What is it?
If you need medical advice you go to a doctor. Many financial advisers like to think of themselves as the 'doctor' you go to when you need money advice. Trouble is,
few would trust a financial adviser anywhere near the extent they'd trust a doctor, and some wouldn't even trust a doctor!
Nonetheless, financial advice can, in the right circumstances, prove invaluable. The key is to establish when you need advice and, if so, find the best and most
cost-effective adviser for the job.
Continuing the doctor analogy: If you're suffering from a mild headache, you're probably more than capable of sorting it yourself, i.e. there's no need to visit
your doctor. If you're suffering from a virus you'd probably be happy seeing your doctor, but prefer that they can prescribe any medicine on the market, not
just one brand. If you need major surgery, you'd definitely want expert medical help, but this is beyond the skills of your doctor so you'd want a specialist on the
When should I get financial advice?
The simplest answer is: when you don't feel confident making the right financial decision yourself. Fortunately, by using this site along with some common
sense, you can probably make more good financial decisions than you might think. Not all financial advice is difficult or particularly technical, so don't
assume you always need to see an adviser, it could be like paying an electrician to change a light bulb!
However, it's important to recognise when using a good adviser can be money well spent. Some areas, such as inheritance tax, investment and retirement planning
can, at times, be complex, especially when there's large sums of money involved. Whatever the situation, if you want/need advice then choose your adviser very
Types of financial advice
There are two types of adviser:
Restricted advisers can only recommend the products from several companies, often including the company or group they represent. This can be severely limiting. Even if they can sell you a product
that's appropriate, it may be poor compared to others in the marketplace.
That's not to say restricted advice is always bad, many restricted advisers benefit from good training and backup from their employers (typically large banks and insurers) and
the advice is often very accessible, e.g. via the high street. The products aren't always bad either.
Trouble is, would you ever want to see a doctor (no matter how good they might be) knowing they could only prescribe a limited range of medicine?
Bear in mind that whichever type of adviser you choose, there's no guarantee you'll receive good, impartial advice. It's likely there's some restricted advisers who are
more honest and try to do a better job for their clients than some IFAs (albeit they probably can't give ideal advice due to the restriction of being tied).
The only thing you can safely assume is that an IFA will almost certainly be able to source better products than a restricted adviser.
How much does it cost?
Financial advisers earn their living from giving advice, so you should expect to pay for it. Up until 31 December 2012, advisers could elect to be paid via sales commissions or by charging their
customers a fee. Since that date (following something called the 'Retail Distribution Review'), advisers are banned from receiving commissions on new sales and must instead charge a fee. However, as
commissions may continue to be paid on existing investments/policies sold before 31 December 2012 and can continue on new sales where advice isn't given (e.g. via 'discount brokers') we'll also take
a look at it below.
Note: fees may either be paid directly to the adviser or taken from the investment/product you're buying (for which you'll need to give your permission). While the latter saves writing out a
cheque to the adviser, the fees are still coming from your pocket so don't be fooled into thinking it's a cheaper option. Always ensure you know exactly how much you're paying in fees and to whom, along
with what you'll receive in return.
Fees (hourly)Fees (percentage)Commission
Hourly fees work in a similar way to if you are paying an accountant or solicitor and typically range from £100 to over £250 per hour.
If an adviser charges hourly fees you would expect them to waive or refund all the commissions they would normally receive (on pre 31 december 2012 business), resulting in lower charges or cashback
Always ask for a free initial consultation and get a quote for the work the adviser is to carry out. It's also sensible to compare at least two advisers before
Although transparent, there's no guarantee of the quality of the advice you'll receive. Also beware that some advisers might simply pitch their fees at about the same amount they would have
previously received had they worked on commission, so this isn't necessarily a cheaper route than before.
The single biggest problem with commission is that it can tempt a commission-based adviser to compromise their advice in pursuit of profit, resulting in
'mis-selling'. There's clear evidence of mis-selling taking place over the years, with high profile mis-selling scandals arising from the inappropriate selling of high
commission products such as pensions and endowments.
