Independent financial advice investment

In my article this week I look at independent financial advisers. How do you get one? Do you even need one? How much does a financial advisor make?

We are constantly told to consult an independent financial adviser (or IFA for short) to get our finances in order.

In fact, if I go to Google and type in ‘Do I need a financial adviser’ I get reams of pages shouting back ‘YES!’ … the only proviso being that the adviser must be independent, ie working for ME the customer, not solely for their own commission.

But when I look at who those pages in Google are provided by, 90% of the are from – you guessed it – financial advice companies and independent financial advisor firms.

Given that these are the guys who got so many of us into a mess with the mis-selling of pensions and endowments … why should we trust them?

Because it’s different now, say the IFAs. In the bad old days, the guy selling you that pension or endowment was often getting paid solely on commission.

By the time you realised you’d bought a dog, he was long gone.

Today, you can check that your prospective independent financial advice investment expert is licensed by the Financial Services Authority (FSA). To be licensed they will have had to pass exams in financial planning in a college for financial planning.

There has also been a move to paid independent financial advisors or fee only financial advisors – the argument being that you the customer pay them the same whatever they recommend, so they’ve no reason NOT to act in your best interests.

They have to get you to fill in a ‘fact find’, which builds your financial picture and establishes what your financial targets are. Suitably armed, this expert adviser will be able to select from the best on the market.

But there ARE problems here. Your guy may be trained to the hilt, may be enormously well meaning and scrupulously honest … BUT he may simply not be very good. Or he may be very up on insurance but not so good on the stockmarkets.

Or he may recommend products in good faith that simply don’t perform. He might have advised you to buy commercial property a couple of years back. It’s in the doldrums now … but is that INEPT selling?

The share-based ISA he advised you to buy has very likely dropped in recent months – so was it a good buy or not?

He may, quite rightly, be cautious with your money. So he probably won’t have advised you to get into gold, which has now soared to over $1000 an ounce. Acting for yourself, YOU might have been more daring, and quicker on your feet.

There ARE a few good reasons to speak to an IFA.

Reason 1: Sometimes they have access to products that the public don’t – often mortgage deals are only released to IFAs, not to the general public. You may find that they can get you a reduced yearly fee on your pension. But do the maths … it may be that saving is wiped out by the IFA’s fees.

Reason 2: You may be a complete newcomer to all things financial. You don’t know an ISA from a pension. And you have even less idea how to combine financial products into an overall financial plan.

Or maybe you have put a plan together but you lack confidence to go ahead and buy. That, I’d suggest, is what the internet is for. Not only are there a score of excellent finance sites out there, such as walletwatcher, fool.co.uk, msn.money and CNN Money, but they have strong and established communities – who are happy to offer free advice, and aren’t trying to sell you something like many independent financial advisor firms will.

One thing an IFA won’t do is help you with the financial mess you’re in at the moment – he is in the business of selling you products, not debt counselling after all.

The best start YOU can make is to tidy up your current finances, pay down your debt, get organised and then construct a financial plan.

What should be in that plan?

You need to think about pensions, mortgages, investments, tax planning (paying as little of it as possible in other words), and insurance.

A good IFA or financial planner CAN help you unpick the maze of financial products you currently have and advise you if you need to buy new ones.

Again though … do your homework and you CAN do all this stuff yourself – all without going to a college for financial planning. Of course, if not getting an IFA means you’ll otherwise do nothing, then you SHOULD pick up the phone.

So … if you’ve weighed up all the pros and cons and STILL decide you need a financial adviser, check that they ARE independent and licensed. A recommendation from a friend is often the best bet.

You’ll also see ‘tied financial advisers’ mentioned. These guys are NOT independent and can only sell products from their parent company’s range so wont offer unbiased financial advice.

That MAY not be a bad thing, if you are after a specific product from a specific company. They will obviously know more about their parent company’s products and MAY be able to get you a better deal on those specific products.

To add to the maze, there are now ‘multi tied financial advisers’ who offer products from a selection of providers, but not across the whole market.

If you really want a strategic view, then consider going for a Certified financial planner rather than an IFA. As the name suggests, they are more into planning than just selling products. A planner is likely to be charging you upwards of £120 an hour but if it makes you richer then it’s money well spent.

How much does a financial advisor make? Find out how much they are going to charge you, and find out what other commission they are on. Don’t be shy about asking, it’s your financial future we’re talking about here.

Look at what they recommend and see if you can get a better deal elsewhere. Find out what this adviser’s areas of strength are – if you’re very interested in investing in property, it makes sense to choose an independent financial advice investment expert in that area.

After the first meeting, go away and read through what they’ve given you. It will be complex … all the more reason to take your time. And if there are financial products you don’t understand then ask.

If you still can’t get your head round them, avoid them … you need to know exactly where you money’s going and why. At this point you may think ‘I can do this better myself’. And you’re probably right. To boil it right down, what a good adviser should help you do is plan – and nobody knows better than you what your aims and dreams are.

Tags:  independent financial advisor firms, fee only financial advisors, independent financial advice investment

This entry was posted on Wednesday, April 9th, 2008 at 1:48 pm and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.