Advice - How to Choose an IFA
|Planning your investments without help from someone
else may give you more control over your portfolio, but there's no
guarantee that you'll end up with the best choice for you. Choosing
and watching your investments can be a surprisingly time-consuming
business. An independent financial adviser can provide impartial,
independent help to streamline your portfolio.
What does an independent adviser do?
Financial advisers instigate a 'factfind' to get as much information
from you to find out which investments would be the most suitable
for your requirements. They check your entire financial situation,
suggest a suitable financial strategy and then comb the entire market
for the best financial products available to fit your needs. You
will have to fill in some forms and be asked a lot of questions
about you, your hopes and dreams, existing investments, and your
attitude to risk. See what others have to say on the Bulletin
Sales staff from High Street
banks are given stiff selling targets to meet
My bank gives financial advice. Won't that do?
No. Under the current system, it is not independent financial advice.
Sales staff from High Street banks are given stiff selling targets
to meet, with the result that people are pressured into buying not
necessarily the wrong product, but the bank's product. So the mortgage
adviser at your bank will offer advice only on mortgages, and only
on mortgages offered by that bank. They won't take into account
products offered by other companies - even if they are far better.
They claim to be financial advisers and as long as they do not claim
to be independent financial advisers they are within their rights.
Is there no other option?
There are plans to shake-up the system and introduce a third
kind of adviser. Advisers at banks and building societies, to be
known as 'appointed representatives' will be able to sell a small
range of products from other providers, but only if you fully understand
you are not being given the full range. The AR must also show you
a 'menu' explaining all commissions. The proposals could still be
arranged and are still to come in. HSBC was the first bank to adapt.
Once the rule change comes into effect, it will sell investments
from Gartmore, Fidelity, Invesco, JPMorgan Fleming or Schroders.
Why the change?
The idea is that with so many people reluctant to see an IFA and
already buying poor products in the High Street, it would be better
to give those people a limited choice rather than no choice.
What will an adviser cost me?
You won't have to pay anything yourself, but your adviser will
get a commission on whatever he recommends and this obviously comes
out of your money. But while this commission shouldn't influence
their advice, it does mean that some IFAs may be more independent
than others. For example, most IFAs don't recommend companies, which
don't pay commission such as Virgin Money. And some avoid investments,
which have no commission element, such as investment trusts. But
it is advisable to ask to get the best range of different products
Most IFAs don't recommend
companies which don't pay commission
There are times when the
best advice really is to do nothing
Many IFAs now operate on
a fee basis removing the doubt that their judgment could be biased
|Is there an alternative?
Yes. Many IFAs will now operate on a fee basis instead, so removing
the nagging doubt that judgment could be biased by commission. The
typical charge paid upfront is an hourly fee ranging between £80 and
£200 - and any commission is rebated to you. You have to pay every
time you take advice, even if you don't buy the product. But there
are times when the best advice really is to do nothing.
What about execution-only advisers?
With this facility you have to sign a declaration that you received
no advice at all. The adviser - sometimes known as a discount broker
- carries out your instructions and rebates much of the commission
to your account. If you are making your own decisions about what
to buy and sell choose one of our the cheaper internet-based
brokers. They can't give advice, but are easily the cheapest
way to buy or sell - especially important if you trade regularly.
Where can I find an IFA?
Word of mouth recommendations from family and friends are still
the best way to find an IFA. First hand experience of firms will
give you an indication of the level of service you can expect. Nationwide
IFA firms can give you the confidence of dealing with a reputable
company. See our list of IFAs and
choose one near you.
The Institute of Financial Planning provides a list of its fee-charging
members on its website here
or by calling 0117 945 2470. There is also a Central Register of
Advisers available from the FSA on 0845 606 1234.
| How do I choose an IFA - and what should I ask when I meet
You should arrange to meet two or three advisers for an initial
discussion, before deciding which is best for you. These key questions
can lead you to decide which one to go through:
Who are they authorised by?
The name of the relevant body may appear on the firm's advert or
letterhead. FSA regulation, membership to the Association
of Independent Financial Advisers and registration to the Central
Register of Advisers are good indicators of the firm's credibility.
What qualifications do you hold, and when did you pass them?
Check that this is renewed every two years
Do you specialise in any area? You should then consider:
Are your questions answered clearly and sufficiently? Do you have
confidence in your adviser in general? Are you made to feel silly?
If so, find another one. This may be no reflection on the adviser's
skill and competence, but in something as sensitive as this, you
want someone with whom you are happy dealing, just as with a doctor
Where should I meet the adviser?
It's best if you go to their office. This will help give you
a stronger impression of the firm.
How do I spot a good adviser?
They will recommend products, such as tax-free ISAs, which do not
pay him or her a commission. Be sceptical if the adviser recommends
that you buy an investment bond issued by insurance companies. These
have no real benefits for you, but the adviser gets more commission
than if he sold you a unit trust investing in essentially the same
|Can I check the adviser is authorised?
Yes. Call the Financial Services Authority Central Register of Advisers
on 0845 606 1234.
Where else can I get advice?
You can consult solicitors, accountants and stockbrokers but not surprisingly,
they will choose from their expertise: stockbrokers will obviously
favour the market they know most about - stocks and shares, while
an accountant will be mainly concerned with the tax implications.
What if it goes wrong?
Complaints can only be about bad advice not bad investment performance.
First take your complaint to the adviser. If you can't resolve it
complain to a regulator. Advisers, stockbrokers and investment managers
must be regulated by the Financial Ombudsman and the FSA. If you are
unhappy with the regulator's decision, complain to the relevant ombudsman.