While advisers have, to some extent, been forced to clean up their act, it's hard to believe that mis-selling does not still go on. And it's not just perpetrated
by shady backstreet practices, the Financial Services Authority (FSA) has found a number of high profile advisers guilty of mis-selling or other compliance failings.
|Examples of adviser companies fined by the FSA for mis-selling or serious compliance failings
||Reason for Fine
||Link to details
|Christchurch Investment Management
||Failings in relation to the protection of client money.
||Providing misleading information to the FSA and for client money breaches.
|Norwich & Peterborough Building Society
||Failing to give its customers suitable advice in relation to the sale of Keydata products.
|Cricket Hill Financial Planning Ltd
||Failing to check the suitability of the pension switching advice they gave their customers.
|Moneywise IFA Limited
||Failing to have sufficiently robust compliance arrangements for the investment advice it gave customers using platforms and discretionary portfolios.
|Sett Valley Insurance Services
||A number of problems with the firm’s sales and advice processes, including a failure to record sufficient information about customers’ personal and financial circumstances to ensure the suitability of any advice they gave.
|Legacy Financial Planning Ltd
||Failing to adequately advise investors about the risks associated with certain transactions.
|AWD Chase de Vere Wealth Management Ltd
||Serious failings in its pension transfer, pension annuity and income withdrawal business that resulted in mis-selling.
|Thinc Group Limited (now part of Bluefin Group)
||Not having adequate risk management and compliance systems for its sub prime mortgage business and for failing to take reasonable care to ensure
that it had records to prove that advice it gave to customers in relation to the sale of sub prime mortgages was suitable.
||Failing to treat its customers fairly by not handling complaints concerning Structured Capital At Risk Products (SCARPs) adequately.
|Source: Financial Services Authority.
These are just a few examples, there are plenty more - just take a look at the FSA's website.
The above companies may well have pulled up their socks since being fined by the FSA - the list isn't intended to vilify but highlight that even higher
profile advisers have gotten into trouble with the FSA for mis-selling or compliance failings.
If you're happy making your own financial decisions and want bypass advisers by buying direct, there's a potential problem. Many financial product providers don't reduce their charges for customers
buying direct, i.e. they continue to build in commission (for their own pockets) into their products where advice isn't given. This is where discount brokers come in, especially if you already own
products that pay an ongoing commission to someone.
Discount brokers don't give advice, but will transact the purchase for you then share any commission they receive from the product provider. A few will
even refund all the commission they receive and simply charge a flat 'admin' fee instead - potentially even better value.
While the concept is simple, the services provided by discount brokers do vary. At their very simplest, they just put their details on your application form to
ensure commission is paid. Some provide various information and guidance, ranging from thinly disguised sales material to genuinely useful comment and
Note: Any rebates given by discount brokers from 6 April 2013 will be subject to income tax when outside of ISAs or pensions.
|Potential Discount Broker Savings on a Unit Trust over 10 Years
|Assumes: £10,000 initial investment, standard initial charge 3%, annual charge of 1.5%, annual return before charges 6%, annual
commission 0.5%, all discount brokers waive initial commission/fees to remove initial charge.
||Estimated Final Value
||Difference vs IFA
|Discount Broker (no annual rebate)
|Discount Broker (50% annual rebate)
|Discount Broker (full annual rebate)
|Figures assume a fixed annual return, in practice it may vary. * estimated equivalent annual charge including annual
To find out how much you might save on a particular product, look out for the discount broker entry in the 'ways to buy' section featured on relevant pages on
Choosing an adviser
In terms of finding advisers to chose from, you could use recommendations from friends/colleagues or find a list of IFAs in your area using
www.unbiased.co.uk. You could also take a look at our user's experiences and views in the
Before you talk to any financial adviser bear in mind one very important point, they're in business primarily to make money for themselves (and there's nothing
wrong with that per se). Now, an adviser with any sense, who plans to stick around, will realise the best way to do this is to give their customers good advice and
great service. Loyal customers are invariably profitable customers. However, not all advisers and/or their employers have such wisdom or honest motives, and instead
focus on short term sales targets - this is why you need to be very wary.
Check they're authorised
Financial advisers providing investment, mortgage or insurance advice must be authorised and regulated by the FSA, which can give you some protection if things go
wrong. You can check that an adviser is authorised using the FSA's website.
Is the adviser independent?
Even if the adviser is an IFA, can you be sure they're truly independent? Check the areas on which they're allowed to advise and seek assurance they really do
consider products from the whole of the market.
What products can the adviser provide advice on?
This may be restricted, e.g. it may not include investment trusts or more complex inheritance tax planning. Ask yourself whether any such exclusions might affect
the quality of the advice you receive.
Does the adviser use a 'product panel'?
Many IFAs work from a panel of recommended products. Provided the panel is diverse and results from comprehensive research, this is no bad thing. However, a panel
with only a few options and/or one based on flimsy research could restrict the quality of the advice you receive. There's also a risk that commission based advisers
let commission influence the products that appear on their panel.
What qualifications does the adviser have and how long have they been practicing?
