I remember when I was working on sales targets and charging as much commission as I could in telling clients “there’s no fee for you, the life company pays my fee.” This of course, isn’t true. The client pays for the broker’s commission through a higher annual management fee. I have explained how this works previously.
While we have seen commissions banned in other jurisdictions like Australia and the UK, there is no indication that the Central Bank of Ireland will follow suit. If that is going to be the case, then the Central Bank should make brokers lay out the options for clients on whether they want to pay a fee of by commission and show them the differences.
A client asked me to implement a regular saver plan for her. I showed her two products that I thought were suitable to her. Option 1, she paid me a set up fee and had lower ongoing fees. Option 2, I was paid a commission and there were higher ongoing fees (which recoups the commission paid to me). I showed her that assuming the global index used both perform the same, it would take 7 years for the lower fees to be more beneficial. So if she intended to cash in before that, the commission option was better. If her intention was for over 7 years, the fee option would be more beneficial. She opted for the fee option. She made an informed decision and opted for the option best for her.
The world of commissions in personal finance is very opaque and difficult to understand. It is purposely meant to be that way. But in some circumstances, it may suit a client to pay through a commission. But the only option made available to them should not be the high cost option.
Let the client choose.
03 April 2023