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March 6, 2021

Finding a trusted Financial Advisor. Lessons from The Davy Scandal.


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“Dictum Meum Pactum”, for those of you who are not Latin scholars, translates into “My Word Is My Bond” and it has been the motto of the London Stock Exchange since 1801.

The reason for its place in history lies in a time when bargains and deals of share ownership were made with no exchange of documents and no written pledges given. The stockbrokers who used the Exchange at the time undertook that they would always do what they had promised to do. Namely, arrange, on a handshake, for the transfer of ownership in shares being traded on the terms that were agreed between both parties. Implicit in such trading was the integrity of the stock market that the pricing of the deal and conveyance of the underlying shares was honest.

This phrase has also been used in the insurance market which started out in Lloyds of London and rightly so. Those who have paid insurance premiums for coverage needed to be confident that if they made a genuine claim, they could be confident that the sum insured would be paid.

In the past week, Irish financial circles have been rocked by the Central Bank of Ireland fining Davy Stockbrokers €4.13 million for breaching market rules in 2014 through a transaction that involved its senior management, three of whom notably resigning on the day this insight is being written. Within its current website, Davy states that it “is a trusted market leader in wealth management and capital markets, building rewarding relationships that last. At Davy, it’s not just business, it’s personal.”

It may be unfair to dance on the Davy grave at this stage, but it does seem that personal investors who dealt with and continue to deal with Davy might need to review their past transactions with the firm if the underlying Davy ethos is, as it appears to be, something different from what their present day public persona professes.

Words such as honesty, trustworthiness and fairness are not something of a bygone age but are even more relevant in a time of electronic communication as is the core value of being respectful to others. Handshakes that have been replaced by nanosecond transactions raise the bar for not only financial dealings but also the integrity of the market-place in which such trades take place.

At the core of all of this is the quality of financial advisors on whom personal investors rely. Quite often many of my clients have said to me in the past that they trust me and will follow my advice, whatever it is. While this is personally reassuring for me and for many other financial advisors whose relationships with their own clients have earned similar trust, the reality is that it is also incumbent on personal investors to do their own homework before trusting someone to provide financial guidance to them. So, here’s a shortlist of questions that many personal investors might use before appointing a financial advisor:

1. Are they authorised by the Central Bank of Ireland?
This should be the starting point of selecting a financial advisor and the best way to find this out is to check the specific business name and its specific address on the financial regulators website which can be accessed at http://registers.centralbank.ie/ .

2. Have they or any of their staff ever been sanctioned by the Central Bank of Ireland or have they ever been sued by former clients?
This is revealing of the integrity of the underlying service provider and is an indicator of how their business is run and what respect they give to their clients.

3. Is the product solution that they are recommending a regulated product? This is a key issue to explore. If the product isn’t a regulated product you are not covered by either the Investor Compensation regulations or, most likely, the financial advisor’s own professional indemnity insurance.

4. How qualifications do they have to give financial and investment advice? While qualifications aren’t necessarily a sign of a good advisor they do, however, point towards a minimum level of professionalism. The more qualifications, the more likely the advisor is up to date on market practices and the higher the likelihood of the quality of their advice.

5. Do they have a specific financial speciality and how do they work? Financial advisors are similar to the medical profession in that particular skillsets and experience are built up over time.

6. How do they charge for their services, and what are their fees? Figure this out before you start working with a financial advisor as it will allow you to make an estimate of the value for money you will be getting by following their advice.

All of which brings me to another idiom, namely the Ronseal Ad which has stated “it does what it says on the tin”. Does your financial advisor do likewise?

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