There are huge changes coming up for those who use a financial adviser. Karen Barrett (pictured, right), head of financial adviser search service Unbiased.co.uk, explains what it means for you.

If you have a financial adviser or are about to look for one, there are fundamental changes coming which will affect how you access and pay for advice.

The regulator, the Financial Services Authority, believes change is needed to improve professionalism and make paying for advice clearer. These changes will happen in January 2013.

One key overhaul is the bulk of advisers will no longer be able to take commission from any financial product which means you will have to pay a fee.

Currently, if you start looking for financial advice you will come across three types of adviser:

  • An independent financial adviser. This is the only type who can select from all products in the market. 
  • Multi-tied advisers. They can recommend products of a limited selection of providers.
  • Tied advisers. They can only advise on one provider's products. A bank or insurance company would usually be a tied adviser.

There are currently two ways to pay for financial advice.

  • Through commission. Where an adviser gets paid by the product provider once a product is taken out – which means the consumer pays in the long run, either by higher product prices, or through premiums paid.
  • A fee. Which means the adviser will charge you directly for the advice he or she provides, and this will be outlined in advance.

It's important to remember advice has never been free.

So what are the changes?

From January 2013, financial advisers will be classified as any of the following:

  • Independent. They will remain the only type who can advise on all products in the market and assess your overall financial needs. They will need to be qualified to a higher level than they currently are which is seen as a good thing.
  • Restricted. They will only be able to advise on a limited range of products and/or services. Yet the definition of restricted advisers could lead to further confusion because they only deal with a limited number of investments and pensions providers.  This confusion will not help the industry succeed in its aim of increasing consumer confidence in seeking financial advice.
  • Simplified. Simplified advisers will only be able to advise on simple, straightforward products such as stakeholder pensions and so will not fully review your financial circumstances or take into account other products held.
  • Basic. This only applies to regulated stakeholder investment and savings products and involves a very basic assessment based on scripted questions, as opposed to a full check. This basic advice will tend to be offered through the internet or by telephone.

It is more than likely some advisers currently offering independent advice will revert to restricted advice under the new regime, so you will need to check carefully what is on offer.

All advisers will be required to inform you, from the outset, what they are classed as.

How will you pay?

Under the new rules, independent, restricted and simplified advisers can no longer be paid by commission. They will need to charge a fee

Each firm must create a clear pricing structure, which must be made clear before chargeable services are provided.

The point is to ensure recommendations are not influenced by the product provider or commission. The new charging structure will mean consumers will now be able to put a value on financial advice.

The cost of the product and advice will remain separate and consumers will clearly see what they are paying for, which is obviously a good thing. It's important to remember the advice process has never been free.

However, the new structure could also push those who are price-sensitive down the very basic form of advice, which may not always be the best route.

So come January 2013, the payment process will be in your hands and you will need to work out what is the best type of advice for you.

Do you want to be advised on and choose from all products available, or are you happy with just a limited selection?

Views do not necessarily reflect those of MoneySavingExpert.com.

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