In his latest Best Advice column for Money Marketing, Informed Choice Chief Executive Nick Bamford describes how you can know if your financial adviser meets the new standards being introduced by the Financial Services Authority.
I am becoming increasingly concerned that my financial adviser will not meet the new standards I have heard are being introduced by the FSA. What signs should I be looking for?
What you are referring to is the retail distribution review. These are a set of proposals made by the financial services regulator to increase levels of professionalism in the retail financial services sector and generally raise standards, for the benefit of consumers.
The proposals remain on track to be introduced by the end of 2012, although many advisers and firms have already implemented the majority of the changes where they are beneficial to their clients and business practices.
A few of the headlines to look out for are remuneration, qualifications and scope of advice.
Historically, many financial advisers were remunerated for their services through the payment of commission on the sale of a financial product they recommended.
Very often this commission was factored by the product provider, which means a larger amount was paid up front and the cost of this factoring was paid for over a number of years out of product charges.
The RDR abolishes this factoring and introduces the concept of adviser-charging.
This means that your adviser will need to agree the precise cost of their advice and other services with you in advance.
Adviser-charging should go some way towards improving impartiality, as fees for services will not depend on the sale of a commission paying financial product.
Ask your financial adviser how they charge for advice and what plans they have to introduce adviser-charging.
By the end of 2012, all financial advisers will need to be qualified to a higher minimum level than the one which applies today.
The current mandatory minimum qualification for financial advisers is at QCF level 3, which is broadly equivalent to a GSCE exam. The new standard is QCF level 4 and this means your adviser will have needed to have passed a more testing set of qualifications, at diploma level.
You should ask your financial adviser about their current qualification level and their study plans.
With less than three years to go, your financial adviser should have already made good progress towards diploma level, with at least one or two of the required exam modules completed.
If your financial adviser tells you that experience is more important than qualifications, you might challenge him about the need for relevant experience combined with tested knowledge through relevant qualifications.
From the end of 2012, financial advisers will offer independent or restricted advice.
Many existing financial advisers will fall into the restricted advice category, with more stringent requirements to disclose the limitations of their services and product range.
Finally, we will see the introduction of a professional standards board, which will monitor and manage individual financial advisers, looking at factors including their ethics and behaviour.
You might ask your financial adviser if they already subscribe to a code of conduct and ethics through a professional body, such as the Personal Finance Society or Institute of Financial Planning.
These are all important questions to ask your financial adviser if you want the peace of mind that they will be able to remain your adviser in a few years time.
Most important, their answers to these questions should be a good indication of their current levels of professionalism, ethics and business acumen.
First published by Money Marketing, 21st January 2010.
