Fiona Reddan: Financial advisers slow to display fees and commission rates

I got a fright at the doctor’s last week. Not in the consultation room thankfully, but on my way out when I was charged €70 for the visit. Surely the last time I visited it was only about €55?

It was my own fault. These days it’s easy to check out how much a routine medical or dental procedure is going to cost you.

You can also check out how much the clinic down the road, or in the next county, or even across the Border, is going to cost, and let that inform your decision.

The requirement for both doctors and dentists to display their prices in their surgeries and online has been a remarkable success story for patients. It wasn’t that long ago that being told that you needed a root canal, or a crown, caused you as much fear as to how much it might eventually cost, as the pain involved in the procedure.

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Does it exert a bias towards products that pay the highest rates of commission, for example, or just a bias towards a transaction

Money simply wasn’t something to be discussed with the medical professions.

So it’s a shame then that an initiative suggested by the Central Bank of Ireland back in 2017, to bring the same sort of rigour to the disclosure of fees for financial advice, hasn’t yet come to fruition – or progressed a jot.

One welcome development in recent years has been the growth of fee-based financial advice, and many advisers already clearly publish their charges on their websites or in their offices – detailing how much they’ll bill for an hour of advice, or a financial makeover.

For consumers, the issue arises when they offer not just a fee-based service, but one in which fees are also earned via commission payments.

A Central Bank study in 2016 of consumers’ understanding of commission payments showed that there was much confusion as to how – and how frequently – advisers are remunerated by product providers.

Exertion of bias

Not only that but there have also long been concerns about whether a commission structure is in the best interests of consumers.

Does it exert a bias towards products that pay the highest rates of commission, for example, or just a bias towards a transaction?

How can an adviser get paid if you don’t buy a product on which they can earn commission?

To address these issues, the Central Bank’s proposal, in a consultation document in November 2017, was to require advisers to display their “inducement arrangements” in their offices, and on their websites, much like dentists and doctors display their prices.

This summary would include details such as the basis on which an inducement was payable, an indication of the amount or percentage of the inducement paid, and details of any fees, administrative costs or non-monetary benefits.

These were the only changes the regulator proposed at the time. It also wanted to ban certain commission payments completely, such as those that are more likely to give rise to a conflict of interest, including those based on the size of a mortgage, or those based on sales volumes, and so-called “override” commission that generally refer to an increased percentage of commission based on achieving certain targets.

It marked a big departure in approach from the regulator. While some countries, such as the UK, have gone so far as to ban commission for retail investment advice altogether, up until that document, our own approach had been far less decisive.

Fearing that copying the UK could lead to an “advice gap”, whereby people who couldn’t afford to pay an upfront fee wouldn’t get access to financial advice, the Central Bank had gone for maintaining the status quo.

So such a decisive document in 2017 undoubtedly caused a stir. And unsurprisingly perhaps, given the significant step-change in business practices signalled by the regulator’s consultation, financial advisers responded strongly against it.

Consumer protection

Brokers Ireland, which represents about 1,200 brokers across the country, argued that the regulator’s proposals would offer consumers no additional protection, “and in some cases will undoubtedly result in detriment to consumers”.

More specifically, it argued that the requirement to disclose commission arrangements “could not work in practice”.

In spite of the opposition to its proposals, the Central Bank shouldn't lose heart

It would be “impossible to keep it up to date”, the information “would be so confusing as to be inaccessible to consumers”, while the amount of information, citing as it does in excess of 70 potential relationships with product providers, would be “overwhelming” – even though a significant proportion, as tied agents, are limited to selling the products of just one company.

The Central Bank is now getting ready to come back with actual measures on the issue. It says it has “taken note of responses received” during the consultation process, and is finalising its new measures on inducements, which it expects to publish in the second quarter of this year.

In spite of the opposition to its proposals, the Central Bank shouldn’t lose heart. Rather, it should perhaps recall lobbying from both the Irish Medical Organisation and the Irish Dental Association in the run-up to the rules on price disclosure in their professions.

They both argued that many services were not amenable “to a single price indicator”, while the dentists went even further, arguing that “it would be very difficult to be precise” about how much a treatment would cost unless they could examine a patient first, and without being able to do so, a price list could in fact “mislead”a patient.

And yet here we are, some eight years on, with every procedure from root canals, to fissure sealants to extractions, now itemised and priced on every dentist’s website. It worked, after all.