The future of financial advice in Ireland

So this is where we take out our crystal ball! Consumers sometimes are not clear about the value of financial advice, a situation that we are trying very hard to change. We know the value that is offered every day by Financial Brokers the length and breadth of the country, so here are a few thoughts on what you can expect to gain from seeking financial advice from a professional Financial Broker. The good news is that this future has now pretty much arrived! A good Financial Broker will deliver on these today.

Consumers don’t want conflicted advice
This is probably the key point. Consumers want advice and financial solutions that are based on their specific goals and objectives, and not those of the person giving the advice. The independence of the advice giver is critical here, they need to be able to seek out and provide the very best solution in the market for the client. The days of “force fitting” clients to the single product solution that is the only one available to a product seller are long gone. The solution must start and end with the client – their specific goals, their requirements and their specific circumstances.

Financial Brokers are not aligned to any one organisation and can advice upon the products of many organisations. Their advice starts and ends with the client, not the products available to them.

Consumers want clear and transparent charging
Similar to any other product or service bought by consumers, they rightly want to know what it is costing them. The providers of financial advice need to be able to clearly demonstrate the value that they are bringing through their advice, and what this advice costs. The adviser needs to be able to set out clearly how they will make a difference to the financial future of the client, and charge accordingly for this. Consumers can choose to pay for this through commission taken by the adviser from products, or by separate fees – however the adviser needs to be able to communicate clearly the value that will be gained from their advice.

Financial advice is about lifetime relationships
This might sound like a lofty statement, but it is so true! Financial advice is not a point in time transaction, it is a journey. It starts with the adviser identifying the desired financial outcomes of a client (the destination) and understanding the client’s current circumstances (the starting point). The adviser then puts in place the financial solutions (the vehicle) to help you achieve your objectives.

But as with any journey, the minute that you set off, everything changes! Financial markets change, your circumstances change, maybe your objectives change. So your financial adviser needs to travel on your financial journey with you.

Unlike in your bank branch, your Financial Broker will be a consistent figure throughout this journey. Continuing to guide you and redirect you as needed.

Financial advice was never more valuable. Can you afford not to get it from a Financial Broker?

3 things you might not know about Mortgage Protection Insurance

Mortgage Protection Insurance is life assurance cover that will clear your mortgage in the event of your (or your spouse’s) death. While it is obviously very necessary, taking out this cover often comes at a bad time for consumers, who are to the pin of their collars facing a new mortgage and all of the costs associated with a new house. For this reason, it is really important that you get the best (often the cheapest!) cover in place. Here are three points that you may not have known about mortgage protection insurance, that just might help you to get the right policy for you.

You don’t have to take out this policy with your bank. Your bank may arrange your mortgage for you. They may also insist on you having mortgage protection insurance in place as a condition of your loan. That is their right. However they cannot by law insist on you taking out this policy with them and cannot make the loan conditional on you doing so. You retain the right to take out any mortgage protection policy available in the market, once you ensure the required amount of cover is in place.

Now this is really important!

Your bank will usually have access to the policies of a single life assurance company. However your Financial Broker will have access to policies of all of the insurers in the Irish market, making sure that you get the very best / cheapest policy to meet your needs. Your bank must accept this policy.

Your cover does not have to decrease in line with the mortgage

The life assurance cover within traditional mortgage protection policies decreases in line with the outstanding mortgage amount. This is the minimum amount of cover that you must have in place – enough to clear the loan at any stage during the lifetime of the mortgage.

However you can have more cover in place. As part of a wider financial plan developed by your Financial Broker, you might choose to have a level amount of cover that will not fall, possibly for the original mortgage amount. In the event of death, the life cover amount will then be greater than the mortgage due, as some of the mortgage will have been repaid in the meantime. This excess cover is simply then paid to your estate.

There are many other benefits available

One of the benefits of taking out your Mortgage Protection insurance through your Financial Broker is that you can tap in to their knowledge of all of the plans that are available in the market, and access features that might not be available through the policy offered by your bank.

There are many other potential feature and benefits available through different insurers in the Irish market, and some of these features might just be very important to you. So talk to your Financial Broker and get the best policy in place for you!

