Now Ye're Talking - To a Financial Broker

Dav

Hello all,

A reasonably simple, yet in-depth one for you all this week. We've got a Financial Broker who sells things like Life Assurance, Pensions and Investments here to answer your questions about the industry and the day to day of their experiences.

I'm A Financial Broker, AMA

Thanks very much for the opportunity DAV,

I will try to answer all questions as quickly, objectively and clearly as possible.

I have been in the Pensions and Assurance industry for over 15 years. I worked in a bank, a major Life & Pension Provider and have been a self employed broker for over 7 years.


I just wanted to disclose that I cannot provide person specific financial advice. Any opinion posted on this thread will be my personal opinion based on my professional experience.

If you like the suggestions/advice I provide on general queries/questions, I would recommend that you discuss it with a professional adviser (accountant, financial broker etc) before proceeding with anything. Each person is different and there might be variables they did not consider when deciding to proceed with certain products.

Agent Smith

I have 5k to invest for 1 year, where should i put my money?


Do you have a bedside locker?

Whats in your beside locker?

cullen167

What qualifications would you recommend to someone looking to follow in your footsteps? Any you would advise to avoid?

mahoganygas

Thanks for the AMA.

Before you were self employed, did you see any questionable selling practices at a brokerage were you worked?

Any interesting stories about angry customers who lost their pension pot?
Or customers who were delighted with the advice they received?

What led to your decision to become self employed?

Thanks.

I'm A Financial Broker, AMA

Agent Smith wrote: »

I have 5k to invest for 1 year, where should i put my money?


Do you have a bedside locker?

Whats in your beside locker?

Thanks for the question. As somebody who seldom answers a simple question with a simple answer, please bear with me on this, I am a serial waffler.

The following conversation happened when I was playing cards with some friends. Nearing the end of the night there was an accountant, a stockbroker and me. My accountant friend turns around to us both and says "Right lads, I have €100,000 to invest, where would you advise I put my money".

The stockbroker starts to list off a bunch of stock he feels are undervalued. He then lists off stock that are good "income" stock in his opinion.

The lads turn to me, waiting for something inspirational to blow the stockbroker out of the water. I asked "what is your savings for?". "Is it to put towards getting your child the medical help they desperately need?" , "Is it money that you wont need for another 18 years until your children are in college ?" or us it just "money sitting on deposit making nothing and you want to start earning some profits?".

The point I was making is that I dont feel that my job is just to tell people where to put their money. Its to find out as much as I can about them before making a recommendation that is as close to their goals as possible.

I am going to really wreck your head now by asking you some of the kinds of questions you should consider (about your €5k):

• How risk averse are you?
• What sort of investment experience have you had in the past?
• How did you react when you lost a significant portion of your investment?
• What do you intend on using these funds for? (emergency or specific plan)

There are more questions I could ask, but I am trying to show you that a good financial broker will try to get to know their clients before making recommendations.

Some people think they are low risk investors and dont factor in that owning a rental property is one of the highest investment risk you could ever really take! Likewise, some people think they are high risk investors, who dont factor in how much they might lose on an investment. That's why I regularly ask people how they would feel if their investment went down 30%? Faces usually drop! They give me that "You are not supposed to tell me I can lose money" look!

For one year, I think its worth considering leaving it on deposit. Most, if not all of the investment advice i provide, is for longer terms like 5 years. If you want to make a flutter for the year, you could contact a stockbroker, but be mindful of your expectations and limitations (risk-wise).

I have a bedside locker that I mostly use for loads of stuff like DVDs I haven't watched in years, an electric blanket I have yet to use (I prefer my hot water bottle!) and books I will probably never read but don't want to throw out!

I'm A Financial Broker, AMA

cullen167 wrote: »

What qualifications would you recommend to someone looking to follow in your footsteps? Any you would advise to avoid?

I was extremely lucky in that I got into this industry because I knew that there would be a brokerage (my dads) to take over if I wanted.

The minimum requirement to be a broker is QFA's (professional Diploma), which I did a good few years back.

