Financial intermediaries such as brokers will no longer be able to say they are ‘independent’ if they accept commissions in situations where they also provide advice to clients.

The change comes in a package of new rules that the Central Bank has included in the Consumer Protection Code on the payment of commission to financial intermediaries. The new rules cover further requirements on transparency for consumers and prohibitions on certain types of commission arrangements.

Among other things, intermediaries will be compelled to publish on their websites details of the commissions they receive from ‘product producers’ such as insurance companies, investment funds, banks, .and the like.

The Central Bank says that the new rules “aim to ensure transparency of commission arrangements between financial intermediaries such as brokers and financial advisers, and product producers such as banks and insurance firms”, and to minimise the risk of conflicts of interest relating to commissions “arising when consumers are getting financial advice from the intermediary”.

Certain criteria must be met for a commission to be acceptable, and commissions linked to targets that do not consider a consumer’s best interests will be deemed a conflict of interest and will be prohibited.

In Association with

And it’s not just payments that qualify as commission. Free hospitality for intermediaries, such as golf trips and sporting event tickets, will also be prohibited. “Any commission received in the form of non-monetary benefits must demonstrably enhance the quality of the service to the consumer in order to be permitted,” the CBI has decreed.

Director of consumer protection Gráinne McEvoy said: “These new rules will provide much needed transparency around commission payments, allowing consumers to see what commission payments their financial advisors are getting for the products they are recommending. 

“We will not allow hospitality such as golf trips and sporting event tickets as we consider such benefits are designed to influence an intermediary to place business with a particular provider rather than to provide any direct benefits to consumers.”

The new rules will come into effect on 31 March 2020.

Where's The Evidence?

Brokers Ireland chief executive Diarmuid Kelly said that there is little evidence of the commission system having been an issue of concern for consumers, and claimed that consumers overwhelmingly choose that their broker be remunerated by commission rather than by fees.  “Transparency in relation to these payments is not an issue, it is already at a high level and disclosed to consumers," Kelly added.

The brokers’ organisation said it is  extremely disappointed that the Central Bank is banning use of the word ‘independent’ where commissions are paid.  

“The new rules outlaw the term ‘independent’ for all brokers except the handful who can afford to serve the better-off, fee-only consumers," Kelly stated. “The decision takes away consumer choice on how they pay for independent advice. For brokers, being able to state that they offered independent advice was a cherished hallmark, distinguishing their services from those of banks and other tied agents.

“Fair analysis, the other crucial component of independent advice and a key driver of choice and competition in the market, may also be weakened by this move. Some brokers may question the value of undertaking the additional work involved in providing fair analysis of the market if they cannot describe themselves as independent.”

The full package of new rules is available on the Central Bank website here.