Are you too young for a pension plan?

You are never too young for a pension plan. That’s it, end of article? But maybe you need to be convinced of this fact!

The benefits of starting your pension funding as early as possible are really immense. Now we are not suggesting that everyone should live a life of penury in their 20’s and 30’s in order to safeguard their lifestyle in their later years. But starting a pension plan early has a significant impact on your final retirement outcome and this is down to one main fact, the effect of compound interest.

The Rule of 72
To look at compound interest, it’s useful to consider a maths equation that is commonly known as “The Rule of 72”. This is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. All that you have to do is divide 72 by the expected rate of return. The answer is the number of years it will take for the amount of money to double. Consider two examples of how you can use this below;

• If you are aiming for a return of 6% p.a., it will take 12 years for your investment to double (72/6% = 12 years)
• If you want to double your money in 10 years, you will need to achieve a return of 7.2% p.a. (72/10 years = 7.2%)

The impact on your pension plan
This rule demonstrates that a contribution made to a pension plan in your 20’s or 30’s has the benefit of time on it’s side to grow very significantly from the time it is made, to your retirement age. And because you have this time on your side, you will probably also be willing to take some risk with your funds, with the aim of achieving higher growth rates.

These higher growth rates may be achieved through investing in the likes of equity (stock market) funds. If you had invested in the S&P 500 Index of shares from 1st January 1985 to 31st December 2014, your investment would have achieved a Compound Annual Growth Rate (annualised return) of 11.40 per annum over the 30 year period! Now of course previous returns are not necessarily a guide to future performance, but they give a sense of what can be achieved over a long timeframe.

So when you put higher potential growth rates and a longer term together, the impact can be significant. Instead if you wait until much later in life to start your pension planning, you will probably want to be more cautious in your investment choices (to limit any downside risk), thus reducing your potential growth rate. You also won’t have the investment duration to benefit from the compound interest effect.

So yes, live your life for today while you’re young. But doing this with some investment in your future will yield great benefits when you do eventually hang up your working boots!

In your 30’s? Here’s some financial advice!

Living through your 30’s can be a challenging time financially. It’s often the time when “big moves” happen in life: marriage, having kids, buying a home, career development etc. It’s a time to be enjoyed, and it’s also a time to be careful financially! You don’t want to spend your 40’s and 50’s trying to make up for a lost decade… Here are a few ideas to help you avoid that very situation happening.

Live off your income only
Living an appropriate lifestyle is crucial to financial stability. Once you start living beyond your means, credit card bills start racking up and you’re on a downward spiral. And when this spiral starts, it’s very hard to break out of it. The solution is to match your lifestyle to your income. If that means less nights out or luxury purchases, well that’s the way it has to be!

Don’t blow your bonuses!
While not suggesting for one minute that you should live a miserable existence with no luxuries whatsoever in your 30’s, bonuses are not an opportunity to just fritter away cash! Yes you and your family deserve treats, and bonuses might play a role in these.  However getting a bonus is also an opportunity to put a few euros away for a rainy day, whether that’s a war chest from which you’ll educate your children or indeed providing a boost to your retirement planning. Money saved now will make a huge difference in the future, as the impact of time and compound interest will turbo-charge your retirement fund.

Know your spending
Financial Brokers observe that one of the main challenges faced by clients in their 30’s is actually knowing where their money is going. Having a family budget is a critical element of personal financial planning.  To do this effectively, you need to actually track every cent spent over a period of one to two months. You’ll be amazed where money is being spent that you’re hardly even aware of. Is there an alternative to buying all those coffees every day? Can you cut down on taxi journeys and use public transport? Could your family shopping methods change, to feed the family in a more cost effective (and possibly healthier) way?

Focus on your career
Your 30’s are the time when significant career moves can happen. Are there opportunities for you to bring your career to the next level by undertaking further study or indeed by putting your hand up for more work? After all, your career is the driver of your income and increasing your income makes a lot of these challenges much easier to face. 

Debt is the enemy of savings
Of course you need a mortgage if you want to buy a house. But make sure you can afford your repayments. And keep that credit card in check! Servicing debt is a killer when trying to save money so beware of taking on debt that you cannot afford.

