The Financial Conduct Authority (FCA) has helpfully put together a list of 11 suggested questions consumers should ask their independent financial adviser (IFA).
These are sensible questions to ask not only new advisers, but also your existing adviser if you have one.
No IFA should have any difficulty providing a concise and accurate answer to each of the following 11 questions.
Q1: Are you approved by the Financial Conduct Authority (FCA)?
You should only ever seek advice from an authorised and regulated firm.
Before working with an adviser, check them out on the Financial Services Register. Check their firm is registered and that they appear as an individual Approved Person.
This is also a good tool for checking the disciplinary history of the firm and individual (ideally, there should be none!) and the regulated employment history of your adviser.
Q2: What experience and qualifications do you have?
Since 31st December 2012, all financial advisers have needed to hold a minimum QCA level 4 qualification. This is typically at Diploma level.
Ask your financial adviser which qualification they hold and when they obtained this level of qualification.
Look for an adviser who is qualified to above the minimum required standard; Chartered Financial Planner, ISO 22222 or Certified Financial Planner (CFP) are good qualification standards to look for.
In terms of experience, find out for how long your adviser has been working in that capacity and make sure they have relevant experience to back up their qualifications.
Q3: What type of advice do you offer?
Advisers are either ‘independent’ or ‘restricted’. There is nothing else, so be wary about advisers who wax lyrical describing their ‘whole of market restricted’ proposition, or similar.
The gold standard of financial advice is independent financial advice, so look for an adviser who meets this standard and can deliver the best possible service for you.
Q4: What are your charges?
This is the million dollar question. Look for an adviser who has an easy to understand fee structure, which is not contingent on them selling you a financial product.
Since 31st December 2012, commission on many financial products has been banned, so a system of ‘adviser charging’ operates instead.
Expect to receive an initial meeting for free (well, at the expense of the adviser), and then pay defined fees for advice, implementation and review services.
Make sure you get a quotation in writing, along with a description of the services you will receive in return for your fees.
Q5: Can the cost be deducted from my investment?
Adviser charging allows agreed fees to be deducted from investments in many cases, but you should be prepared to pay any agreed fees directly to the adviser, as in some cases it is not possible to deduct these from existing or recommended products.
In any case, your adviser will explain the options for the payment of the fees.
Q6: How do you assess my financial needs?
You would not want to receive advice from someone who did not know enough about your current circumstances and financial goals to make a suitable recommendation.
Advisers have a responsibility to ‘know their customer’ before making recommendations. We call this process ‘factfinding’.
Different advisers have different approaches to factfinding. Here at Informed Choice, for example, we send new clients a welcome pack with a basic questionnaire to complete.
This means that we can spend more time at the first meeting, which is at our expense, getting into some real depth about goals and objectives, rather than gathering basic data.
Q7: How do you assess whether a product or investment has the right level of risk for me?
Understanding your attitude towards investment risk, capacity for risk and how much risk you need to take to achieve your financial goals are fundamental items to cover before any advice is given.
Here at Informed Choice, we produce an Initial Risk Assessment report for every new client, which is used by the Financial Planner as a discussion document at the first meeting.
We spend a lot of time assessing, discussing and agreeing risk because it is so important. Suitable investment recommendations can only be made when this is covered properly.
Q8: How will I receive the advice?
Find out from your adviser whether you will receive the advice they provide face-to-face, over the telephone, by email or simply from a report they post to you.
Regardless of how the advice is delivered, you should always get it in writing and ensure you will have the opportunity to ask lots of questions.
We post a comprehensive report to our clients ahead of an advice meeting, and then confirm our recommendations in writing after the meeting. That way each client has a documented record of the advice they received and any discussions about that advice.
Q9: Do you offer an ongoing service and how much does it cost?
Receiving ongoing advice is usually as important as receiving any initial advice, particularly in respect of investment portfolios where you need the asset allocation and fund selection to be kept under regular review.
If your adviser is charging you fees on an ongoing basis, you should be receiving a defined service on an ongoing basis, preferably with agreed review dates and a comprehensive annual review report backed up by a face to face meeting with your adviser.
Q10: How often should I review my investments?
The frequency with which you need to review your investments will depend on several factors, including the size of your portfolio and its complexity.
We find for most clients, one review each year is sufficient, although some need two or even four reviews a year. Make sure you agree any review strategy at outset and make your adviser responsibility for delivering it proactively.
Q11: Who will look after my advice?
You will want to know who your point or points of contact are at the firm, and who is personally responsible for delivering your advice.
Here at Informed Choice, we operate a fairly rare team-based approach where various members of the team collaborate to construct suitable advice, which is then delivered by a lead adviser.
If an adviser leaves Informed Choice, clients always have the choice to continue working with them at their new firm or being allocated a new lead adviser from the team, so they have continuity of service and advice in the future.
Asking these 11 questions of your IFA (and hearing the right answers) should give you a high degree of confidence that you are working with the best firm and individual to build, manage and protect your wealth.
