PortfolioMetrix celebrates six years of operating in Ireland this month (a third of which has been during a global pandemic!) – so I have been reflecting on the Irish financial advice market and the progress over these six years.
Six years ago the advice landscape looked somewhat different. The shift from a product focus to an advice and service focus was gathering some momentum. Platforms like Conexim were still at a very nascent stage. Advice tools like cashflow planning software and risk profiling tools were only beginning to gain mass appeal and efficiency technology like Docusign and Zoom or Teams were very much not on the agenda (at least we have one thing to thank Covid for!). Also at that time, many in the industry were expecting serious regulatory changes, including the possibility of the Central Bank introducing a commission ban. Now six years on, has much really changed? Like most things in life, the answer is not black and white.
Advisers are continuing to adopt more and more tools that aid their advice processes and their business. Tools like Docusign, Calendly, CRM systems, cashflow tools, Zoom, Teams, the list goes on! All of these can greatly enhance the effectiveness of an advice business when used well. However, the holy grail of one system that is the central source of truth still appears to be some way off in the distance.
Regulatory change has been relatively slow. We have had the consultation paper on inducements - CP116, and the changes around the edges to the Consumer Protection Code (CPC) that resulted from that. We also had the introduction of MiFID II, which directly impacted financial advisers through the addendum to the CPC in 2018. But how much has truly changed in a way that has benefited the end client?
More and more advisers are continuing to embrace financial planning and there is a definite shift amongst more and more from a traditional product sales centric approach to a more client friendly advice and solutions focus. However, change has undoubtably been slow in this area and a lot of it comes down to the lack of regulatory changes. Even now, with the plethora of non-commission paying investment options available, it is the commission paying product providers which still absolutely dominate the marketplace in Ireland. And indeed, we still hear of anecdotal horror stories when it comes to the level of commission and fees being paid in some cases. The Central Bank was unable to get many of its proposed changes from CP116 introduced, which allowed much of the status quo (that does not serve the best interests of consumers) to continue.
We really have to ask ourselves why countries such as the UK, Australia and the Netherlands outright banned commission on pensions and investments – if they went to these lengths then surely there must be a strong case for at the very least creating a far more transparent environment around fees and charges in this country.
Yes, commission may have a role to play, particularly for people starting out on their saving and investment journey, to allow them to access advice, however questions must be asked regarding the continued popularity of commission-based products which are still completely opaque around total costs for the end consumer. The Central Bank has been flagging an overhaul of the CPC for some time now, but this has yet to be published. Watch this space.
Some things haven’t changed – the investment journey continues to be anything but a smooth ride and people have continually been calling the end of a bull market in equities for a decade now, so anyone standing on the side lines has lost out.
Which leads me on to the future. The one thing that won’t change is that the most important factor in investment returns is a client’s composure and whether they have a plan they can stick to. (And as I write markets are presenting investors with the latest test of their composure.)
With these in place it makes everything else far more likely to succeed and it is the absolute key and crucial role that all advisers can play with their clients. Indeed, we saw that during the onset of the Corona crisis in March 2020, when not a single investor abandoned their portfolios with PortfolioMetrix, instead all client portfolios were rebalanced and kept neatly in line with their long-term plan while advisers were able to keep their clients informed and focused on the long game. This is as it should be.
The rise in prominence of responsible and sustainable investing is another exciting theme for the years ahead. Giving investors the ability to connect their investments with some sense of purpose and positive impact can only be a good thing. But there is a lot of confusion in this space and therefore care must be taken to get it right.
Financial services is an industry which at times has not covered itself in glory and often has done a great job of distancing people from their own money. However, it has a crucial role to play in society in allowing people to save and plan for their and their family’s future. I am excited to be part of an organisation that strives to be part of the positive development of financial advice in all the jurisdictions in which it operates, including Ireland. I really am looking forward to looking back in another six years’ time and seeing how the advice landscape in Ireland has further evolved. I am confident that further progress will be made and that more and more advisers will move towards client-centric practices which benefit not just their clients but also result in advisers building businesses of lasting value to them.