I have done a stockbroking (Dublin Business School) diploma to help me understand better the investments that I give advice on.

I have looked several times at the Masters Programme but the main reasons I havent proceeded to date is cost and business priorities.

I must stress that I know people who have more qualifications then me who wouldn't have the same technical knowledge I have on certain products. I am not a good studier, but I am extremely meticulous working on individual clients queries. In otherwords I have a strong general understand/knowledge of the industry and when a client specific query requires extra information, I upskill as required.

Some people are good studiers and some people are good learning and applying knowledge as its needed. I personally work and advise better when I have a project to work on for an individual client. None of my clients ever ask me about my qualifications, they just trust my judgement, but I imagine some clients prefer to see specific qualifications.

In terms of advice, I try to avoid getting friendly with Life & Pensions consultants because it can make it harder to be objective when giving advice. Its exactly why Pension and Life companies have broker consultants. In many regards, its the old Irish way of doing business - giving business to people you like or get on with.

With regards to the culture of my industry I mostly keep to myself, which can be good and bad. Good in that I try to keep my advice as objective based on my own professional/personal experience. Bad in that it is nice to have other people to bounce ideas off.

I have built up good relationships with other professions which I think helps balance my loner nature. I have close friends whom are extremely professional and quite diligent. I confide in and trust them when helping me make recommendations. A solicitor and an accountant friend who can give me an objective perspective outside of my industry's viewpoint.

I find in our industry there is alot of herd mentality. I find having external professionals like Accountants and Solicitors a great resource in this regards.

MagicMarker

What advice would you have for a young person who thinks it's time to be a grown up and start a pension, but has zero experience in such matters and has no idea where to start or who to go to?

Hollister11

Can you earn good money in this field ?

KomradeBishop

What is the worst instance of fraud you have witnessed? What is the worst, but still legal, ethical violation you've witnessed?

Has the opportunity of getting a bigger commission (assuming you take commission), ever influenced the advice you give a client?

What do you think of the ban on commissions in the UK?

kneemos

Do you eat lunch?

Dozen Wicked Words

Is there a case that some live far too much for their retirement and not for the present (whilst they are physically and mentally well enough to enjoy it)?

I'm A Financial Broker, AMA

mahoganygas wrote: »

Thanks for the AMA.

Before you were self employed, did you see any questionable selling practices at a brokerage were you worked?

Any interesting stories about angry customers who lost their pension pot?
Or customers who were delighted with the advice they received?

What led to your decision to become self employed?

Thanks.

Yeh, there are some stories I could tell, not all bad mind you!

When I worked with a large Life & Pension provider I worked in a broker/client support area. We dealt with them on phone or face to face. There were times I was on the receiving end of dogs abuse because people had lost money or something hadn't been administered correctly (by the broker or our company).

Did I see questionable selling ? I heard stories about it and was dealing with clients who were upset as a result of questionable advice. You see, the problem was that I wasn't with the clients when they were being sold this companies products, so I couldn't know for sure (I could make an educated guess) exactly why the broker advised clients certain things!

There was one tied agent who used to phone me up every week or so basically asking me what he should advise a client to do ! He would tell me the details of their client and say "so what would you recommend ?". This guy was getting paid for advice he was asking me to make! In hindsight, I should of reported him, but at the time I was young and didn't have the confidence to speak up. I think we could put this persons advice in the questionable category!

I became the "investment" guy in that department which meant I dealt with most investment related queries. In many cases, people who were unhappy when their investment/Pension went down, mainly didn't understand the level of risk they were taking. This was, in my opinion, because the old school way of advising people was to just tell them where to put their money without giving any explanation or advice on why it suited a particular client. I think aswell the older way of advising was about putting people into a fund that the broker liked (or was familiar with) as opposed to advising based on the clients specific circumstances.

Back then, there wasn't much emphasis on explaining risk to clients. So you would have clients who trust their brokers, just doing what the broker told them to do. In some cases, people liked or hated their broker but didn't want to actually complain to them directly, so I would end up getting torn to shreds trying to calm down an understandably irate customer!

