From wide boys to wise boys

Standards have risen, but you must still find an adviser who suits your needs. Here and on page 14 we help you to make the right choice
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The Independent Online
The UK boasts a huge number of individuals and organisations that might be described as financial advisers, ranging from sellers of basic insurance policies to accountants to investment portfolio managers. But finding one that suits your needs, and in which you can place your trust, takes time and effort.

When the Financial Services Act (FSA) was implemented in 1988, everyone hoped it would be simpler and safer for people to take financial advice.

Products covered by the FSA are subject to strict rules on the way they are advertised and sold, and customers may be able to claim compensation if they are the victim of mis-selling, or their money is stolen by the adviser.

But not all financial products - nor all financial advisers - are covered. Those that are include: pensions; unit trusts; personal equity plans (PEPs); investment trust savings schemes; guaranteed investment bonds (GIBs); life insurance products that include an element of investment; offshore savings funds; broker funds; and advice on share dealings, business expansion plans, enterprise investment schemes and venture capital trusts. The common link is that these are all investments.

Not included are life insurance that has no investment element (called term assurance); mortgages; bank and building society deposits; general insurance (such as house, contents and car policies); and most health insurance.

Since the FSA's implementation, many inadequately experienced or rogue advisers have been weeded out, and standards as a whole are higher. But like any industry, there are still bad apples mixed in with the good, so it helps to know what to expect from an adviser.

Advisers who sell FSA-regulated products fall into two main categories - tied and independent. Tied advisers may only give advice on and sell the products of one company, usually a life insurance and pensions company. They may run their own firm, in which case they are known as appointed representatives. Alternatively, they may be members of a company's direct salesforce.

With the exceptions of the Co-operative Bank and Bradford & Bingley Building Society, most banks and building societies are either "tied" or refuse to sell products covered by the FSA. Most can still provide independent advice through subsidiaries, but you will not receive such advice unless you ask.

A tied adviser may be totally trustworthy, but his advice is only as good as the quality of the products he can sell.Generally, it is better to go to independent financial advisers (IFAs) whenever possible. They can look at all the products available and ensure you get the best deal on performance, protection and cost.

Most insurance and investment-related advisers, whether tied or independent, are regulated by the Personal Investment Authority. However, you may come across advisers who say they are regulated by other professional bodies. If in doubt, contact the organisation.

Most mortgage brokers are registered IFAs because the products sold alongside home loans (endowments, pensions, PEPs) are covered by the FSA.

Likewise, while general insurance falls outside the FSA, brokers often give independent advice on life, pensions and investment business. Many are regulated by the Insurance Brokers Regulatory Council.

Solicitors and accountants are required by law to give independent advice, and most choose to be authorised by their own regulatory bodies - either the Law Society or the Institute of Chartered Accountants.

More than 7,000 solicitors' firms are authorised to give investment advice, and most of these provide a "non-discrete" service - offering advice as an incidental part of their work.

Firms conducting "discrete" business dedicate resources to dealing with clients' financial affairs. Members of the Association of Solicitor Investment Managers specialise in portfolio investment services.

Accountants have four levels of registration. The "A" level covers a firm if it strays into FSA business in the course of other work, while "B" allows a firm to conduct business with an authorised third party. A "C" means firms can conduct life, pensions and investment business in their own right, and "D" lets them carry out discretionary portfolio management, making and carrying out decisions without consulting the client.

Any commission earned on products sold by solicitors and accountants legally belongs to the client. Firms may retain the commission if the client agrees to this form of remuneration, but it is more common for both sides to decide a fee before the transaction. A small provincial firm may charge anything from pounds 25 an hour, but top City firms can cost more than pounds 250 an hour.

Stockbrokers, authorised by the Securities and Futures Association, vary widely for level of service. ShareLink provides execution only - carrying out instructions to buy or sell shares but giving no advice. This type of service is very cheap, costing from pounds 7.50 per deal.

At the other end of the range, Henderson Crosthwaite offers full discretionary portfolio management. Its Premium Managed Service takes responsibility for the care of a client's shareholdings and, consequently, charges more - 0.5 per cent of the value of the portfolio each year plus share-dealing costs ranging from 1.25 to 0.25 per cent.