NEST EGG Financial products vs Financial advice

With deposit rates on the floor, and equity markets continuing to deliver excellent returns, it’s no surprise that disgruntled savers are wondering how they can earn more.

Given the wealth of savings built up over the pandemic, it’s also no surprise that the banks are eyeing the potential to step up their sales of savings and investment products. More than €16 billion alone was saved over the past year, while overall Irish deposit levels are at record highs according to latest figures from the Central Bank of Ireland.

As we know, much of this isn’t even earning any interest on deposit and billions on deposit will be forced to find a new home in the coming months and years, given the winddown of Ulster Bank and KBC Bank in Ireland.

Alongside my profession of financial advisory, are the retail banks who eager to ramp up their income by targeting savers turned investors. It’s very important for people to understand the difference between being ‘sold’ some financial products (where the motivation is often the commission up-front earned by the seller) versus financial planning/advice delivered which plots your journey up to and through retirement.

KBC Bank launched a mobile app last month, allowing you to invest from as little as €10 a month in a range of six funds. Bank of Ireland, meanwhile, is hosting a series of webinars aimed at helping both experienced and first-time investors, make the most of their money, while AIB is understood to be in advanced talks about a potential joint venture with Irish Life, who they are already tied agents of.

While an offering from a bank may be just what your personal investment strategy calls for, it’s worth understanding how the service works before leaping in.

Most banks act as tied agents for one range of investment products – in other words they don’t “make” the funds themselves, rather they sell them on behalf of other investment managers.

Typically, they will only offer a limited range of products, often from just the one provider. Bank of Ireland, for example, is a tied agent of New Ireland, which means that the “vast majority” of the investment products it offers, the bank says, comes from its subsidiary.

Similarly, AIB offers products from Irish Life, such as its MAPS range of funds, as does Permanent TSB, Ulster Bank and EBS. KBC Bank is a tied agent of Irish Life for its insurance products, but distributes investment products from KBC Asset Management, an affiliate within the Belgian financial services group.

If you opt for a bank for your investment advice, you’ll be limited to a small pool of asset managers – just three across the whole market, and just one from your bank.

You might think that arranging a financial review with your local bank to consider such investments won’t cost you and will be offered as ‘free’. It’s important to know if AIB is selling Irish Life’s products, it’s doing so for a reason – to boost its income. And one of the ways it does this is by earning commission on all products sold by one of its financial advisors.

It’s a similar case with Bank of Ireland. As distributor of New Ireland products, it earns commission. And these figures can be hefty. Thankfully, at least it’s now easy to find out just how much.

Under Central Bank rules, intermediaries are required to display all fees, commissions, rewards and remuneration they receive from product providers in return for the sale of products, or the services they provide, to consumers.

So before handing your money over you should ask what these commissions are and how they impact your policy. Or even better, go to an independent financial advisor who will have a much broader range of products and the advice you will get will typically not be led by the commission on the product.