I am in no way blaming clients who trusted the brokers just elaborating on the culture that existed and possible still does to a degree!

One time, a guy phoned me up and to complain that his investment had gone down something like 20%-30% (cant remember exactly how much). It was a couple of hundred thousand Euros he had invested, but he was invested in a high risk fund. As per company protocol, I referred him back to his broker (who should in theory be able to explain why he recommended this investment) and I told him I couldn't advise him as I wasnt his broker and my job was not to advise anyway!.

He said "well, what would you do in my circumstances". I asked him "what is your goal right now ?". He said, "If I got my money back I would take it and run". So I said what I would do and he decided to act on this advice. Long story short, he phoned up monthly and after awhile his investment recovered. I had indirectly suggested a more conservative (medium risk) investment strategy. I must stress It could of just as easily gone down further but in this case it worked out!

So the time came when he got his investment back level. He says to me "Irish equity is shooting up, I think I am going to throw it all in that now, what do you think?". I said to him "remember when we first discussed your goal, you said if you got your money back , you would take it . . Well?!".

I moved departments and this guy kept trying to get a hold of me but the company made it clear I wasn't working in that department anymore.

My personal opinion about people losing huge amounts of their investments (including Pensions) is mixed. In my experience there could be different reasons why a person is upset at losing a huge portion of their investment. I learned a valuable lesson in that department and felt that a huge problem was that people didn't really understand the level of risk they were taking with their money!

Some people were just poorly advised and poorly informed on the risks they are taking. Some people understood or didn't care about the risk, but ignored the warnings. Some people have unreasonable expectations. I have one client who would broker jump to whichever broker would "sell" him the best product.

I am not particularly enamored with some of the standard industry suggestions.

For example, I recommended a more medium risk , conservative, investment strategy to a young person investing in a Pension recently. I had discussed investments with her, got her to fill in an investment questionnaire (10+ questions designed to help rate a persons risk aversion) and concluded that she would like a steadier investment journey.

She calls me up a week later and said one of her friends (an investment guy or something like that), said that at her young age she should be invested in high risk funds. That is the general consensus in the industry that I don't share.

If investments was simply about "I put money into this Pension and don't look at it until I am retiring", then I would say fair enough. However, I see how people react to losing even a couple of thousand in their Pension. Trying to advise people to hold their nerves when the markets are going down is not easy. But even as a professional you have doubts about whether or not a client should or should not cut their losses.

I find with most people, investing money is a professional exercise when its doing well and its a personal tragedy when its going down. So the decisions they make can be emotive, not objective.

I don't believe there is a perfect financial strategy and a perfect fund for everybody. I believe that the best I can do as an adviser is make a professional recommendation based on the information I obtain from a client and as much as possible inform the client of the risk they are taking.

I was always intending on becoming self employed. My father was a broker and it was always the plan to take over the family business

frankyboy1986

Hello,

I am mortgage approved and in the process of putting in offers,how do I sort out life insurance,home insurance etc the bank have kind of left me to figure it out for myself

I'm A Financial Broker, AMA

MagicMarker wrote: »

What advice would you have for a young person who thinks it's time to be a grown up and start a pension, but has zero experience in such matters and has no idea where to start or who to go to?

For the purposes of your question lets assume you speak of a young person, with no family/dependents, no mortgage and disposable income. Ah, I remember the days . . .

There are several ways a person can start the process, but the first port of call might be your own company.

All employers are obliged to offer payroll deduction to help administer Pension payments for employees. Many companies have their own Pension schemes that just involve filling out a generic application form and possibly meeting with the broker of that scheme. If you are not sure, you could contact your HR department and ask if there is a Company Pension scheme in place. Even if there is no Pension scheme in place and you want to contribute to a Pension, your company are in theory supposed to facilitate payments!

