Advisers buffeted by the winds of change

After the storm over mis-selling, the industry is cleaning up its act. Simon Hildrey sees how to find reliable financial advice
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The Independent Online

After mis-selling scandals involving pensions, mortgages and high-risk precipice bonds, it's no wonder many investors are disillusioned about professional financial advice.

After mis-selling scandals involving pensions, mortgages and high-risk precipice bonds, it's no wonder many investors are disillusioned about professional financial advice.

But there are moves afoot to restore confidence. Established earlier this month, the Financial Planning Standards Board will set out minimum levels of education, qualifications, experience and ethical standards for 45,000 Certified Financial Planners (CFP) around the world, including 370 advisers in the UK with CFP status.

Ian Shipway, investment director of Thinc Financial Planning explains why the financial planning practised by CFPs is superior to that dispensed by many other advisers. CFPs establish their clients' life goals, examine their current financial status and draw up a realistic strategy to let them meet these goals. Many other financial advisers simply sell a product to meet one particular need.

"It does not always have to be a comprehensive financial plan but if it isn't, clients may not ask the right questions," Mr Shipway says.

Nick Cann, chief executive of the Institute of Financial Planning, the UK professional body, lists 10 questions to ask when choosing an adviser:

  • What experience do they have?
  • What are their qualifications?
  • What services do they offer?
  • How much do they typically charge?
  • Could anyone besides me benefit from their recommendations?
  • What is their approach to financial planning?
  • Will they be the only person working with me?
  • How will I pay for their services?
  • Have they ever been publicly disciplined for any unlawful or unethical actions in their professional career?
  • Can I have answers to the above in writing?

The trade association IFA Promotion (IFAP) says when first visiting an adviser, you must ensure they have the experience and resources to deal with your situation. David Elms, chief executive of IFAP, says: "Make sure you feel comfortable with the adviser. Having confidence in your IFA and striking up a good rapport will let you get the most out of the relationship."

There are currently two types of financial adviser, although the situation will become more complicated after an industry shake-up in December. Independent financial advisers (IFAs) can search the whole market to find the right product for you. Tied agents, on the other hand, can recommend only products from a single provider.

The consumer organisation Which? says: "We believe you will receive better advice from an IFA than from a tied adviser simply because you have more choice. We have also carried out undercover research showing the best advice is given by IFAs."

Another distinction is in the way advisers are paid. Providers such as fund managers and insurance companies apply charges to the products they sell, including an amount to cover commission to pay the adviser.

Most tied advisers and IFAs work on a commission-only basis. But some IFAs charge fees instead, according to the type of financial advice given. Some might charge an hourly rate, others a percentage of your assets and some a flat rate for a set amount of work. You must also pay VAT on fees, whereas no VAT is payable if your adviser receives commission.

Which? says: "The benefit of a fee-based service is that it is clear how much you are paying for advice, as opposed to it being buried away with the other policy charges. But if you do not buy a product, you will still have to pay for the advice."

From December, a third type of service will be created: multi-tied advisers will in effect offer a halfway house between tied and independent advice.

Gareth Marr, chief executive of IFA firm Origen, does not believe multi-ties are in the interests of consumers because they offer only limited choice.

"Individual IFAs cannot be expected to have expertise on everything from investments to pensions, tax planning, insurance bonds and asset allocation. Go to generalist IFAs working for a firm with specialists in all these areas to support their advice."

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