The Sunday Times - Money Comment 19/07/09

Posted by Jill Kerby on July 19 2009 @ 21:08

The financial services watchdog wants more teeth.  



In cases where he believes it would serve the public good, Joe Meade, the Ombudsman, is looking to be able to name and shame the banks, stockbroking firms, insurance and investment companies that he finds against, a power that he should have had when his office was first put on a statutory basis four years ago. 



Certainly the cases he’s highlighted from the beginning of this year supports his position, but the occasional naming and shaming of bank  that produces a particularly loathsome case of financial elder abuse (of which the Ombudsman has discovered many in the past four years), perhaps his judgements would carry even more weight in the wider financial services industry if there was some provision to make the individuals who have sold the products – or their managers and higher executives– personally responsible for their actions.  



This could vary from fines, suspensions, demotions and dismissal to prosecutions instigated by the Financial Regulator on behalf of the Ombudsman.  



The three cases involving elderly investors that Joe Meade settled in the first half of this year and highlighted in his report last week, are extreme examples of the way elderly bank customers in particular are targeted by the investment side of the banks – who else has hundreds of thousands of euro sitting on deposit?  But Meade clearly thinks they are also only the tip of the iceberg of poor to bad advice this age group may be receiving and he also wants the institutions to be required to review all such cases involving older depositors in particular which can then be examined properly after the new joint regulatory body is created later this year. 



I hope I’m not doing the Ombudsman a disservice by saying that whenever I talk to him I get the impression that he is genuinely disgusted by the cavalier attitude that the banks and investment firms have, not just to their financially unsophisticated, elderly clients, but to the regulations under which they are obliged to operate.  




The purpose of confirming a customer’s age, risk profile and previous financial history (ie, whether they have ever owned shares, etc.) – all part of the required sales process - is to help guide the advisor against, for example, selling a physically frail couple in their mid-80s, with life savings of €300,000, a six year investment bond that carried stiff early encashment penalties. 



I have an elderly spaniel with more common sense than that displayed by the advisors being admonished by the Ombudsman.   (Of course, Monty’s rewards for good behaviour don’t include great big juicy commissions.) 



All the Financial Ombudsman’s quarterly reports and case studies are available on his website:  www.financialombudsman.ie.





Meanwhile, interesting news from the UK:  from 2012, their financial regulator intends that sales commission for independent financial advisors will be scrapped and replaced by a fee only remuneration system.  We inevitably follow the UK lead in this area, but why wait for it to happen there first?



The merits of paying a fee over commission is that an advisor who is paid directly by his client and not the product provider is more likely do the right thing and recommend the most suitable product, not the one that pays him the highest, often on-going, financial reward.  



Only a small minority of financial advisors here charge fees, mainly to higher net worth clients who are already accustomed to paying for independent accountancy, tax or legal advice.  It’s only partly due to the commission system; which encourages the quick, lazy solution; it’s also because only a small minority have the training and expertise to provide the level of information and advice that commands a professional fee. 



Aside from the fact that expensive commissions have disproportionately impacted on the value of common purchases like whole of life assurance policies, education savings plans, AVCs and endowment mortgages over the years, the other, compelling reason we should adopt fee-only remuneration is that easy lure of high commissions are undoubtedly at the heart of the financial horror stories the Financial Ombudsman keeps unearthing that involve elderly investors.



There’s no such thing as “free” financial advice. Fee-only remuneration here can’t come soon enough.  




As you might expect, nine out of 10 women participating in a Standard Life survey about the recession, say they’ve been affected, with two thirds of them cutting back on day to day spending, more than a quarter having seen their pay cut and nearly 20% having their hours reduced.  


Even with their incomes cut, more women are saving than ever before – €282 a month on average with eight of ten Dublin women surveyed saving €320 a month.  


This is all very good news for Standard Life and other pension companies keen to hoover up all these extra savings. Gillian Ryan, an account manager at Standard Life even says that she was pleasantly surprised, that it was younger women, the 25 to 34 year olds, who expressed the most interest in investing some of their savings in a pension: “You’d expect older women to be the most favourably inclined towards pensions given their proximity to retirement and the generous tax reliefs available.”


I’m not surprised.  Older women who’ve been investing, for example, in managed pension funds for the last decade, have earned a measly 0.6% per annum average return. Perhaps no one mentioned this to Ms Ryan and those 24 to 34 year olds.

1 comment(s)

  1. essayontime on Jul 18 2020 15:58
    Well, expensive commission are always go towards the company and people are doing work with them. And it always helps them to sell their products and services.
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