Seeking financial advice from an independent financial adviser (IFA) ensures that they can select from all of the products in the financial marketplace.
Under FSA rules, an IFA must also offer clients a ‘fee’ option when it comes to paying for their services. An adviser who looks across the whole of the market but does not offer a fee option is a ‘whole of market’ adviser, not an IFA.
The professional advice website unbiased.co.uk has drawn up a list of five questions you should pose to your IFA. Whilst these are designed for people engaging with a new adviser, it makes real sense to pose these five questions to your existing IFA.
Here are the questions and some notes from us on the answers you should be looking for:
1. Ask what qualifications they hold
The minimum qualification level for financial advisers is the Certificate in Financial Planning, or equivalent. This is a very straightforward set of examinations and advisers have had since the mid-90’s to raise the level of their professional qualifications.
The financial services regulator and other consumer bodies have already recognised the need for advisers to be better qualified. From the end of 2012, the minimum qualification requirement for all financial advisers is being increased to the Diploma in Financial Planning, or equivalent.
Many advisers have already achieved this more testing standard and moved beyond this to become a Chartered Financial Planner and/or Certified Financial Planner (CFP) professional. These two are the gold standard of financial planning professional qualifications, so look for evidence of these from your adviser.
Of course, qualifications are only one piece of the jigsaw that makes a professional adviser. There are other factors to consider in addition to these higher level professional qualifications.
2. Make sure the adviser knows your attitude to risk and takes a record of your financial background and what you want from life
Ask your IFA what process they will use to understand your current position, financial objectives and attitude towards investment risk, reward and volatility.
Your adviser should have a robust investment advice process that can be easily explained and will result in the delivery of suitable independent financial advice, every time.
3. Make sure the adviser explains to you how much the advice will cost you
Your IFA should be explicit and transparent when it comes to the precise cost of their services. From outset, they must provide you with a note describing the typical cost of their services.
Ask your financial adviser to give you a detailed breakdown of their costs, in the form of an engagement letter before you become a client. This should describe their charges for advice, implementation and ongoing review services. It should also explain how these charges can be paid.
Remuneration for financial advisers through commission is on its last legs, with the Retail Distribution Review coming into force at the end of 2012 and abolishing this commission funded from charges on your financial policies.
4. Why any product or company they may recommend is suitable for you
Your IFA should provide all of their advice in writing, preferably in the form of a comprehensive report, so you have the time to digest their recommendations and understand the proposed course of action before implementing their advice.
Whilst an IFA should be looking across the whole of the market, many of the larger firms operate ‘panels’ of preferred financial products and, in practice, only recommend a small number of providers.
The most important factor here is that any recommended product solution is suitable for you, your needs and your objectives. If you cannot understand why a particular product is being recommended, ask your IFA for an explanation. You can also seek a second opinion from another IFA to get that extra degree of comfort.
5. Whether the IFA is to remain independent after 2012 following the Retail Distribution Review
The Retail Distribution Review (RDR) represents a major regulatory shake-up and a large number of IFAs appear unwilling or unable to change their practices ahead of the deadline on 31st December 2012.
After 2012, financial advisers will be either ‘independent’ or ‘restricted’ advisers. In addition to checking that your adviser will actually be able to remain an adviser post-2012 (that they have met the new higher level qualification requirements and moved their remuneration from commission to a form of ‘adviser charging’ or fees), you should check on their commitment to remain independent.
If you are looking for a new independent financial adviser, we would love to have a conversation with you and provide answers to each of these questions, and any other questions you might have.
To find out more about becoming a client of Informed Choice, the next step is to arrange a meeting. This is at our expense and without any obligation. Remember, we are happy to travel to meet with you.
Ahead of this first meeting we will send you a welcome pack with some important documents to complete, including our confidential financial questionnaire. You can concentrate on these ahead of the meeting so we can spend time talking about your goals and objectives.
Call us on 01483 274566 or email hello@icl-ifa.co.uk to arrange your meeting.
Complete our online enquiry form
Photo credit: Flickr.com – Dave Dugdale
