Did you ever go to your bank, insurance or investment company and say to yourself “I wonder if I am getting unbiased advice, or am I just being sold something?” Do you find it difficult to believe that you are getting the right advice ? Do you really trust the person who is advising you ? Woody Allen had a few quips himself ..my worst nightmare is being stuck in a lift with an insurance salesman….
These are all typical questions that rush momentarily through our heads and because of the lack of time or expertise, we “accept” what is being proposed more out of expediency than belief.
We do need to trust but we also can arm ourselves with a little knowledge to ensure at least that the person who is advising us is fully qualified to do so.
Choosing an adviser is not really a difficult task. Let me give you a brief history of recent regulatory advice. The choosing was made all the more easy by the Irish Financial Services Regulatory Authority (IFSRA) who took over the regulation from the Central Bank on 1st May 2003 and who then subsequently passed it back to the Central Bank who now regulate the insurance, investment and the credit industry in Ireland.
Up to 2004, for insurances and investments, there were two types of advisers – Authorised Advisors (AAs) and Multi Agency Intermediaries (MAIs)
AAs had to give “best advice” irrespective of insurance and investment agencies held. They also were more stringently monitored ( accounts had to be submitted every 6 months to IFSRA for example ) and at the last count in 2008, there were only 519 out of an original total of just over 9,000 insurance brokers operating less than 16 years ago.
MAIs could only give advice on the insurance and investment agencies held and nothing else. Originally they were called Restricted Intermediaries or RAIPIs and they numbered c. 2,400. ( over 6,000+ insurance brokers went out of business since 2001) IFSRA also took over the regulation of the mortgage intermediary market. Of the 900 mortgage intermediaries, there were over 86% who had LESS than 5 of the 13 then available lending agencies operating in Ireland ( source : Consumer Association of Ireland now CCPC ) Bank of Scotland (Edinburgh) who acted as the catalyst in the home loan market shake up some 15 years ago, only had initially 42 appointed agents operating in the Republic along side their direct business. They then announced the transfer of their home loan underwriting and administration to their Dublin office under Bank of Scotland (Ireland).
Under the then compliance regulations, mortgage intermediaries had to follow their insurance and investment intermediary counterparts and issue a Terms of Business booklet to each new client. This booklet not only was to outline how they are remunerated but it also showed what product providers they represented – in other words, in the case of mortgages, how many lending agencies were held. So even before you started the interview, you could have checked whether you are going to receive “best advice” or be restricted to that adviser’s possible limited agencies and therefore biased advice. Just think about it – if the adviser only had three or four lender agencies, they are hardly likely to advise on a non-held agency for your mortgage.
Put all together, finding an Authorised Advisor and a Mortgage Intermediary 15 years ago with full choice to obtain the best possible unbiased and independent advice in the one place was akin to finding the Golden Fleece. Now apart from Central bank authorisation, you also should look for other features in an adviser. Firstly experience – Knowing how to advise is as important as where to place your business. Looking after a client’s needs is more important than selling them a product. Typically, experienced advisers will have qualifications such as QFA (Qualified Financial Adviser), membership of financial associations ( e.g. Institute of Bankers ) or have a wealth of financial experience – years in the business – that you can be comfortable with.
Secondly, trust. You can have supplier choice, huge experience and qualification but if you cannot trust your adviser or believe in the impartial and independent advice that is being given, then your meeting is not going to be fruitful.
Lastly expect to pay a fee unless you are happy knowing that you may be sold a product to justify that meeting with your adviser. How else can they earn money from you ? There are advisers who operate on a fee basis but execution only – if you want a specific product they will supply it without charge as the provider will pay their fee. If you choose to accept an adviser’s shortcomings ( lack of choice, vested interests etc ) where a fee is NOT payable at the initial meeting, then that is your choice. Caveat emptor.
Customers stay with their institutions for a myriad of reasons – loyalty ( “I opened my account 40 years ago…”) good service, the hassle of changing, knowing their adviser personally and because of these reasons, getting “best advice” may be down the pecking order. However, times are changing and in these difficult years consumers are beginning to realise that it’s better in their pockets than in their institution or adviser’s pocket !