What to look for
The meaning of independent financial advice
Who’s looking out for your money?
The burgeoning choice of financial products on the market – more
than 30,000 (source IMA, DTI, AKG) at the last count – can be
daunting and lead many people to leave their money languishing
in the wrong place.
Yet when headlines present a bleak picture of our financial
future if we don’t start saving more wisely for our retirement,
right now, then it’s clear we should be doing more about putting
our money through its paces.
Whatever you want we’ll help you find it
Whether you’re looking for the best way to save for retirement,
a mortgage, advice on how to invest for the future or protect
yourself and your family with a life assurance policy, the most
suitable product for you is almost certainly out there. It’s
simply a case of how to find it.
Now, perhaps more than ever, it is important to get sound,
unbiased advice on what financial products you should have,
especially those of us who are too busy or who lack the
confidence to search the market on our own. If you are wondering
what sort of advice is out there, where and how to find it and
how much it will all cost, read on.
Seeking advice?
Until recently, there were two main ways of seeking financial
advice for products such as life assurance, personal pensions
and collective investments like unit trusts and Individual
Savings Accounts: through either an Independent Financial
Adviser or a tied agent.
Following a radical shake-up by the consumer watchdog, the
Financial Services Authority (FSA), of the way financial
products are sold, there is now a third way: through a
multi-tied agent.
See how the types of advice differ Independent Financial
Advisers (IFAs)
Offer unbiased financial advice to their clients and recommend
the most suitable products, if any, after researching the whole
market. The key differentiator is that they act on your behalf
and will offer you the option of paying by a fee, as well as the
option of paying by commission.
The big advantage of independent financial advice is that you
have access to all the products on the market through a
qualified practitioner (more about qualifications later). An
IFA’s job is to research and recommend the most appropriate
financial solutions after asking their clients a whole range of
detailed questions about their circumstances, their financial
goals and their attitudes to risk. IFAs are answerable to the
FSA to ensure that they keep to the rules. As they act on your
behalf, they provide personalised written reasons why they have
recommended particular products or a course of action.
Tied Agents
Can advise only on the products of one provider.
Many people buy financial products through tied agents, such as
the sales staff who
work at their bank or building society. When they want a pension
or investment product, they often find it easier just to nip
into their bank and accept what is sold through that
organisation’s relationship with a single life insurer or
investment house.
The person providing the product information or advice is acting
on behalf of the product provider. Many people buy products this
way, usually because they feel more comfortable buying from a
big-name organisation and assuming, sometimes incorrectly, that
they are bound to get a good deal. What they are actually
getting is limited information from a small selection of
products. Confusingly, some banks also have an IFA available
upon request!
Multi-tied Agents
Are financial advisers allowed to recommend the products of a
limited selection of providers, rather than just one.
Multi-tie arrangements were introduced because the FSA believed
the 16 year-old regime of ‘polarisation’ (the official term used
for the system of either tied or independent advice) wasn’t
working efficiently for consumers. By giving organisations the
opportunity to link up with several providers instead of just
one, the regulator hopes to create more choice for those
consumers who are not inclined to research the market or to use
an IFA themselves.
Banks and building societies that previously had a single tie to
a financial product provider, are likely to include in their
range one or two products from other providers. This will avoid
the time and costs of having to look across the whole market for
the ‘best’ products. Customers need to check out the breadth of
products and providers on offer and decide if the choice of
products available is a suitable enough range for them.
When to look for independent advice
Your first job, buying a house, getting married, starting a
family, saving for your children and planning for retirement...
these are just some of the big stages in your life that put
additional pressures on your finances.
It makes sense to take control at each stage and revise your
financial plans to match your changing lifestyle. If you are too
busy to take the DIY approach, then an Independent Financial
Adviser (IFA) can offer a helping hand through the maze of
products and financial planning strategies.
An IFA can help clarify your financial priorities and your
short, medium and long-term financial goals. They ask detailed
questions about your financial circumstances, your existing
investments, debts, state of health, your future goals, your
risk tolerance and
what you want from life. Then they will advise you on how to
develop a budget and
make recommendations that will help you manage your finances and
allow your money to grow for the future while ensuring you and
your family are financially protected.
An IFA can also take the pain out of the research required and
pinpoint the most appropriate products to meet your aims, such
as saving for your first home, your
children’s future or your retirement needs.
How you pay for advice
Whether you take tied, multi-tied or independent advice, there
will always be a cost for your adviser’s service. Customers pay
for advice in three main ways.
1 By paying the adviser a fee, either at an hourly rate
or through a fee for the whole job. This is known as ‘fees only’
advice. Fees vary, typically from £50 to £200 an hour. Often the
first half hour is free at the initial meeting where you can get
to know each other.
2 By paying indirectly through commission, which is
deducted by the product provider from the products you may take
out. Often there is not only commission charged for setting up a
plan but also annual commission on top, known as trail
commission.
3
By paying a combination of fees and commission. The adviser will
rebate back into the financial products or hand to you some or
all of the commission or offset it against the fee.
