The meaning of independent financial advice
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. Whether you’re looking for the best way to save for retirement, a mortgage, advice on how to invest for the future or protect you 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 research 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.......
What advice?
There are currently three main ways of seeking financial advice for products such as life assurance, pensions and collective investments like unit trusts/OEICs, Individual Savings Accounts and Child Trust Funds; either through an independent financial adviser, a multi tied agent or a tied agent.
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.
TIED AGENTS can only advise on the products of one provider.
MULTI-TIED AGENTS are financial advisers allowed to recommend the products of a limited selection of providers, rather than just one.
The benefits of Independent Financial Advice
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 and Multi-tied advice
Many people buy financial products through multi-tied or single-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 one or a few financial product providers. The person providing you with product information (unless they are an IFA) are acting on behalf of the company they are employed by or have a tied relationship with. 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!
The FSA has recently proposed to changes to the current system under its Retail Distribution Review (RDR). We will therefore update these pages to reflect industry changes as and when they are introduced.
When to seek independent financial 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. He or she asks 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 he or she 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 whilst 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.
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:
- Would you want advice?
Would you want advice on the whole range of products available rather than on a limited number of financial products or provider companies? - Do you want your adviser to be independent?
Do you want your adviser to be independent of any commercial relationships, which may restrict the advice they give - Do advanced qualifications matter to you?
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.
Where to find independent financial advice
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 that 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/independent-financial-advice/ifa-qualifications/ which will help you with the selection process.
- Online presence: Consider if it is important for you whether your IFA has a website or is 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 of 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 to theirs. Alternatively, if an IFA catches your eye that you know nothing about, ask them to provide the details of customers who are happy to talk to you.
Tips for avoiding 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 only offer 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-tie 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 around 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.
IFA Qualifications
To improve your chances of finding an IFA that 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:
All financial advisers, whether tied or independent, 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).
Over 22,000 qualifications are held by IFA Promotion members with qualifications verified by the relevant awarding bodies. We split the qualifications available into groups such as Generic, Investment and Pension and also provide a guide to the qualifications held by IFAs. To further assist you in finding the right IFA for your needs, we have also devised a simple two tier ranking system in conjunction with the Financial Services Skills Council for around 50 different qualifications from eight awarding bodies in order to make it easier for you to search for the right IFA for you.
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, please visit IFA qualifications on unbiased.co.uk.
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.
What advice do I need?
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.
To help you arrive at the best route for your financial advice needs you can use the decision tree below:
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 Fees
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 £75 to £250 an hour. Often the first half hour is free at the initial meeting where you can get to know each other.
2 Commission
By paying indirectly through commission, which is deducted by the product provider from the products you may take out. Often there is not only a commission charged for setting up a plan but there may also be annual commissions on top, known as trail commission.
3 Fees and Commission
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 in the information on your IFA’s charging arrangements. 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.
The FSA has recently proposed changes to the current system under its Retail Distribution Review (RDR). We will therefore update these pages to reflect industry changes as and when they are introduced.
What information will you be given when you visit an adviser?
The Financial Services Authority (FSA) has recently made changes with regards to the documents you should receive when you first visit an IFA. By incorporating the Markets in Financial Instruments Directive (MiFID), which came into effect on 1st November 2007, the FSA rules say that an IFA has to provide you with the relevant information on charges and the services they can offer. This information may be provided to you in a Key Facts document, in the IFAs terms and conditions, on indeed in some other document.
Essentially, at your first meeting with your IFA you will be given clear information about the type of advice and level of service being provided by the adviser and how much it will cost. You will be given details on how firms are regulated by the FSA, the range of products they are authorised to advise on and sell and any information your IFA is required to give you. The details outline the type of products the firm offers such as pensions, investments, protection, mortgages and insurance and the documents explain whether the firm offers products from the whole of the market, a limited number of companies in the market or just one company or group of companies.
You should use this information to shop around and choose the level of service you want and the firm you want to deal with from a more informed standpoint.
August 2008
