Financial agent

What it means

A financial agent is a person who sells financial products such as insurance, loans, investments or pension savings under a contract with one or more financial institutions. They must be entered in the register kept by the National Bank of Slovakia.

The Financial Intermediation Act distinguishes a tied financial agent, who represents a single institution in a sector, from an independent one with contracts with several. An agent differs from a financial adviser and from an insurance broker, who represents the client rather than the insurer.

A financial agent must meet requirements of professional competence and good repute, keep up training and, for insurance, hold liability cover. Before a contract is signed they must establish and record the client’s needs and requirements.

How it works in practice

Companies often meet an agent when arranging business insurance, loans or the director’s mortgage. We recommend checking the agent’s entry in the NBS register and finding out which institutions they work with. An agent tied to one insurer will not show you competitors’ offers.

The agent’s commission is usually built into the product’s price, so the service seems free to the client. With investment and life products it can be high and depress the value of savings in the early years. The agent must disclose costs before signing.

For a company it is an ordinary service. If the company is itself a financial agent, for instance a sole trader in a network, its commission income is business income, and for VAT it is usually an exempt service connected with insurance or financial services.

What to watch out for

A frequent problem is selling a product that does not fit the need, such as unit-linked life insurance instead of simple risk cover. The client is entitled to a record of the needs analysis, and not receiving one is a warning sign.

Watch out too for “refinancing” of policies, where an agent cancels an old contract and takes out a new one to earn a fresh commission. Cancelling often loses accumulated value, and the new contract starts its charges from scratch.