Explainer - What do I need to know about using a retail intermediary/financial broker?

Brokers with clients 

Retail Intermediaries are commonly known as brokers or financial brokers.

Their role is to advise consumers in relation to financial products including insurance, mortgages and investment products. They also assist in buying these products on behalf of consumers.

Brokers sell financial products and services by searching the market for financial products from a number of providers. This is different from going directly to a mortgage, insurance or investment provider, who will usually only sell their own products.

Central Bank of Ireland regulates approximately 2,500 brokers. They range in size from sole traders to large companies.

All regulated brokers must comply with the Consumer Protection Code (CPC) and the Minimum Competency Code (MCC). This means that their staff must have a certain level of professional training in the products they are selling to consumers. The Central Bank monitors compliance with these requirements through inspections, regulatory returns and firm level engagement.

Check our registers to find out if the firm you are dealing with is regulated by the Central Bank.

A broker acts as an intermediary between the consumer and the firm / product provider that is providing the product or service.

A broker can provide advice to consumers based on either a  “fair analysis” of the market, or “limited analysis” of the market:

  • Where a broker provides advice based on analysis of a large number of product providers, they are classed as having carried out a “fair analysis” of the market, which may sometimes be described as “fair and personal analysis”. This means that when recommending a product to you, the broker has assessed a large number of the available product providers in the market in order to choose a product they consider to best suit your needs.
  • In other cases, they will provide advice based on analysis of a smaller number of product providers. In these cases, the firm provides a “limited analysis” of the market. This means that when recommending a suitable product to you, the broker has assessed only a limited number of the available product providers in the market. As a result, there may be a number of other alternative providers, offering similar products, that were not considered in their recommendation. Where providing advice on a “limited analysis” basis, brokers must clearly disclose to you the names of those product providers whose products or services it intends to consider in its recommendation.
  • Those who provide their service on behalf of one product provider only are known as “tied agents”. A tied agent must provide the name of the financial services provider it is tied with and also the product(s) and/or service(s) to which it is tied.

Some brokers may be operating on a mixture of both “fair analysis” and “limited analysis” of the market, with the nature of service potentially differing depending on the product type. For example, the same broker may offer life insurance on a fair analysis of the market, using a large number of product providers, but may offer pensions on a limited analysis of the market, using a smaller number of product providers.

A broker’s Terms of Business is an important document for consumers, and must explain the nature of services offered and whether it provides advice based on either a “fair analysis” or “limited analysis” of the market.

It is important to consider whether the recommendation you receive from a broker is based on consideration of a wide range of product providers in the market or a smaller number, in order to assess the benefits, risks and value for money of a financial product or service, and whether there may be other suitable alternatives available.

Many brokers are paid via commissions. This means that, when providing advice or a recommendation to consumers to purchase a particular product, the broker receives payment from that product provider in return for selling their product. Brokers must publish details of the commissions they receive from product providers on their website, and this information should be brought to the attention of the consumer.

Where receiving such commission payments for any of its activities, a broker cannot describe, market or advertise themselves as being “independent” (or similar terms).

Brokers can only describe themselves as being “independent” if they do not receive commission payments and they provide advice based on a fair analysis of the market. 

For any one regulated product or service provided by your broker, the individual activity itself may be described as “independent” (or similar terms), in certain specific and limited circumstances. For the activity (e.g. advice) to be described as “independent”, that activity must meet both of the following criteria:

  • It must be provided on the basis of a fair analysis of the market.
  • The broker must not receive any commission payment in respect of that specific activity.

However, where a broker provides other regulated activities on a commission basis, those activities cannot be described as “independent”, and the broker cannot describe or market itself as being “independent”.

The broker will gather information from you to ensure that any products or services sold to you are suitable for your needs. The level of information gathered will change depending on the type and complexity of the product or service you require. Brokers must ensure that any products sold to you, or advice provided to you, are suitable and appropriate for you. 

They must also provide you with appropriate product information (e.g. product fee, applicable exit penalties, etc.) so that you can make an informed choice about the product or service.

Once a broker has gathered the information needed, they must provide you with a Statement of Suitability. This is an important document that sets out why a particular product is suitable for you, based on the information you have provided.

Yes.

Some brokers may sell products that are not covered by regulatory protections. Where a firm does this, they must clearly distinguish their regulated business from any unregulated products they provide.

Unregulated products do not have many of the investor protections that apply to regulated investment products, including access to the investor compensation scheme. 

If you deal with a broker that is regulated by the Central Bank, they must explain to you whether the product they are providing or recommending to you is regulated or not.

Your broker should ensure that you understand the implications of purchasing an unregulated product. This should include explaining that the investor protections that apply for regulated investments, such as access to compensation schemes and client asset protections, do not apply to unregulated investments.

If you are thinking about investing in an unregulated investment product, consider seeking professional advice to ensure you fully understand the product and the risks involved.

Always make sure the broker you are dealing with is regulated by the Central Bank by checking our registers. In particular, be aware of ghost brokers. These are professional fraudsters selling forged or invalid discounted insurance policies to unsuspecting consumers. If a firm is not authorised to provide a service, do not use it.

Remember, if you deal with unregulated firms, you will not have access to the following protections:

  • Investor compensation schemes, which compensate consumers for the negligence of regulated firms
  • The services of the Financial Services and Pensions Ombudsman

Unregulated firms are not subject to the rules and regulations of the Central Bank.

The Central Bank publishes warning notices naming persons or firms who are providing financial services without the appropriate authorisation or who are holding themselves out to be a regulated financial service provider where they do not have the appropriate authorisation to provide financial services.

If you have been approached about an investment scam - or think you are a victim you can report the unauthorised firm to the Central Bank. You may also like to report the matter to An Garda Síochána.

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