But lets say you (self employed, no Pension in your company) just want/need to set up your own pension. You could do your own research and choose a Pension provider to start up a Pension. Depending on the Pension PRSA, Personal/Executive Pension the charges and fund choices will differ. When you contact the company, they may put you onto one of their tied/direct brokers. They can discuss and advise on that companies Pension only.

Charges are of course important, but Fund performance is also a huge factor to consider. There are funds that have higher management charges, that I feel justify the extra cost. That said, there are funds with higher management charges that are awful value for money. My point is that cheap as chips isn't always the best option.

If you don't want to do it yourself, I would recommend you consider asking friends/family if they have a recommended broker/professional who is approachable and friendly. Unfortunately there are pushy salespeople in this industry, its hard to avoid, my recommendation is if you don't trust them, don't do business with them.

I do Pensions presentations regularly. Believe me, its as boring giving the presentation is it is I imagine it is listening to it. But the main points I try to say to people is that if they are unsure how much they want to contribute, start on a low amount that they wont miss. Once people start contributing to a Pension, I find they don't miss the money. Many people don't start because they are too busy trying to decide if they like Pensions or how much they want to contribute.

Please make sure you are getting tax relief!!! I remember meeting up with some employees contributing to their own pension arrangement that wasnt through work. They didnt realise that they had to claim the tax relief themselves!!!

Do not contribute to a Pension unless you are paying income tax. You will be taxed when drawing down some of your Pension benefits. One of the major benefits of a Pension is the tax relief you get on income.

If you are a higher rate taxpayer and need incentive to save in a Pension, you should really look at putting any disposable income into one. Depending on your circumstances, you could get up to 33% relief on pension contributions. So to invest €100 a month into a Pension, might only cost you €67 a month after the tax relief.

There are extremely beneficial tax efficient ways of using a Pension to make it worthwhile. After 20 years in an occupational Pension scheme, some people can take up to 1.5 times their final salary as a tax free lump sum from as early as age 50 . This is not just for top executives by the way!

In terms of being young, the younger you save, the more time your investment has to grow. So €100 you invest now, could get 30-40 years of growth that a 60 year old starting a pension just cant get!

I'm A Financial Broker, AMA

Hollister11 wrote: »

Can you earn good money in this field ?

Depending on the setup of your company and your targeted business it can be a very financially rewarding job to have.

I know some people who tried to get into the game but they found it difficult and extremely stressful.

I have a friend who runs a low cost brokerage, but he has to work so much harder to get in business and needs far more bulk business to break even.

Having contacts and an existing customer base (like me) is extremely helpful.

I'm A Financial Broker, AMA

KomradeBishop wrote: »

What is the worst instance of fraud you have witnessed? What is the worst, but still legal, ethical violation you've witnessed?

Has the opportunity of getting a bigger commission (assuming you take commission), ever influenced the advice you give a client?

What do you think of the ban on commissions in the UK?

Personally, the worst instance of fraud was against my father. He was also a director of a general insurance company and another director was taking money out of the company and not paying companies insurance premiums. That director did a runner. The banks were incompetent in allowing the fraud but pushed the case to the high courts in the hope that my dad would go bankrupt. The settled on the steps, but it was nowhere near enough to cover the costs. He is still paying for it today and will do until the day he dies. My family learned the hard way, the destruction that can be caused by immoral , unethical actions of a person!

In terms of working in my industry, like I said in other posts, its not always as straight forward as it may seem. However, in plenty of cases I can make an educated assumption that the recommendation to a client was at best questionable.

Many of the examples of unethical practices I see are from advice given directly from major financial institutions. Now alot of this might be because alot of my clientbase were with my dad (so they havent had any other experience) or because banks have such a huge clientbase.

In reference to many of my newer clients, they were missold Life assurance (reviewable or term when cheaper mortgage protection would of sufficed). In some cases they were put into a balanced managed fund (oh god!) and given the impression that it would yield 10% annually but not mention of the potential downside.

I think that the Pension options given out to clients are at best bad practise. I will leave it to others to decide if its unethical, but I get alot of people come to me who are not happy with their pension options at retirement. In many cases, they get generic options that in my opinion do not give the person a full story of what they are entitled to. The options given to the clients are compliant , but I believe many people are not getting the maximum tax free cash from their pensions and are being led down the annuity (use funds to buy pension for life) path so that the money is kept in the industry.

