Huge change is on the horizon for Irish financial advice – are you prepared?

"There are decades where nothing happens; and there are weeks where decades happen" - Vladimir Ilyich Lenin

As the European Union continues to harmonize financial regulations and enhance investor protection, it is crucial for financial advisers in Ireland to stay abreast of developments as they will significantly impact the advice landscape like no other changes in recent decades. 

Europe has one of the highest individual savings rates in the world, and Ireland's savings rate is amongst the highest. However, the level of retail investor participation in capital markets remains low compared to other economies, with a majority of people instead keeping their savings in bank deposits, traditional saving products and life insurance products, generating low or even negative real interest rates with the current level of inflation.  

In May the European Commission adopted the ‘Retail Investment Strategy’ (RIS) as part of its 2020 capital markets union action plan. The primary objective is to foster a more transparent and consumer-friendly retail investment market across Europe resulting in more participation by EU citizens in saving and investing. 

The main thrust of the RIS that will impact on advisers is likely to be: 

• Despite a push for a complete commission ban, this is unlikely to go through, however commission will only be available where it is linked directly to advice and the amounts paid will be far more transparent  
• Transparency on fees and charges. A long overdue levelling of the playing field regarding cost disclosures. Costs will need to be fully disclosed regardless of the product being advised on. Currently life company cost disclosures are at a lower standard than Mifid (Platform) cost disclosures. This is very positive for advisers using platforms and for consumers as we will no longer have an apples versus oranges landscape in comparing costs. This is what the Irish regulator tried to achieve with CP116 a few years back
• Value for money will need to be evidenced – this is similar to what is happening in the UK currently with Consumer Duty 
• Changes to suitability and appropriateness tests 
• Changes to minimum competency standards for advisors 

In advance of the RIS being finalised and made into law, the Central Bank of Ireland will be publishing its revised Consumer Protection Code sometime in the middle of next year, which will need to incorporate as much of the RIS proposals as possible in advance. 

The RIS and new CPC is likely to drive forward professionalism in the advice space in Ireland. Consolidation of advice firms and lower grade advisers dropping out of the industry are likely to be a feature of the landscape of the next couple of years following the introduction of these new regulations. 

All of these changes feel like a once in a lifetime change to how the advice landscape will work in Ireland and across Europe. Irish advisers should start to consider how these changes will impact their current way of doing business. For some, it will likely signal the end of how they used to do business (think about the recent spate of headlines relating to structured products here in Ireland).  

For others, it represents a watershed moment of opportunity. Advisers who have pro-actively changed their business models, professionalised, embraced fees and transparent full cost disclosures and placed their clients at the centre of the business should have nothing to fear, and in fact will benefit from these changes as they will be well positioned at the front of the profession going forward. Adviser partners of PortfolioMetrix will be particularly well positioned to deal with these changes. Opportunity abounds!