So you've decided you need financial advice and of course it should be from an Independent Financial Adviser (IFA). Sadly it isn't that easy. How do you judge the expertise of someone on a subject you know nothing about, and how much does it cost?
HAVE YOU ALREADY READ PART I?
Do you need an Independent Financial Adviser?
What should an IFA cost and how to pay for it
From this point on, I'm going to assume you're using an IFA. They're paid in two ways, by fees or commission, and by law they are required to give you the option of either. While most journalists are very pro-fees and berate commission-based advisers, I believe both systems have merits.
Fees. Here they charge a flat hourly fee for their advice. Standard fees range from £75 to £250 per hour depending on your area and what kind of advice you need. Make sure you ask in advance and compare costs.
The great advantage of fees-based advice is there's less incentive for advisers to bias their advice according to how much commission they'll make, as they should pay any commission earned back to you – either in the form of a rebate or a boost to any plan (always ask and check this is happening).
Plus if you're making a large investment or pension, then you're definitely better off paying a fixed fee rather than commission, as commission increases with the size of the investment.
Commission. Advisers paid commission may seem to be giving advice for free, but over the long run they tend to make more money this way than by charging a fee upfront. Some plans can be extremely profitable and will make advisers a large amount of money. As an example, a typical upfront commission paid on a £30 a month level term life assurance policy for 25 years would be £600.
The proof that commission impacts advice is that companies deliberately market increased commission rates to IFAs. If advice was never biased, then the rate of commission wouldn't make any difference, yet product providers know that up the commission rate and they're more frequently recommended.
However the commission route still has its merits. While there will be some bias, the legal obligation to give good advice means advisers tend to tweak at the fringes rather than give downright poor information. And the big advantage is that as you won't need to stump up the cash each time, you'll be less scared to seek help when needed; thus will continue to get retained advice.
Locating an IFA near you
The first thing to do is speak to friends and family about their experiences with local IFAs. However, again, do always double check the adviser really is independent. If not, don't go there.
The alternative is to use Unbiased.co.uk which has a network of 9,000 IFAs. Just enter your postcode and it will indicate your local IFAs.
You can also try Find an adviser with a network of 7,000 IFAs, yet be careful because this doesn't just list IFAs; so check they're independent first. Start by going to three and seeing who you get on well with, as this is an important consideration. A few Citizens Advice Bureaux also have volunteer IFAs as part of the Moneyplan scheme, check with your local bureau if it is taking part.
Charm isn't enough
While personal recommendations and a good bedside manner are useful, always treat them with a pinch of salt; a personable IFA isn't necessarily giving you good info. Sadly it's a catch-22 situation: you need to know your subject to know that the IFA's talking rubbish but the reason you're going to an IFA in the first place is because you don't understand the subject!
Good looking, charming, but a pile of pants
Let me give you an example that demonstrates this. In 2000 when I was diddy Sky Channel, Simply Money TV's in-house expert, there was an ‘ask an IFA' slot on the show. Of the many IFAs used a few were particularly favoured, including one good-looking, very personable IFA. Usually when the IFA slot was on I was busy preparing my own programme, but one day I happened to listen and was startled to discover what was said was an unmitigated pile of pants.
I called up a very well respected technical IFA to double check this was the case and he agreed – and that IFA was never booked again. Yet how many people would have spotted her baloney?
An IFA picking checklist
While it's not foolproof the best way to ensure decent advice is to establish credentials and qualifications. This may not find you the best IFA but it should help weed out the worst.
Top questions to ask ‘em
How long have you been established?
Look for an IFA business that's been established at least three years.
Are you authorised?
The Financial Services Authority monitors firms to check they are qualified and above board. Before you go to meet any IFA, do a quick search on the FSA's website to check they're fully authorised.
What qualifications do you have?
The regulator, the Financial Services Authority, requires all IFAs to pass the three basic exams you need to get the Certificate in Financial Planning (CFP) (formerly known as the Financial Planning Certificate (FPC). As they all have do this, to differentiate you want to look for additional qualifications.
A Diploma in Financial Planning (DFP), formally the Advanced Financial Planning Certificate (AFPC), or even better the Advanced Diploma in Financial Planning (ADFP), should be your desired qualification.
To get this the IFA has to sit advanced exams; they can choose which subjects to specialise in, such as pensions and investment, though the taxation qualification is compulsory, yet an advisor that has completed some, but not all, exams is still a reasonable way up the pecking order.
The top qualifications IFAs can get is Certified Financial Planner or Chartered Financial Planner, which put them up there with accountants. For a full list of IFA qualifications go to unbiased.co.uk
Can I see your Keyfacts documents?
Ask to take a look at their ‘Keyfacts' document, which will list all their charges and confirm that they are truly independent.
Tips for when you meet your IFA
When you go to meet your IFA either for the consultation or just to get a look at the whites of their eyes there're a few important steps to ensure you get the right service.
Always ask, ‘how much do you charge?'
If you do opt for fees, find out exactly how much you'll be charged. Check if you're paying by the hour and whether the price includes VAT.
Don't be afraid to haggle
There's always room to haggle. Especially if you're seeing a number of IFAs pick the one you like and see if they'll match another's cheaper price. Always at least try to ask for a reduction in fees or rebate on commission.
Before you go, fill out a fact find
Advisors must collect information about you so they can properly assess your situation; this is called a ‘fact find'. If paying by fee, ask it to send you the fact find to fill out beforehand. Fill as much in as you can (and get documents together for the rest) and then send it back to them. This way, they can get familiar with your situation beforehand and not waste time just collecting the info while the clock is ticking.
Get it in writing
Be sure to get their recommendations in writing then sit down with a nice cuppa and have a good read through. And if you don't understand, ask!
Final checks
Finally, even if you do go through an adviser, remember you're in charge, the decision is your's, not their's and you don't have to do what they tell you. Read around their advice and ensure it's really right for you.
What to do if advisers mis-advise
If you feel you've been misadvised you need to collect as much paperwork as you can find and then write to the firm that sold you the product. If you're still not satisfied with the firm's response, you have the right to take your complaint to the Financial Ombudsman Service who can award compensation. For full details on how to claim visit the Financial Ombudsman Service website.
Remember, when it comes to investment, ‘low risk' isn't the same as ‘no risk' - you can still lose your money. Provided the advisor has explained this, there are no grounds for complaint. However, if they told you that you couldn't lose money then you were misadvised. In a nutshell, for investments you're complaining about the way you were sold not the performance of a product.
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