In our experience most people don’t really know what they are paying for their investments and pensions. The advice cost is very often “bundled in” to an Insurance Contract making getting to the bottom of the real cost virtually impossible (especially for pension contracts)
The real cause of the issue is that the vast majority of financial advisers in Ireland today are still paid by commission for selling Insurance Company products.
Since EU regulations intended to inform consumers do not apply to Irish Insurance-based Pension contracts it is therefore almost impossible to determine what you are really paying.
However, the same EU regulations do apply to personal investment contracts and a search for “Key Information Documents” gives an insight into the likely cost.
For example Irish Life contracts can be found here
So, for example, starting at the top of the list if you were to purchase an Irish Life Portfolio Invest Bond via one of the AIB tied agents who must sell you an Irish Life product and can’t advise on any other, the disclosed fee is
So we can see that AIB must be taking a high upfront commission and Irish Life protects its own interests by applying an early surrender penalty over the first few years.
You can see that even after year 4 the ongoing annual charge is still in excess of 2%pa finally reducing to 1.66%pa in year 7 once the impact of the initial commission payment has been recovered.
To independently corroborate these figures, we can use a Department of Social Protection study which found that investors are paying average annual fees of 2.1%.
We frequently hear of investors being told that they are receiving a better allocation rate and that therefore the charges are being reduced. Of course there is no such thing as free lunch and in reality these are just part and parcel of a generally opaque pricing structure which is deliberately designed to hide the true costs.
The effect of increased allocation rates is of course to increase the number of units purchased at the outset but what is often overlooked is that this increased fund value is subject to an annual management fee and therefore the Insurance Company immediately begins to claw back some of this benefit.
|100% Allocation Rate 2% annual charge
||105% Allocation Rate 2% annual charge
|€100,000 x 2% = €2,000 charge in year one
||€105,000 x 2% = €2,100 annual charge in year one
Simplified for illustrative purposes
Finally, we frequently see examples of investors who have taken advice only to find that the financial adviser is hiding very high commission payments via unregulated products.
There are different types of regulation of Financial Advice in Ireland and it makes sense to compare these to get a better sense of the sort of Financial Advisor you are really looking for.
||High Street Bank Advice
||Insurance Brokers Insurance Mediation Regulations (IMR)
Investment Intermediaries Act 1995
(Markets in Financial Instruments Directive (MIFID)
(IMR and IIA)
|Can advise on the whole market including international options?
||NO – typically tied to a single insurance company
||NO – IMR only covers Insurance Companies
||YES – including stocks listed on a regulated exchange
||Typically provide their own investment services and own investment funds
|Paid by commissions
||Typically generate trading commissions
|Customise portfolios for client’s tax status
How can you find Independent Financial Advice in Ireland?
The Central Bank of Ireland recently changed the rules around disclosure of commissions but stopped short of a ban on investment commissions due to considerable lobbying on the part of the incumbent providers. Almost no Financial Advisers in Ireland today can describe themselves as Independent.
We are not Financial Brokers since our business is exclusively conducted on the basis of customer agreed remuneration and/or via an asset under advice fee and we do not receive any third party commissions.
Our Financial Planning Services
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