Home Knowledge Major Changes In Store For Financial Intermediaries

Major Changes In Store For Financial Intermediaries

Financial intermediaries face a sea change in the next few years, and many are only now getting to grips – or still in denial – in relation to the economic downturn.

Speaking at a William Fry breakfast briefing this morning, Eoin Caulfield – a partner in the William Fry Financial Institutions Group – and an industry panel discussed how legislative and other developments will result in changes to the distribution models and a greater compliance burden on an industry grappling with the impact of the recession.

The heavy bias towards commission paid by life insurance companies will have to give way to fee based structures, in line with the developments seen in the UK, Scandinavia and elsewhere.  As part of his presentation, Eunan O’Carroll, a Director of Core Consulting, discussed the changing compensation model for financial intermediaries. “As it stands, remuneration is heavily based on up-front recovery of revenue i.e. through commissions. Through the Retail Distribution Review, the UK has recently seen a ban on commission selling of investment products which has had a significant impact on the industry. This development, coupled with the renewed EU focus on consumer protection, is giving way to a more rigorous regime for financial intermediaries. Another issue facing the sector is a lack of ability to engage with the “apple generation” – those aged 22 to 37 – and is a severe threat to the future of the industry.”

He added: “The notion that financial advice is free is fast coming to an end as the industry grows up through increased regulation but I believe the future for Irish financial intermediaries is positive, albeit only for those intermediaries who adapt.”  

Paul Carty, Chairman of the EU Standing Committee at BIPAR, the European Federation of Insurance Intermediary Associations, spoke about potential changes in the introduction of Europe’s consumer protection plan over the next 2 years approx. (IMD2, MiFID & PRIPS). “There will be an increased regulatory focus on commission and disclosure. These regulatory changes suggest a greater focus from regulators, like the Central Bank of Ireland, on broker professionalism, compliance capability and financial models quite possibly leading to a reduction in broker numbers.  Regarding the sale of life products, it is still not totally clear what approach will be taken by the EU in the area of commission payable by life companies to financial advisors with every possibility of an outright ban on these commissions.”

Eoin Caulfield of William Fry noted: “In a week where JP Morgan was fined $13bn in the US for the missale of mortgage products, closer to home we have seen the Payment Protection Insurance debacle.  However, we have also seen a harder line taken by the Irish courts in cases of “investor regret” where, in cases involving the former Anglo Irish Bank, the courts have been less willing than you might expect to find in favour of investors.”

He also highlighted the growing compliance burden faced by financial intermediaries, saying: “We will see the Central Bank of Ireland focus on areas like themed inspections to ensure that financial intermediaries are undertaking suitability reviews on their clients before putting them into products as well as expected due diligence on both the product and the producers.  It is clear the burden of compliance on financial intermediaries is going to expand even more.”