Money Times - August 2, 2016

Posted by Jill Kerby on August 02 2016 @ 09:00



A guy goes to a solicitor with two casts on his legs: “I was hit by a bus as I crossed the street on a green light. I need your help. How much will it cost?  “Not a thing,” the lawyer replies. “My advice is free. The bus company will pay me for representing you.”

Another guy goes to his doctor with aches and pains. “I need your help, doc. How much will the treatment cost?”  “Not a penny. These drug companies will pay me every time I prescribe you a drug or treatment.”

Finally, a young person finds a college that waives all fees. “Wow, that’s great,” says the student. “Yes it is,” the admissions officer explains:  “The tobacco industry pays us generously every time we recruit a new student.”

Who in their right mind would ever engage the services of any of the above?  How could anyone expect worthwhile, impartial, independent advice, treatment or instruction in such circumstances?

Yet nearly every person who has bought protection insurance or an investment fund (maybe even a mortgage) in Ireland over the past three decades has probably dealt with a salesman or broker whose livelihood is provided not by you, their client, but by the product provider.

And if the size of that payment is not absolutely transparent, then you have no way to compare its cost to other similar products, or more importantly, to determine what impact the commission will have on the short, medium and long term value of their insurance cover or investment fund.

Let me be absolutely clear. Commission is paid out of the premium contributions you make to the insurer or pension/investment company. The size of the commission will vary by product and by product provider. (The relatively modest commission a motor insurance broker receives is not as eventful as the huge, on-going one some pension holders pay.) Some product providers pay more than others, but there is no central register of commissions so that you can easily compare them.

There is no such thing as “free advice”. The salesman or broker who takes commission may provide you with appropriate, cost effective advice but their payment is coming out of the insurance premiums you pay every month or year, or from the accumulated value in your investment fund.  And when other policy and fund management charges are added to high commissions, there will be a devastating, cumulative effect on the value of investment funds in particular.

Commission payments are not the only reason why financial services products, have a reputation for being complex, opaque, expensive and poor value, especially over the short and medium term.  But over the decades that I have been writing about personal finance, they have contributed to the poor financial outcomes so many people have experienced with investments and the lack of trust so many people have in the private pensions industry in particular.

The Central Bank of Ireland, which regulates the insurance and investment industry has finally decided to address this hugely important and serious problem, decades after calls to do so by yours truly, other financial journalists and one well-known consumer advocate, Eddie Hobbs who in the early 1990s exposed the scam that was the so-called endowment mortgage industry. (This spilled over to the shortcomings of ‘whole-of-life’ insurance, which so many MoneyTimes readers have experienced and continue to, to this day as they discover their increasingly expensive life policies have practically no value.

The Central Bank, in a ‘Discussion Paper’ published last week said it is seeking the “views on the risks and benefits to the consumer of the practice of insurance companies, banks and other financial firms paying commissions to intermediaries who distribute their financial products.
It is important that the remuneration structure for staff of both financial services providers and financial intermediaries is designed to encourage responsible business conduct, fair treatment of consumers and to avoid conflicts of interest.”

Commission remuneration is already banned or is being banned in other countries, including the UK. The conflict of interest distorts the client/adviser relationship and the crucial need to provide impartial, independent advice especially in the case of investment products. Even where there are disclosure regulations, too often they are paid lip service by the intermediary and not sufficiently policed by the regulators.

I will be making a submission to the Central Bank against commission payments. The deadline is 18 October 2016.

If you were missold, or had a poor financial outcome or experience in the purchase of an endowment mortgage, insurance policy, a ‘whole of life’/investment policy, a mortgage, an investment fund or pension, from which commission was deducted, you should make a submission too. (See consumerprotectionpolicy@centralbank.ie )

Or you can also contact me at my email address below and I will add your story to the huge archive of complaints that I’ve received – and kept -over the past 25 years.


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