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?

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.

Does a Financial Broker offer a different service than your bank?

Financial advice and the products sold by Financial Brokers, banks and life assurance company salespeople attract on-going and rigorous scrutiny by the media and other commentators. And rightly so! Consumers are placing their trust, their hard-earned financial assets and indeed their future lifestyles in the hands of these professionals, and so the industry deserves scrutiny.

The world in which financial advisers live is a highly regulated world. This is important as it helps build trust. But regulation on its own won’t achieve this; best practice has to also be employed by all of the professionals in the industry to help build this trust. Financial Brokers can at least be optimistic that they are continuing to build a greater sense of trust in what they do. In the internationally renowned Edelman Barometer 2015, trust levels in Ireland in financial services businesses continues to exceed that achieved by banks, and indeed financial services businesses showed the fasted growth rates in trust (albeit from a relatively low base).

So why are Financial Brokers more trusted than banks?

They want to build long-term relationships. Financial Brokers are different to bank salespeople as they are not out to achieve this year’s sales target, as passed down from Head Office to your local bank branch. That is the focus of the bank branch as staff change and move around from branch to branch. A Financial Broker on the other hand will only build a successful business if he or she can build loyal, long-term client relationships. They want to support you and provide financial advice as you go through every stage of your life. Thinking about short-term sales targets can never achieve that!

Their advice is impartial. At the end of the day, helping you to identify your financial objectives and developing your financial plan is only part of the financial advice story. You then need the right products in place. While bank staff only have access to the products of one company, your Financial Broker can find the right product for you from right across the market. This can result in cheaper life cover, broader and more suitable investment choices and better pension planning options for you. Your Financial Broker is solely interested in finding the best solution for you, as opposed to potentially force-fitting you into the only product available from a single supplier, as banks do.

Their sole focus is helping you achieve your financial objectives
Banks lend money, they hold deposits, they sell credit cards and (hopefully) they will give you a mortgage. They are, or at least should be good at all of that. But then the bank branch will also try and advise you in relation to your personal financial affairs.

Financial Brokers on the other hand are singularly focused on helping you manage your affairs and achieve your financial ambitions. That’s what they do, and they will travel on the long road with you as you achieve your financial dreams.

Pension and Investment Lessons from the Economic Crash: A Financial Broker Perspective

Think back to the start of 2008. The economic storm clouds were getting darker, there were rumblings about losses building in banks across the globe and investors were beginning to get nervous. And now race forwards 7 years and consider the lessons to be learned with the benefit of hindsight. Like all lessons, these are lessons that can easily be forgotten again!

Research has shown time and time again that “stock picking” investors rarely out-perform the market. Yes some hit lucky and beat the market, but the majority would be better off in a fund that tracks a stock market index, or a professionally managed active fund.

Why is that? At the end of the day, people make poor investment decisions because they are human. They see stock markets racing ahead, and then decide to buy in. Or indeed (as during the economic crash) when there are huge falls in the market, investors decide to jump ship. And of course this is exactly the opposite of what we should do, i.e. buy low and sell high. Your financial adviser will help you to do the right thing, and often that might be to sit tight and do nothing at all. 

Every Financial Broker will know the horror stories of one-way bets and sure things. Surely, if you had a genuine one-way bet, you’d tell no one about it! So the “guaranteed” returns that were coming from apartments in far-flung places and the certain returns from Irish bank shares were shown up for what they are – investments with risks attached, just like all other investments. Your Financial Broker will ensure you have a diversified investment portfolio that matches your risk tolerance. They will caution you against these “sure things”!

In the past, when people were asked about the amount of risk they were happy to take, they bullishly took on more risk, with the hope of gaining greater rewards. However the folly of this approach was laid bare when the crash came and investment losses increased. Many investors realised that they were ill equipped to deal with these losses, either financially or emotionally.