Everyone can choose to pay their IFA by a fee rather than
commission, if they want to. In the past the majority of
consumers tended to opt for commission. In the future there may
well be a shift towards more people paying fees and this will be
explained under the ‘menu’ of adviser charging arrangements
which your adviser is now required to give you. Most importantly
only an IFA has to offer a choice of payment options i.e. paying
by fee or commission or a combination of the two. Tied and
multi-tied agents don’t have to offer you this choice, but some
may.
What you see is what you get
Until recently, buying a financial product from an adviser could
be a bit like entering a restaurant that doesn’t display its
menu in the window and ordering dishes without knowing the
prices, whether the choice was a` la carte or a fixed price
menu, or whether or not the meal included service. You might
become aware of the full cost only upon receipt of the bill.
Now customers must receive the menu of the adviser’s charges at
the moment they first seek the advice. Other documents will also
be provided up front to spell out whether the advice is offered
on products from a single provider, from a limited selection of
providers or from the whole market.
This will make it easier for the consumer to shop around for a
competitive service and to know the cost of advice from the
outset, and most importantly, assess the value of advice up
front.
The menu should encourage people to shop around for the
financial adviser they feel is offering them the most
competitive deal.
All financial advisers must hand you this menu of charges up
front for you to look at before going any further. Armed with
this information you can ask your IFA to explain the charges
they will make and choose to buy elsewhere if you think it may
be better value. This system will also reveal where independent
advice is better value than other types of advice.
So, does Independent Financial Advice look good to you?
Independent financial advice is considered the gold standard of
financial advice, since it offers access to and guidance on a
huge pool of products.
But before you go ahead, ask yourself the following questions.
1 Would you want advice on the whole range of products
available rather than
on a limited number of financial products or provider companies?
2 Do you want your adviser to be independent of any
commercial relationships,
which may restrict the advice they give?
3 Do advanced qualifications matter to you,
particularly in the sector you are
seeking advice?
If the answer to any or all of these three questions is ‘yes’,
then independent financial advice is likely to match your needs.
Finding the best advice for you is what we’re here for
If you choose to seek independent financial advice, don’t just
go to the first IFA you stumble across in a telephone directory.
It is crucial to take more control of the
process right from the start, to be sure you end up with the
right IFA for you. If you don’t already have an IFA, you can
search online at www.unbiased.co.uk or call the freephone
Hotline on 0800 085 3250, which will provide you with a list of
IFAs who most closely match your location and specific
requirements.
The ‘Find an IFA’ search now allows you to select an IFA based
on a number of criteria, to ensure you are matched with the best
IFA to suit your needs. There are a number of factors you should
consider when selecting an IFA.
Location:
is it important to have your IFA’s office near your home or your
place of work?
Areas of Expertise:
some advisers focus on particular product areas, so take care to
choose the right one for your specific needs. Some solicitors
offer independent financial advice, as do stockbrokers and
accountants, but you should realise that accountants, for
instance, will probably be strongest on tax issues. If you know
what sort of advice you require, then select an adviser who
specialises in this area. If you want advice across a range of
products, then select one who has strengths across the board.
Qualifications:
you can select an IFA based on their advanced qualifications
across a range of products or across a particular product area.
Information on IFA qualifications is available for consumers on
www.unbiased.co.uk which will help you with the selection
process.
Online presence:
consider if it is important for your IFA to have a website to be
able
to communicate via email.
Philosophy:
you may want to deal with an IFA who focuses on ethical
investments.
Type of IFA:
would you prefer a male or female IFA? Many men as well as women
feel more comfortable seeking money advice from a woman or vice
versa, and you can select an IFA on this basis.
Recommendation:
if a friend or relative has had a good experience with a
particular adviser, that can often be a great route and be
highly reassuring – but be aware that your financial
circumstances and needs may be different from theirs.
Alternatively, if an IFA that you know nothing about catches
your eye, ask them to provide the details of customers who are
happy to talk to you.
Just like any other product or service you buy, shopping around
for advice is crucial. It is important for you to get on with
your IFA, especially since you will need to share a certain
amount of personal information with your adviser.
Eyeing up their qualifications
To improve your chances of finding an IFA who matches your
requirements, and to be 100% confident that they have a high
level of competence in the area you want advice on, it is
important to consider an IFA’s qualifications.
Basic qualifications.
Whether tied or independent, all financial advisers are required
by their regulator, the FSA, to hold the Financial Planning
Certificate or the Certificate in Financial Planning before they
are allowed to provide financial advice. Advisers with these
benchmark qualifications are also obliged to keep up with
relevant financial developments throughout their career, but in
addition many opt to take advanced qualifications.
Advanced qualifications.
An ‘alphabet spaghetti’ list of initials after an adviser’s name
does not necessarily mean that much in terms of their advanced
training. Sometimes the letters do not even refer to specific
qualifications, simply membership of a certain body, so it’s
worth asking questions and doing a little homework.
There is a wealth of advanced or incremental qualifications that
advisers can achieve, some covering broad financial knowledge
and some focusing on particular product areas, which may be of
relevance to your needs.