Above all, enjoy your 30’s! They are halcyon years, a time of great fun and opportunity. Live your life and set yourself up well for your later years too.

A financial broker, not just a salesperson….

I attended a Financial Broker Seminar some weeks ago where they presented the results of a survey which they had conducted with over six hundred random customers.  These customers agreed to contact a chosen selection of brokers and banks for financial services advice and some of them were at the seminar to share their personal experiences. I feel that some of the feedback from this panel regarding financial brokers is relevant and worth discussing.

I asked a question, expressing the fact that “I don’t sell televisions; I advise on financial products which could have a huge financial impact on a person or families life”. I also stated that “I like to inform every client of the services I provide, but when people just ask me for something specific like a life assurance quote, they can react indifferently to me when I try to inform them of the various other financial products I can provide”.

One of the panel responded with “If I only want a Life Assurance policy, I don’t want to hear about any other products unless I ask for it”. In a way, suggesting that they feel this would be wasting their time or possibly just a chance for a broker to try to sell them something they do not want.

Recently I visited with a client of mine who had just been told he had only 2 weeks to live. I visited him to pay my respects and say goodbye. While visiting, this man said to his wife and children “Drumgoole Financial Services look after all my financial stuff, contact them when I am gone”. I had met with him several times over the previous few months so his financial affairs were clear and in order.

I got the very sad news that he passed away the week I started writing this column. This client chose to be involved in the financial planning process. He discussed all the services we provided and chose to take out the policies he felt were most relevant for his family.

My relationship and work with him didn’t stop as soon as I advised (“sold”) on a suitable policy. It was a continual journey that included reviewing and altering his plans as his personal circumstances changed over time. I will now be assisting his family with the death claim process for his Pension, Life assurance and Investments. His surviving family will be able to rely on me to help arrange all of these affairs while they grieve the loss of their loved one.

There is a tendency for customers and financial brokers to avoid discussing these distressing subjects. I chose to share this factual sobering story to highlight that a financial broker can be an important supporting character in prudent financial planning.

Get your life assurance while you’re young!

Some people make the mistake that life assurance is only for middle aged and older people, who are starting to question their mortality. In fact it is viewed only as a necessary evil by younger people, many of whom only take out cover when they are forced to, for example when getting a mortgage.

But actually it makes a huge amount of sense to get life cover in place while you are still young, for a number of reasons

Life cover is cheaper (for the duration of the policy) for younger people
Life cover gets progressively more expensive as you age. Younger people get cover at the lowest premiums and under most term assurance policies, this price is then locked in for the full duration of the policy. So yes, while there is a small premium to be paid for cover (as opposed to no premium payable if you don’t have any cover), this premium then remains at this same level out into the future.

You’re healthier and more likely to get better terms (for the duration of the policy)
Young people are generally healthier than older people. That’s a simple fact. And because they are healthier and may not as yet have suffered medical conditions that they are destined to face in later life, young people find it easier to access life assurance cover at the lowest rates. If you are unfortunate enough to be diagnosed with any sort of a serious condition in later life, you can expect that your life assurance cover will be more expensive as a result of loadings to reflect your medical condition, as well as the fact that you are older. So getting life cover in place while you are young and healthy will help you avoid premium loadings.

You’ve less negative family history to impact the cost
Similar to the last point, another factor that impacts access to and the cost of life assurance cover is family history. If for example there is a family history of chronic illnesses, this will negatively affect your life assurance policy. Younger people have younger (and generally more healthy) parents. This means a more positive family medical history, and as a result more favourable policy terms.

You can protect yourself against future policy changes
Life assurance policies evolve in line with changing circumstances. When we think back to the likes of the HIV and AIDS epidemic of the 1980’s, one of the immediate impacts of this was a 15% hike in the cost of life assurance policies. Of course this hike only applied to new policies taken out from that point forwards. So getting in at a young age protects you against such future events. Of course if premium rates reduce (which they have also done from time to time), there is nothing to stop you switching to a new, cheaper policy. So you can win both ways!

