Want some good advice?
Andrew Couchman seeks a financial adviser with the morals of a saint
In fact, any good independent financial adviser will recognise this problem. He or she should be happy to sit down with you and answer any questions you may have. Here are 10 questions to ask.
Are you tied or independent?
A key question, this will tell you whether your adviser is an independent financial adviser (IFA). If so, they are obliged to give you the best advice, which means recommending the products and services to meet your needs from across the market. A tied agent is contracted to one company or marketing group and cannot look outside their product range except for non-regulated products such as deposit accounts, mortgages and general insurance. IFAs should be able to offer you a better deal for most products but tied agents have the advantage of back-up from their employer.
Do you have professional indemnity (PI) cover?
Professional indemnity cover is essential for IFAs and means that if they give you bad advice or are otherwise held to be negligent you can sue them and their insurer should pay. Such policies have financial and cover limits and are subject to exclusions so evidence of such cover is no guarantee you would quickly be paid any compensation due.
Are you a member of a professional body?
Many advisers are members of one or more trade or professional bodies. The leading professional body is the Society of Financial Advisers, part of the 100-year-old Chartered Insurance Institute (the CII), and its full members hold the Advanced Financial Planning Certificate (AFPC) and use the letters MSFA, ASFA or FSFA after their names depending on whether they are an ordinary member, associate or fellow. The AFPC is a much tougher and more specialised exam than the basic Financial Planning Certificate (FPC). The Chartered Institute of Bankers has its own FPC equivalent examinations, though fewer advisers have chosen this route.
What qualifications do you have? The Financial Planning Certificate (FPC) or equivalent is now a legal requirement to be able to trade, and trainees without the qualification have to be supervised until they pass the three FPC exams. Other qualifications may include the higher-level AFPC, the CII's and SOFA's professional associateship and fellowship qualifications and associateship of the Institute of Taxation. Lawyers and accountants are allowed to give advice as part of their normal profession.
Can I talk to some of your existing clients?
Do not be afraid to ask to speak to one or more existing customers before committing yourself. Personal recommendations still mean a lot. When you do talk to them do not just ask them if they are happy with that adviser: ask them for evidence the adviser has actually delivered the right advice. This might be good investment returns from a product recommended by the adviser or a large cut in their tax bill.
What areas can you not help me with?
It makes sense to know your adviser's limitations as well as their specialisms. Few advisers can offer tax advice, legal advice or even practical help in specialist areas such as long-term care so make sure what they can offer is what you want.
How are you paid?
Advice is usually paid for by fee, either at an hourly rate or at a pre- agreed level or by commission from the product provider. With the former your adviser gets no financial benefit from choosing any particular provider and many companies will offer a better deal if they are not paying commission. However you will have to pay what could be a large sum, especially if your needs are complex. Expect to pay about the same hourly rate as you would pay your accountant or solicitor.
What other expertise is available to you, and how?
Few advisers will be experts across every sector and in some firms one adviser may deal with pensions, one with investments, one with health insurance and so on. There may also be working relationships with local accountants and solicitors and perhaps even bankers. If you are offered an introduction to another specialist firm, check to shop around to compare price and service.
Has your regulator ever disciplined you or your firm?
With an increasing number of firms and even top insurers being subject to fines for reviewing their pensions mis-selling cases too slowly, a fine or reprimand may not necessarily mean a rogue trader. However, you do need to know why the firm was disciplined and what it has done to remedy matters.
What experience do you have?
Tougher regulatory requirements have seen off many of the cowboys, although some still remain. Generally experience still counts for much, not least because financial advice is still as much about human behaviour as it is technical product expertise. The perfect adviser has 20 years' experience, a professional qualification, a degree in psychology and a masters in mathematics, the bedside manner of a good GP, the morals of a saint and will outlive you.
Sound impossible? It probably is so look instead for a good balance of abilities and, above all, for someone you can trust. If it is someone you come to regard as a friend as well, you have probably found your perfect adviser.
Andy Couchman is publishing editor of 'HealthCare Insurance Report'
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