A financial adviser can gain the bare minimum qualifications required to practice within a year. Even a grey haired adviser who looks as though he may have
spent a lifetime in financial services might actually have minimal experience following a career change, with little practical knowledge.
A well qualified and experienced adviser (e.g. one with 'Chartered' status could still give poor advice, but they should at least know their stuff, especially on more complex subjects.
What financial incentive does the adviser have to continue looking after you?
Advisers who take all, or the bulk, of their fees upfront are unlikely to take much interest in you after the initial sale, unless you want to give them
more business. Make sure the adviser will be sufficiently motivated to continue looking after you.
The advice (sales) process
What should you expect to happen when you see an adviser? Well, the exact process varies between advisers, but most follow a general pattern as follows:
- You have a no obligation face to face meeting. The adviser should outline how they work and give you a document detailing their services, how much they charge and how their fees are taken (i.e. do
you pay them directly or is the money taken from your investment?).
They'll also run through your financial situation, by completing a 'fact-find', and discuss how they can help you. At the end of the meeting the adviser will probably want to arrange a further
meeting to present their advice.
[The adviser's not being paid for this meeting, so their objective is probably to size up whether you'll be a profitable customer and, if so, convince
you they're the right adviser for you. They'll also want to suss whether you're seeing other advisers and how quickly you plan to make a decision.]
- A second face to face meeting, where the adviser will present their advice and answer any questions you may have. If you're paying hourly fees, the clock is
probably already ticking. If cpercentage fees, the adviser has probably yet to make any money, so will want to close the deal.
[If the adviser has yet to earn any money, they risk earning nothing for the work they've put in if you walk away to 'think about it' (with their recommendations
under your arm). They lose control of the situation. If you don't sign up at this meeting they'll want to arrange another to try and close the deal.]
- A third face to face meeting with a view to going ahead with the adviser's recommendations, if you haven't already. They might also have 'tweaked' their
recommendations in light of any issues arising from the last meeting.
[The adviser's last real opportunity to close the deal. If you don't proceed, all their time and work will have been in vain unless you agreed to pay for their recommendations.]
What ongoing service should I expect?
Most financial advice, especially investment-related, benefits from some ongoing monitoring and advice. If you pay your adviser annual fees (or they receive commission on historical business), they
should really review your situation at least once a year, usually via a meeting, and contact you ad-hoc if an urgent matter needs discussing.
If this doesn't happen, you should take your annual fees and/or commission to another adviser who'll do a better job. Fortunately, this is quite straightforward.
You just need to inform the underlying product providers that you wish to change the 'agency' to a new adviser. Any commissions will then pass to your new adviser,
either to pay for their services or to refund to you.
The advice 'gap'
What happens when you need advice, but the adviser's fees are prohibitive?
This is a common occurrence on when investing smaller sums, such as regular amounts into an ISA or stakeholder pension. Fortunately, these products
aren't that complex. With some groundwork (including the use of this website!) you should be able to make a reasonable decision yourself.
What can you do if it goes wrong?
If you lose money simply because the investment falls in value, then tough luck.
If you lose money due to dishonest or misleading advice, fraud or poor administration then you might have some comeback provided the adviser or investment is
regulated by the Financial Services Authority.
If unhappy, your first step should be to set out your grievance in writing to the adviser or investment company concerned. Hopefully they will respond positively
and help resolve the issue.
If, having done this, you are not happy with the firm's response you can take your complaint to the Financial Ombudsman Service
(FOS). Their role is to review the
complaint impartially and decide on a fair outcome. If the decision is in your favour then the offending firm must abide by that and pay any compensation detailed in
the FOS decision (limited to £100,000 plus interest and costs). Firms generally dislike their customers taking a complaint to the FOS because they're usually charged
a several hundred pounds handling fee per complaint, regardless of the outcome.
If the firm is unable to pay the compensation, perhaps because they've stopped trading, then you should contact the
Financial Services Compensation Scheme
The FSCS also applies if a firm goes bust and is unable to return investments or money to investors. Although the FSCS says it aims to process claims within six
months, there's no guarantee it will do so. Don't expect to get your money in a hurry.
|FSCS Maximum Levels of Compensation
||Limit per Institution
||£85,000 per person
||100% of the first £80,000.
||£50,000 per person
||100% of the first £50,000.
||£50,000 per person
||100% of the first £50,000.
||90% of the claim.
||90% of the claim, unless compulsory then 100%.
|Source: Financial Services Compensation Scheme.
Financial advice jargon
Click below to display some of the more common financial advice jargon:
|Commission||A payment made from a financial product provider to an adviser for selling their product.
|Trail Commission||An annual commission paid by financial product providers to advisers for selling their product.