the advisor has a relationship with.
But Mr Deeter says that the authorised adviser is a "dying concept, even from a regulatory point of view, and those that do claim to know the whole market are talking through their hat".
Indeed, the Central Bank is proposing to scrap these categorisations next year, following the advice of an industry working group that concluded that they were redundant, and adopt a single category of investment product intermediaries.
"A well-established, regulated firm who you hear of by word of mouth or reputation and your own judgment after an initial consultation is about as good as you can practically hope to do," said Mr Deeter.
"Like any professional service, you have to rely on your own discretion and objectives."