Ireland’s finance minister, Paschal Donohoe, is planning to introduce a ban on commissions for independent financial advisers, the Irish edition of The Times has reported, citing information it obtained under the Freedom of Information Act.
The ban, which is reportedly being opposed by some industry groups, is seen to be Ireland’s response to key pieces of EU legislation that are coming into force in the first two months of 2018, and which have also affected the financial advice and wealth management industry elsewhere in Europe.
In a report published on Wednesday, the paper noted that the Department of Finance was in the process of “transposing two pieces of EU legislation into Irish law that relate to investment products, the Insurance Distribution Directive (IDD) and the Markets in Financial Instruments Directive (MiFID) II”. The IDD relates to insurance-based investment products, which, according to the Times, account for about 90 per cent of the Irish investment market, while MiFID II relates to non-insurance-based products.
The Times report goes on to explain that the contents of key emails released to its journalists under the Freedom of Information Act, show that the decision to introduce the ban was communicated to some members of the Irish advisory industry in October.
“News of the Department of Finance’s decision to ban commissions was communicated last October in separate emails from a senior official in the department to Teresa Kelly Oroz, head of regulation and compliance at Irish Life Health, Elizabeth Smith Wright, head of compliance at Brokers Ireland, and Jennifer Hoban, life assurance manager at Insurance Ireland,” The Times said, adding that the email said Donohoe had decided to exercise his option “to prohibit the acceptance and retaining of fees, commissions or non-monetary benefits from third parties in relation to the provision of independent insurance advice for insurance-based investment products (as defined in IDD), in order to ensure a level playing field for functionally equivalent products sold under Mifid II”.
According to The Times, the Irish investment sector is “dominated by life-insurance companies and brokers dependent on them for commissions”, and that, for this reason, it had “campaigned strongly against” the proposed ban, arguing that it could lead to an “advice gap”, as many customers decided not to pay for advice.
“Others, including the Pensions Council and investment companies such as Vanguard, have called for an outright ban on paying commissions.”
Mifid II is due to come into force on 3 January, while the IDD comes into force on 23 February. The Times said the Irish Department of Finance is expected to hold off on implementing the provisions of the IDD relating to commissions until later next year, in order to provide an opportunity to consult more widely with the industry and consumer groups, as well as “to consider [the findings of a] final report of the Central Bank on the issue of commissions and non-monetary inducements, which is expected to be published in March of next year”.
Paul Stanfield, chief executive of the Federation of European Independent Financial Advisers, said that a ban on commissions in a market like Ireland made sense on a certain level, since it effectively would serve to even out a playing field in a market where financial advisers typically advise “across all products, including investments and insurance”, and where there consequently can be some “product arbitrage” taking place, as a result of the existence of commissions.
While this didn’t necessarily make the case for a commission ban by itself, he noted, it is a compelling argument in such a market, which is similar to the UK in this respect but not the rest of Europe, where those handling investment products – which typically involve a fee of some kind – are normally different entities from those selling insurance, with different types of remuneration practices in force. FEIFA is a non-profit trade association that represents English-speaking financial advisers operating across Europe.
To read and download a report commissioned by the Irish Central Bank on consumer understanding of commission payments, published last month, click here.
To read and download an Irish Central Bank consultation paper on “intermediary inducements”, published last month – which includes details on how to submit a comment, by 22 March 2018, and which follows on from earlier work the ICB has done on the subject of inducements – click here.
To read The Times’s story in full on its website, click here.