The most popular advanced qualifications for holistic financial
advice are the Advanced Financial Planning Certificate (AFPC)
now known as the Advanced Diploma in Financial Planning and
becoming a Chartered or Certified Financial Planner (CFP)
Licensee. Advanced qualifications in pensions include G60 and
AF3 and for investments, G70, AF4 and the Investment Management
Certificate (IMC). Specialist qualifications in mortgages
include the Certificate in Mortgage Advice, and the Certificate
in Mortgage Advice and Practice (CeMAP).
Of course, many extremely good and talented IFAs have become so
because of their many years’ experience in the industry, not
because they chose to obtain an advanced qualification. However,
there is often a correlation between a good adviser and a
commitment on their part to learn as much as possible about a
particular subject and to put this knowledge to the test in
exams.
More and more advisers find that having additional
qualifications helps them stay ahead of money issues and their
financial planning implications, as well as reassuring potential
customers like you about their professionalism. Indeed, many
awarding bodies insist that to keep those precious letters after
their name, advisers must maintain records of continuous
professional development (CPD).
If you want more information on IFA qualifications, your IFA can
get this from IFA Promotion on your behalf. If you don’t have an
IFA, or would like to find this information yourself, you should
visit www.unbiased.co.uk. There you can also find details of
IFAs who hold any of the most popular advanced qualifications.
The website also has links to some of the awarding bodies that
set the exams.
Naturally you should look for other qualities in your IFA beyond
being super-qualified in the financial areas you want to
discuss. You don’t need to be best friends with your adviser,
but it helps if you find them approachable, particularly if you
hope to establish a long-term relationship. Experience can count
for a great deal too, so it’s worth asking how long they have
been in business.
Focus on what’s right for you
Happy to select and buy on your own...
Buy direct without advice.
Want advice on financial planning but access to only a limited
number
of products or companies...
Seek tied or multi-tied advice.
Want independent advice on financial planning generally and on
all
relevant products on the market...
Seek independent financial advice.
Use the flowchart below to find out which type of advice will be
best suited to your needs
Q) Are you confident you can identify your financial needs
and choose the most suitable combination of products to meet
them, without expert advice?
Yes, I’m confident I will make the right choices.
No, I think I need advice.
Q) Are you happy to spend your time researching your financial
needs and identifying the most suitable financial products to
meet them?
No, I’d prefer advice.
Q) Do you want your adviser to choose you the most suitable
product(s) from one financial company’s range?
Yes, I’m happy with advice on one company’s products.
A
tied agent, found in most banks and building societies, will
offer advice based on the products of a single financial
company, with which the firm has a direct commercial
relationship.
Yes, I’m happy to do it all myself.
No, I’d want recommendations based on more than one company’s
products.
Sounds like the DIY route suits you, for now at least, although
remember that financial circumstances tend to get more complex
as you get older. Try to plan your finances to be as
tax-efficient as possible overall. Finally you should be aware
that, by opting for the self-select approach, you have no access
to financial redress should the products you choose turn out to
be unsuitable.
Q) Do you want your adviser to choose you the most suitable
product(s) from a restricted number of financial companies?
Yes, I’m happy with restricted choice.
A
muIti-tied agent will offer you advice based on the products of
a restricted range of financial companies, with which the firm
has direct commercial relationships.
No, I want recommendations based on the full range of financial
products.
Q) Are you happy that the products your adviser can recommend
will be restricted by commercial relationships?
Yes, I’m comfortable commercial relationships will restrict the
products my adviser can offer.
No, I’d rather commercial relationships didn’t restrict the
products my adviser can recommend.
Only an Independent Financial Adviser (IFA) can recommend the
most suitable combination of products for you from all the
providers on the market, free of commercial ties to financial
companies. They must offer you the option of paying by fee,
although many will offer the choice of paying for the advice
through commission taken from the products you buy, or a
combination of fee and product commission.
Sounds like a tied/multi-tied adviser suits you, for now at
least. Remember, all types of advisers are now required to
disclose a menu of costs for their advice. This means not only
can you compare the up-front cost of different [tied/multi-tied]
advisers, but also you can contrast these costs with what an
Independent Financial Adviser would charge for advice on the
whole market of financial companies and products.
Looking out for the pitfalls
When looking for advice on one category of product, be aware
that an adviser may not be able to offer independent advice on
every sector.
An organisation can offer different types of advice, such as
‘whole of market’ advice on mortgages, but may offer only tied
advice on investment products.
Always visit the IFA’s premises, so that you can get a good feel
for how professional an organisation it is.
If you go back to an IFA you have used before, double check that
it has not changed its status under the new system. Some IFA
groups may have given up their independent status and switched
to multi-tied arrangements. They should spell this out to you,
but it is better to be sure by asking.
Also check that your IFA is authorised. IFA Promotion carries
details of about 9,000 IFAs on its database, all of whom are
continually verified.
If you need to find out additional information about an IFA’s
authorisation, you can look at the FSA
Central Register at www.fsa.gov.uk/register or phone 0845 606
1234.
