In her recent blog post “How Can I Trust You?”, Sinead Clinton Caldas, Director of Compliance, spoke about how we work to ensure you can trust us with your money. In this post I am going to look more into the companies we use when recommending products and your protections with them. As I mentioned in my last blog we carry out rigorous due diligence on recommended companies, with our investment, preferred provider, and risk teams meeting quarterly to ensure that any company or product we recommend matches our investment philosophy and meets our requirements for security.
“At Metis Ireland, we welcome this question because we believe transparency, regulation, and long-term client relationships are the foundation of everything we do.“
Sinead Clinton Caldas
We have agency agreements with over 20 different companies, and our preferred provider team mission statement puts it best that we are
“Dedicated to helping our clients achieve their financial goals by providing access to a carefully selected network of financial service providers. We believe that by selecting providers who have a proven track record of delivering high-quality services and exceptional value and at the same time meet our investment philosophy, we can help our clients make informed decisions about their financial needs. Our goal is to create strong partnerships with providers who share our commitment to excellence and who are dedicated to helping our clients succeed. We are dedicated to continuously reviewing and improving our preferred provider network to ensure that it meets the evolving needs of our clients”.
Insurance Companies vs. MiFID Investment Firms
There are two types of companies working in the Irish market, Insurances Companies (e.g. Standard Life, Zurich, New Ireland) and MiFID Investment firms (e.g. Davy Select).
It’s important to understand the difference in how assets are protected between traditional insurance companies and MiFID investment firms.
Insurance Companies:
- The insurance sector is a key provider of long-term saving and investment products in the Irish economy, especially popular among households and pension funds.
- The dominant products are structured as unit-linked policies, where investment decisions and risks predominately sit with policyholders rather than the insurer.
- Your assets linked to your policy are legally owned by the insurance company. They may be appropriately ring-fenced and protected so that in the event of insolvency they can be used to pay the claims of policyholders.
- However, in Ireland, there’s currently no statutory investor protection or compensation schemes for life assurance companies who hold deposits, nor for customers who hold policies with life assurance companies.
- Insurance companies do not operate to MiFID II Standards.
- Assets invested with an insurance company are owned by that company and sit on their balance sheet until they’re drawn down, leaving a potential risk of losing your assets if the insurer were to go bankrupt.
MiFID Investment Firms (like trading platforms such as Davy Select):
- Trading platforms operate to MiFID II Standards.
- With a trading platform, your assets are held in one of two ways:
- Cash (including cheques, current, and deposit account balances) is held by the firm on behalf of clients. These are held in pooled or individual client asset accounts with regulated credit institutions and are protected by Client Asset Requirements legislation.
- Client financial instruments (equities and bonds) are held by a nominee service. You remain the beneficial owner of these investments at all times. The nominee is the legal owner and can buy and sell units on your instruction, but isn’t entitled to the asset and can’t benefit from its income or capital. This means that your assets are still owned by you. Should the platform provider go bankrupt, these assets won’t be on their balance sheet.
Example using Davy Select and Dimensional Funds:
Client Asset Requirements (CAR) Explained
The Central Bank of Ireland’s Client Asset Requirements (CAR) protect your assets as a client. The overall purpose of CAR is to safeguard client assets, ensuring that MiFID firms adhere to general principles and prescriptive requirements.
The objectives of the client asset regime are:
- To maintain public confidence in the client assets regime.
- To minimise the risk of loss or misuse of client assets by authorised entities.
- In the event of an entity’s insolvency, to enable the efficient and cost-effective return of those assets to clients.
There are seven core principles of the Central Bank’s CAR regime:
- Segregated accounts: A firm must physically hold, or arrange for the holding of, client assets separate from the firm’s own assets. This helps to ensure that clients’ assets are protected and can be easily returned in case of bankruptcy or other financial problems.
- Designation and Registration: A firm must clearly identify client assets in its internal records and in the records of third parties. The client assets must be identifiable and separate from the firm’s own assets.
- Reconciliation: A firm must keep accurate books and records. When requested, they should be able to provide, without delay, an accurate record of both the client assets held for each client and the total held in the client asset account. They must reconcile internal records with external records of any third party holding client assets.
- Daily Calculation: Each working day, a firm must ensure that the aggregate balance on its client asset bank accounts at the close of business on the previous working day equals the amount it should be holding on behalf of its clients.
- Client Disclosure and Client Consent: A firm must provide information to its clients informing them how and where their client assets are held, and the resulting risks thereof.
- Risk Management: A firm must apply systems and controls that are appropriate to identify risks in relation to client assets and should put in place mitigants to counteract these risks.
- Client Asset Examination: A firm should engage an external auditor to report at least annually on the firm’s safeguarding of client assets.
Final Thoughts
While no individual or company can control the markets or market volatility (and I would recommend to run a mile from anyone who says differently!), evidence tells us that in the long-term, markets do go up. Speaking to a Financial Planner, having a financial plan in place based on what you want for your future, and knowing what security is available to you when you invest, will only help you in the long run.
What next?
I hope the above has helped answer any questions you have about security of your funds. If you want to know more, our team are here and happy to answer any of your questions. Please don’t hesitate to give us a call on 01 908 1500 or email us at info@metisireland.ie.
Sinéad Clinton Caldas
Director, Head of Compliance
Disclaimer
Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.
All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.