I will try and answer your commission question with a story. I have an investment salesman regularly badgering me to meet up. Hes already told me his product and I am not interested. I can get 8% commission from advising clients to go into his Northern Ireland windfarm investment. He is an aquantance of my dad and I have no reason to not trust him. Hes been on the road for years and thus far this investment has done good for its investors.

So why dont I advise clients to go into it ? Because my expertise is mainstream and with the major Life & Pension providers. I am more comfortable using them, more familiar with their products and feel that larger companies are safer options for my clients. Lastly, that investment fund wasnt regulated (until recently and hes back badgering me!) which didnt sit well at all with me.

I can tell you off the bat my favored anchor funds are the Standard Life GARS fund and the BNYM Global Real Return Fund with New Ireland. The charge for any client investing in these directly is 1.35% per annum. Whether a client does the business through me or goes directly to the companies themselves, the charge is the same. The difference is whether or not the company has to pay me commission or they just pocket the charges from direct clients.

In my experience most people are conservative investors who prefer a steady journey, as opposed to an up/down performance (like a heartbeat on a heart monitor).

There is a lot of talk about the ban on commissions in the UK. Since my business model was adopted from my dad, I will have to make substantial changes to how I charge people if there is a blanket ban similarly in Ireland. This has only happened in the last few years, so it will be awhile until the benefits and downsides to this strategy can be assessed.

I may end up having to move professions so its not an easy topic for me to be objective on. Banning commissions only guarantees that brokers will not have a financial incentive to advise on non commission products. This assumes that most brokers are commission driven which I don't subscribe to.

It does not guarantee that major Life & Pensions companies will pass on these reduced charges to clients. They might do for a year or two, but there's nothing to say they wont bring out more expensive products after awhile and phase out older charging structures.

Banning commissions will mean less people will get independent advice. Its extremely hard to quantify the cost of bad/generic advice that more people will get by not using an independent broker for their investment advice. On paper, a person may not be paying as much, but the advice they receive could make it a neutral gain.

As it stands now, people can get independent advice, from me and get a better deal then they can get going in directly to a major Life & Pension company. If all commissions are banned, the same person will have to pay me for independent advice on top of existing charges.

I would counter propose that by suggesting that comissions payable to brokers is made generic across the board. So whether I advise a client to take out a pension or investment bond with Zurich or Irish Life, i get paid the same commission. This takes the motive for any broker to choose one company over another. It allows more people access to independent brokers and it allows brokers to get better deals for their clients. Win win all around!

I'm A Financial Broker, AMA

kneemos wrote: »

Do you eat lunch?

Wafflefree response. .

Mostly 2 boiled eggs on Low GI toast . .

I'm A Financial Broker, AMA

Dozen Wicked Words wrote: »

Is there a case that some live far too much for their retirement and not for the present (whilst they are physically and mentally well enough to enjoy it)?

Most people do the opposite.

This makes me think of a particularly nervous client I have who for as long as I can remember has always worried about what they will have at retirement!.

They are in their mid 50s, own their own house, have a rental property, have small Pension savings and reasonable amount of bank/investment savings.

They received €250,000 recently and invested €200,000 of it in a rental property. Yet, they get nervous if a savings or investment plan goes down 2% but they pumped a couple of hundred grand into one of the most risky assets you could have! Its a tangible asset and I think us Irish have a thing about property.

I'm A Financial Broker, AMA

frankyboy1986 wrote: »

Hello,

I am mortgage approved and in the process of putting in offers,how do I sort out life insurance,home insurance etc the bank have kind of left me to figure it out for myself

I am surprised that the bank didn't sign you up for all these things.

With regards to the Life Assurance, if you (and if you have a partner) are medically healthy, it can be a very straight forward process. Complete an application form, they can be underwritten within a couple of days and started quickly.