Lots of reasons to consider life assurance in your early years....

Looking for Savings Tips? Think broader than Deposit Accounts…

As the economy continues to recover and many consumers are again starting to have a few bob left over at the end of the month, the question for them now is what to do with this extra money. In the past, this money was diverted into a deposit account to keep it separate from the day-to-day spending within your current account. But with interest rates now hovering around 0%, this really is a questionable approach. One of the questions that Financial Brokers are most frequently asked today is, “What is the best savings plan for my money?”

The answer to this needs careful consideration if proper savings advice is to be given. What are you trying to achieve with your savings – are you saving for a rainy day or have you a specific goal in mind, maybe to fund education in future years or to buy a new car? What are your time horizons or do you have any? What is your appetite for risk?

A deposit account is a suitable vehicle if you are putting money away in the very short term. It is accessible and secure (at least up to €100,000). But if your target is to save for a number of years, deposit accounts come with a price. As long as price inflation exceeds the interest rate payable (which remember is pretty much 0%), the value of your money is falling all the time. You won’t be able to afford in the future the things that you can just about afford today. Therefore the first of our savings tips is to consider your timeframe very carefully!

Our second savings tip is to consider your appetite for risk. If you are not satisfied with your money effectively losing value every day as it sits on deposit, a Financial Broker will help you identify your own tolerance for risk, and will then help you identify how much risk is appropriate for you within a savings plan. Once you know the appropriate level of risk, they will then find the best savings plan to meet your specific needs. This might in fact be a deposit account, or instead it may be a savings policy with a life assurance company. The one thing you can be sure of though is that you are getting the right savings advice to meet your specific needs.

Ultimately, understanding what you are trying to achieve with your money sits at the heart of this. Once you are clear on the end goal for your money, your timeframe and your appetite for risk, you can now start planning with confidence. This brings us to our final savings tip! Talk to your Financial Broker and get their help in planning your savings approach. This is definitely a better way forward than blindly placing your money on deposit and watching the value of it erode away over time.

Mortgage Protection: the Costs v the Benefits

Mortgage protection is often viewed as a grudge purchase. A necessary evil insisted upon by banks when consumers are at the pin of their collars, trying to buy a new home. But is this the right way to look at it? Because of the financial pressure people are under when starting out with a mortgage, they often forget about the benefit that they are actually paying for.

First of all - the Costs
Mortgage protection is actually a cheap form of life assurance. This is because the level of cover reduces in line with your reducing mortgage balance, unlike more traditional life assurance cover that remains constant (or even increases) during the life of the policy. Remember, the purpose of this cover is simply to repay your mortgage in the event of your death. 

There are other reasons behind the cost of this insurance for your life usually being quite low. Mortgage borrowers are often young couples, which in itself results in lower premium rates for them. On top of this, non-smokers see significant reductions in rates in comparison to smokers.

We’ve also seen a significant reduction in premium rates in Irish life assurance policies in recent years. This has been as a result of more favourable claims statistics – less people dying young, due to significant strides in medical science in the last few decades.

Even aside from these factors though, you want to ensure that you are availing of the lowest cost cover in the market! To do this, you need to engage the services of a Financial Broker who will find the best insurance quotes in the market for you. This is a job your bank cannot do – they are stuck with the products of a single provider.

And did you know that your bank cannot insist on you taking out the life assurance policy with them? They can only insist on the cover being in place. So stand up for your rights (and your pocket!) and ensure you get the lowest cost cover in place through your Financial Broker.

The Benefit
Don’t forget the benefit! The primary benefit of mortgage protection cover is the security that it gives you. The comfort of knowing that should you or your spouse die, your family home is secure and is one less worry for the bereaved to deal with.

None of us like to give these situations too much thought… But it is important to consider that in the event of a death in the family, this often results in the loss of an income, sometimes the sole income coming into the household. Then the mortgage repayments become a problem and then the bank is chasing you. All on top of your grief of losing a loved one.

So recognise the comforting benefit of this cheap life assurance. Talk to your Financial Broker about getting the best insurance quotes for you. Get your cover in place and enjoy your new home without worries.