Having a Financial Broker in your corner will help take the emotion out of your investments. Their financial advice will be based on experience and knowledge of the highs and lows of the markets over many investment cycles. Their only interest is in your financial goals and objectives and how best to achieve them. From their experiences as a financial adviser, they have learned that there is no quick route to success.

Instead they will bring rigour and a structured methodology to the financial advice that they offer. So apart from fulfilling their traditional role as your financial adviser, a Financial Broker can be your financial conscience!

What is . . . ?

Life Assurance: This is cover designed to provide a financial lump sum to a family/person/company in the event of the death of a specified individual. There are different kinds of Life Assurance that include:

• Mortgage Protection – Decreasing Life Assurance – ends at set term

• Term Assurance – Level Life Assurance – ends at set term

• Whole of Life cover – Level Life Assurance – No set term

• There is reviewable and non reviewable Whole of Life cover

  Life Assurance with convertible option: You can request a conversion option on some Life cover. This allows you to extend the lifetime of your policy without having to supply any medical information. This allows some people to choose a shorter term for cover now, at a lower cost.

  An example of this benefit would be if you take out €100,000 Life cover for 10 years with a conversion option. During the 10 year lifetime of this plan you might get sick or be struck with an illness that would prevent you from taking out Life cover in the future. The conversion option would allow you to extend the term of your €100,000 Life cover beyond the 10 years and the Life company could only use your medical information from the original application.

  Serious Illness Cover: This is cover designed to provide a financial lump sum to a family/person/company where a specified individual is diagnosed with a Serious Illness.

  Income Protection: This is a cover designed to be a replacement Income if a person is unable to work due to illness or injury. It is particularly important for self-employed people.

  The cost of these covers depends mainly on your age, your smoker status, your health and the length of time you would like the cover.

  Pensions: During your working life, you can save into a Pension arrangement to subsidise your drop in income at retirement. The main advantages of this are that you get tax relief on your contributions and you get tax free growth on your investment.

  Savings/Investment plans: An alternative to saving/investing money in the bank. The main advantage is that there is a much greater potential to grow your investment. The main disadvantage is that your value can go down as well as up.

Stick or Twist

I would like to believe that my clients trust me, particularly the ones who use my services multiple times. But trust is not something easily earned. In my experience I have met with people whom are reluctant to change their existing policy even if it will actually save them money. At times I get the impression some people are dubious of a financial broker’s recommendation for one reason or another.

Lose Out Benefits

The main feedback/reasons I get for not proceeding with a recommendation are that people are concerned that they might lose out on benefits if they change. “What will happen if I die one week after taking out a new life assurance policy?” is a question I regularly get asked. Once you have been accepted by a life company, paid the first premium and the policy has started, you are covered. In essence, if you die the first day of the policy you are covered.

Procrastination

In many cases, people are happy with the advice and just don’t get around to proceeding with it. If people follow up with me (sometimes months after initially showing an interest), the usual response is that “I was really busy and I completely forgot”. After all, who wants to spend time contemplating how much life cover or serious Illness cover their family might need ?

Commissions

“How do I know that you won’t just choose the policy that pays you the most commission?”. I was asked this once, but would imagine it’s a question that some people ponder in relation to brokers. If you are unsure I recommend that you ask questions. A letter of suitability sets out why a broker would choose a specified company/product over another. You could also ask what the broker is being paid to place business in a certain place.

Trust/Confidence

A lot of events have happened in the financial services sector which have left many people with an understandably fragile confidence in the industry. It is clear that some people feel that brokers are guilty by association, which is understandable.

If you have never used a financial broker or have been disappointed with an experience using one and are reluctant to consider it, you have a number of choices. You could do your own research, but potentially lose out on cost saving opportunities only available to brokers. You could ask a friend/relative if they have a trusted adviser you can contact. You can do a bit of both and contact a broker yourself and do your own research (if you are a bit dubious).

You may very well have the most cost effective and appropriate Life Assurance or Pension policy to suit your needs. However if there is a chance that this is not the case, do you think it’s worth exploring alternatives?