You can research the market yourself, Zurich are generally one of the cheapest for direct clients. Usually mortgage protection is suffice, this means for example, if you are taking out a €200,000 mortgage for 30 years, you need a mortgage protection quote for this amount.

The advantages of contacting a broker is that all Life assurance companies will match the best price in the marketplace for a broker (that they dont do for clients contacting them directly).

Differant companies have differant little free add-ons, like Aviva have "best doctor" that comes with life policies over €20 a month. It covers you, your spouse, your parents and your children. Basically if any of you get diagnosed with a serious illness, once there has been professional advice saught and given, you can send your case into Aviva and they get you a second opinion. The key thing is that they are medical professionals all over the world. http://www.aviva.ie/online/protection/best-doctors/

I am not joking, if somebody has an ill family member who may be helped with a 2nd opinion take out one of these policies and avail of the service. You can always cancel it when its passed its use!

I am sorry but House Insurance isn't my professional area, but from what I gather its not too difficult to setup. I know from personal experience it was a relatively easy thing to setup.

In both cases, even when you have agreed to buy a house, it can take weeks before the deal gets tied up. Either way, if your health is good and the area you are buying is sound (not a flood plain like my estate!) in theory both these covers should be easy to setup. When you have agreed to buy a house you could always contact a house insurance provider and get a quote (they might give you extra information on an area that a surveyor might of missed !).

NotCominBack

Whats the point in Life Insurance, as when I'm dead I cant collect it?

Tompatrick

What was your salary last year?

somesoldiers

In your experience is it a deliberate policy of Health Insurers to refuse every large claim in the first instance and constantly change health plans so that no one knows where they stand?

somesoldiers

What do you think of the proliferation of financial "educators" that have sprung up in Ireland in the last 10 years, offering to train people on spread trading, risk management and the psychology of trading etc? Has anyone ever come through this that you have heard of and actually made any money or are they better leaving it to the professionals?

evolving_doors

3 Questions

1. What do you think of presentation in the material sense (suit,shoes,watch,pens etc.). Do you think it's necessary to 'present' some expensive bling to show the client that you have the resources/acumen to afford good quality stuff?

2. Conversely... would you be adverse to taking advice from someone dressed in what you would consider a 'cheap suit'?

3. What type of car do you drive? (I'm guessing Audi:pac::pac::pac:)

December2012

What percentage of my income should I put into a pension? I have about 400 each month after childcare / mortgage. I'm currently saving that. Late 30s.

orthsquel

Do mergers and acquisitions of life and pension companies (e.g. Canada Life absorbed into Irish Life and Permanent, which is owned by another entity) make your job harder or easier (since they may have similar and different offerings and different underwriting criteria)? I would assume it would be up to you to update yourself with any changes, but would they be forthcoming in any requests for information you make (or whatever way you go about it)?

Out of curiosity, do many people when seeking financial and other advice from you, volunteer where the money comes from? I assume you obviously don't and can't legally ask, but do people willingly tell you anyway as a means to provide context and background? Do you get many people seeking financial advice after winning a big sum on the lottery? What would be the most common reasons - where people have volunteered the information - they have the lump sum and need the financial advice?

You mentioned about fraud in a post above... do you ever get people looking for financial advice to launder money or put money out of the reach of the tax man, or away from family members? If someone you suspect is looking for financial advice and has indirectly indicated or declared or accidentally revealed the money is from criminal activity (e.g. theft, embezzlement, general criminal activity asset and money laundering) are you obliged to inform the authorities of suspicions? Maybe you have never been put in that situation, but would something like that be fairly common and something to expect?

johnny osbourne

could you loan me a fiver?

gordongekko

Why are pension charges so high? Looks like the financial industry is on the win win when its the customer that takes the risk.

Nichard Dixon

What (4 ) key questions with a 6 figure sum should a customer ask a financial advisor about proposed investments?

To Elland Back

Is there any chance of the various Health Insurers being compelled to reduce the number of plans available and simplify their description of cover? At present it is impossible to shop around at renewal