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No more dunce caps in financial advice

Sam Dunn reports on plans to raise standards in the industry

Paying a 17-year-old to give you professional financial advice on your retirement plans sounds a bad idea. Yet a school leaver can qualify as a financial adviser after just 12 weeks' training.

Paying a 17-year-old to give you professional financial advice on your retirement plans sounds a bad idea. Yet a school leaver can qualify as a financial adviser after just 12 weeks' training.

To be fair, he or she would have to study intensively for the Financial Planning Certificate (FPC), but, with hard work, a teenage candidate could in theory pass with flying colours.

"At 17 years old, you could technically be in front of the customer [selling products]," says Fay Goddard, director of policy at the Association of Independent Financial Advisers (Aifa). "However, it's extremely rare. Normally, training would take two years."

While you might be unlikely to come across a financial adviser who is too young to vote, the lack of barriers to entering the profession has long worried an industry that is fighting to salvage its reputation.

A succession of mis-selling scandals, from endowment mortgages to split-cap investment trusts and high-income "precipice" bonds, has left investor confidence in tatters.

Training for financial advisers - both independent and tied (selling products for just one company) - is now being overhauled, with plans for a revamped basic exam to be in place before the year end.

Many argue that such a shake-up is long overdue. Exposed, a recent report from the independent financial adviser (IFA) Bestinvest, highlights the shortcomings of the training currently in place.

"Compared to other professions, the qualifications for becoming an adviser are still relatively undemanding," it says.

Although further qualifications are required for specialists in the fields of pensions, trusts, investments and tax advice, for the rest of the profession they remain optional. In fact, most advisers have little incentive to build on the basics.

"Time spent studying for exams is time they cannot spend advising clients. Hence it represents lost income," the report adds. This issue lies at the heart of much mistrust of IFAs: when success depends on the volume of products sold rather than quality of advice, the consumer is in danger of being pushed into second place.

A Treasury Select Committee report on endowment mortgages noted that "the challenge ... is to develop a fee structure that rewards good investment returns and client retention rather than simply paying out high rewards for client acquisition". Many advisers are switching to a fee-based service but the majority still survive on a commission basis.

Of course, responsible members of the profession are keen to broaden their knowledge in order to give clients the best possible advice. A popular path is to work towards the Advanced FPC, which requires a pass in at least three specialist topics and is generally held to be as demanding as a univer- sity degree.

While the remodelled basic exam coming in later this year will set new standards, the dream for many financial advisers is to be considered on a par with lawyers and accountants. Although industry bodies such as Aifa are pressing for the profession to have chartered status, like accountancy, there is some distance to go.

So how do you tell if your adviser is worth his salt or just looking to cut a deal and run with the commission?

"Ask for a list of their qualifications and how long they've been in the business," advises Justin Modray of Bestinvest.

"A grey-haired adviser who looks as though he may have spent a lifetime in financial services might actually have just a few months' experience following a recent career change."

If you have a particular need, for example pension advice, ask about any relevant exams the adviser may have and their experience in that area. Ask if you can speak to their other clients.

Remember that, although a qualification over and above entry level is no guarantee that an adviser will give good, honest advice, it at least suggests a commitment to furthering their financial education.