"I would be grateful if you could fax me a list of independent financial advisers or tell me where I could get a list of same," writes Mrs O'C from Dalkey.
Letters and emails from readers wanting information about fee-based advisers could fill these pages, yet the search for independent advice provided by advisers acting on their behalf and not beholden to the financial institution paying them to bring in business, is relatively new.
Because conventional brokers rely solely on commission, they need to close a sale quickly. Undertaking a fact-find and preparing a lengthy financial planning report is the correct way to deal with a prospective client, but brokers admit that most of them never end up buying a policy. They justify the high commissions they do earn on the grounds that they pay for all the time the broker wasted on the seven or eight sales that got away. Truly independent financial advice is limited to a handful of brokers and financial advisers who work exclusively on a fee basis, or for a combination of fees and commission, the latter usually credited against an hourly rate or annual retainer. Most clients tend to be higher net worth individuals or companies. The Irish Brokers Association, told Business This Week that there was no register of members who were mainly fee-based, "but it is definitely an issue that should be considered". The spokesman said: "Virtually all our members can arrange business on a fee basis, if that is what the client wishes", but accepted that only a few firms actually promote themselves as predominantly fee-based. (In Australia, only fee-based intermediaries can call themselves a "broker". Anyone who receives a sales commission is considered an "agent" of the company.) The cost of fee-based advice is similar to that charged by other professionals solicitors, accountants, doctors and usually depends upon the size of the firm, its expertise and reputation, etc. Hourly fees of £50 upwards are the norm. Accountants, who might also be life and pension brokers are required by their professional bodies, to provide a written summary of any commissions they receive for arranging a pension or savings/investment for their clients. Since accountants also charge fees, many will arrange policies on a nil-commission basis.
The Irish Brokers' Association, not surprisingly, defends the commission system, insisting that it has served consumers well and that the payment of commission by the financial institution does not affect the impartiality of the broker. Unfortunately, with no requirement for brokers and institutions to reveal the size of the commission and other charges that are deducted from contributions, there is considerable risk of a conflict of interest. Recently, one of the best-known fee-based brokers in Dublin, drew some complaints from his industry for promoting a flat-fee service which reduces the price of term life assurance for mainly high net worth clients by as much as 80 per cent of the first year's premium. With an increasing number of higher net worth individuals demanding that their pensions be arranged on a nil-commission basis, protection policies like term assurance (which pays 90 per cent of the first year's premium as commission) paid a commission which many traditional brokers felt justified in taking because it did not affect the underlying value of the policy. Fee-based brokers, who manipulate the commission system in favour of their clients, pose a threat to those that rely on commission from the insurance companies. In Britain, the fee system is widespread enough that companies have reduced commission for term life policies or pay it only that is, only if the client maintains the policy for a minimum number of years.
Until a properly vetted register of independent fee-based financial brokers and advisers is compiled, consumers, especially high net worth ones paying substantial annual premiums, must rely for information about fee brokers on word of mouth and on newspaper and magazine reports which quote such advisers.
Pressure on the likes of the IBA may eventually force it to produce a register of genuine fee-based members. There is also a view that once full disclosure is in place, genuine fee-based advice may not be too far behind.
