Choosing a financial adviser
Why choose an independent financial adviser?
Good financial advice can make your money work harder for you. There are different kinds of financial adviser called tied, multi-tied, and independent financial advisers (called IFAs). It is important to know if you are dealing with an independent financial adviser and how to make sure you get the right financial advice.
How important is the right financial advice?
Choosing the right financial adviser is an important decision to get right. Getting good financial advice will make a real difference to achieving your goals. You might want to borrow money to buy a house, put yourself on track for a comfortable retirement, or make sure your finances carry you through if illness meant you couldn’t work. There are hundreds more things to think about and a good financial adviser will help you understand and prioritise your financial needs as well as recommend products which can help you.
Why may IFAs offer broader advice options?
There are three different types of financial adviser. In the industry jargon your adviser may be tied, multi-tied or independent. You need to know what the status of your financial adviser is because it may well dictate the depth of advice you may receive.
Independent financial advisers IFAs may advise you about products from a range of companies across the market; tied advisers may only sell products provided by the one company to which they are tied. A multi-tied adviser may also only offer products from companies with which they have a relationship. This may only be one company in each product area meaning they offer no more choice than a tied adviser, or they may have a relationship with a handful of companies.
Although all types of adviser are required to advise you about the products most suitable for you, a tied adviser is limited to the products of only one provider.
A multi-tied adviser has links with more than one company. However offering life insurance from one provider, investments from another, and pensions from a third and so on effectively offers you the consumer no more choice in each product set than you would get from a tied adviser.
You are always likely to get the most suitable advice for you and your circumstances from an independent financial adviser IFA who has been able to review the whole market-place rather than a tied or multi-tied adviser.
How much will I have to pay for financial advice?
All financial advisers have to earn a living. Your IFA may offer his or her services in exchange for fees or commission or sometimes both.
Fees usually mean that you pay a fixed amount to the IFA up front depending on how complicated your advice needs are or sometimes an hourly rate. Commission usually means you don’t pay the adviser any money directly yourself. Instead the provider of any products you buy pays commission to the adviser and deducts the cost from the value of your product. The cost of the commission is taken into account in the charges you pay under your product together with the other costs of setting up and operating the plan.
Tax is another issue. VAT is payable on fees but not on commission payments. However your IFA may give back to you part of the commission he or she receives. If so you may be liable to income tax on the amount you get back.
Since mid-2004 independent financial advisers have been required to give you the option to pay by fee if you want to. Tied advisers and multi-tied advisers are not required to offer you this choice. However after stipulating a fee IFAs may take the fee out of the commission generated by any product you purchase. Any commission over and above the fee already stipulated would be rebated to you.
How are financial advisers regulated?
All financial advisers whether independent tied or multi-tied are regulated by the Financial Services Authority (the FSA) under the provisions of the Financial Services and Markets Act 2000. For more information about the FSA visit their website – http://www.fsa.gov.uk/
The FSA keeps a list called the Central Register which means you can check up on IFAs before doing business with them. The Central Register is available on the FSA website.
You can also make checks over the phone on 0845 606 1234.
What happens if I get bad advice?
All authorised advisers are required to have a complaints procedure and this is the first course to follow if you think you have been badly advised. However if your IFA’s process doesn’t resolve the problem, you can refer your complaint without cost to you to the Financial Ombudsman Service.
The IFA that has been dealing with your complaint should, as part of their procedure give you details of how to contact the ombudsman.
Mortgage advice previously subject to the Mortgage Code run by the Mortgage Code Compliance Board MCCB is also regulated by the Financial Services Authority and any unresolved mortgage complaints can be referred to the Financial Ombudsman Service.
Can I get financial advice from a solicitor or accountant?
Some solicitors and accountants are also authorised to act as financial advisers although this is not their main area of business. You may want to check that they have the right expertise to give the advice you need particularly if it is in a complex area such as pensions.
Are mortgage advisers the same as independent financial advisers?
Often mortgage advisers are not authorised to give full financial advice and just deal with products related to house purchase. While they are required to be properly qualified, and are fully regulated by the Financial Services Authority, mortgage advisers may not be in a position to advise you on other matters in which case you should look to a fully qualified IFA.
Should I use an estate agents mortgage adviser?
Many estate agents have arrangements with mortgage advisers. You should check the range of services that the mortgage adviser is willing to provide and whether he selects products from more than one mortgage provider.
However when taking out a mortgage there are many other financial considerations and you may well prefer to deal with an independent financial adviser who is able to provide both a full financial review and be able to offer you an unbiased analysis of the mortgage market.
Can’t I just follow the newspapers finance pages?
The financial sections of the newspapers often give helpful guides. The financial press is definitely worth reading to give useful background and the knowledge will be useful when you deal with an independent financial adviser.
However you should be very careful before taking any action which seems to be recommended in the press as the journalist won’t know about your individual circumstances. The advice will be very generalised and it might not be the right thing for you. It is very difficult in limited space for journalists to cover all of the pros and cons. If you are in any doubt you should still seek personal independent financial advice.
Why do my accountant, my IFA and stockbroker all give different advice?
Conflicting advice on how to invest is not surprising. There is often more than one way to achieve a financial objective but you need to be comfortable that the investments you choose are right for you.
Make sure that your independent financial adviser has asked enough questions about your circumstances, needs and preferences, has considered the alternatives, and can give you clear reasons for the recommendation which make sense to you.
If you’re not happy ask more questions. IFAs must always be prepared to make sure that you understand fully their advice.