Questions to unseat the cowboys: Choosing your adviser can be less of a lottery if you remember a few hints, says Nic Cicutti

This has been a bad week for financial advisers and insurance company salesmen of all descriptions.

A report by the Securities and Investments Board, the City's watchdog, shows that 1.5 million people who started a personal pension, 20 per cent of the total, may have been wrongly advised to do so.

Choosing the right adviser can seem a lottery. Here are a few questions to ask.

Are you independent or tied to one company?

Independent advisers can give advice on a wide range of products. Tied agents or salespeople can only recommend those from the company they represent.

Who are you regulated by?

Nearly all sales staff and financial advisers now come under a new watchdog, the Personal Investment Authority. The PIA has a list of the vast majority of firms giving independent advice. It will tell you if that firm is registered. The identity of sales staff can be confirmed by the company.

Unit trust companies belong to the Investment Management Regulatory Organisation (Imro) and stockbrokers to the Securities and Futures Authority (SFA). A few companies, such as the Prudential, are directly regulated by the SIB.

What qualifications do you hold?

Qualifications do not guarantee good advice, but indicate a standard of competence. The most common qualification is the Financial Planning Certificate. By the end of 1995 all advisers will have to hold this. Sales staff sit an equivalent exam set by their companies.

How long have you been giving financial advice?

The more experienced the better. Preferably as an independent financial adviser, though do not automatically dismiss those who, after a few years working for a company, set up on their own.

How big is your firm and how long has it been trading?

It can help to know that the adviser is from a company of some financial strength. Small independent financial advisers may not not have either great investment research facilities or administrative support.

Other things to keep an eye out for are whether the adviser has an office - some work from home - and what new technology, such as faxes and computers, it uses.

What are your areas of specialisation?

Some big firms offer a broad range of advice across many different financial topics. Smaller companies specialise in certain areas such as pensions, mortgages or investments. It pays to go to the adviser who specialises in the field for which you are looking.

How will you be paid for the advice you give me?

The choice is usually between commission and fees. Commissions involve the company whose product the adviser recommends paying him for doing so. This comes out of your initial premiums. From January all advisers will have to declare the commission they earn from a policy they recommend.

How am I protected if something happens to you or your company?

Both advisers and insurance companies contribute to an industry-wide fund, the Investors Compensation Scheme, which pays out a maximum of pounds 48,000 if a firm goes bust. Before things get to that stage advisers are required to have professional indemnity insurance.

Are you entitled to handle clients' money?

Most advisers are not. They act as middlemen, posting off cheques made out by you to the investment company you have chosen. Those allowed to handle your money are on a register held by the SIB.

Do you keep records of advice you give and action taken?

Advisers are required to keep proper records of any dealings with you. They are supposed to know about your financial position, your investment aims and aversion to risk. This is both for your protection - so that they can advise you better - and theirs.

If I have second thoughts, can I back out of the deal?

Yes. There is usually a 14- day cooling-off period available on most investment products. It begins from the moment at which you receive the notice itself. The adviser should tell you this.

Be careful if . . .

The adviser is pushy and it is virtually impossible to make him leave the house.

You are promised a far higher return on an investment than is available elsewhere.

You are asked to put money into a scheme run by the adviser and for which you are shown no documentation.

You have not been asked detailed questions about your financial position.

The adviser cannot give you suitable advice without this information.

You are being asked to cash in existing investments and invest them again through him. A large initial slice of the reinvestment will go in commission to him.

You are asked to put all your money into one basket. It is usually better to spread your risk.

How to Spot the Investment Cowboys, free from SIB, Gavrelle House, 2-14 Bunhill Row, London EC1Y 8RA.

Key Questions for Your Independent Financial Adviser, free copies of this pamphlet available from The Investors Portfolio, Troston Lodge, Troston, Bury St Edmunds, IP31 3EW.

Lists of independent financial advisers near you are available by calling IFA Promotion on 0483 461461. For a guide on questions to ask advisers write to IFAP, 4th Floor, 28 Greville Street, London EC1N 8SU, or call 071 831 4027.