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Types of Financial Advice, Costs and How to find an advisor

 

IFA ConsultationObtaining Financial Advice

Although we try and make the information on this LaterLife Retirement Planning site straightforward, a quick read will make it clear that making the right financial decisions can be a complex business. Obtaining financial advice can therefore be a very worthwhile investment in its own right.

Cost of advice

Traditionally it has been possible to pay for this advice in two ways (1) the financial advisor received a commission from the product provider on the investments sold. Typically between 1%-5% but sometimes more on a lump sum investment, so on a £10,000 investment of the order of £100-£500 commission (2) the financial advisor charged a fee for providing advice, irrespective of whether it was then followed.

However as from 31st Dec 2012 the Government (as part of what is called RDR – Retail Distribution Review)  changed the rules considerably with the objective of improving the quality of advice given and ensuring that the advice you receive is not influenced by how much your advisor could earn from the investment. Now, instead of commission, your financial adviser has to agree with you the cost of advice and how you will pay for it. So for example this could be a set fee paid up front, or you may be able to agree with your adviser that they can take the fee from the sum you invest.

This can be off-putting because it is much more obvious what is being charged, although in reality the cost may be no different to the cost of paying commission. In fact there is a lot of concern that the impact of these changes will make it emotionally more difficult for people to decide to take advice because of the cost and harder for people with smaller investment portfolios to feel it is worthwhile to obtain advice.

Types of advice and advisor qualifications

Advisers now have to be clear whether they are providing you with ‘Independent’ Advice or ‘Restricted’ Advice. Independent Advice means they have to be able to cover every single product in the market (a tall order as there are 30,000 investment products alone). Restricted can mean everything from a large subset of the market (which is what a number of the big national names are doing) to a single range of products. So find out what they do actually cover and that it is sufficient to meet your needs.

Also as part of the changes all financial advisers now have to meet increased standards of qualification. All current advisers were required to obtain an Ofqual accredited level 4 qualification by the end of 2012, in order to be able to continue advising clients.

To help understand the level of difficulty regarding the step to Ofqual level 4 consider that GCSE grades between A and C are level 2, GCE A levels are level 3, the first year of a degree is level 4, honours degrees are level 6 and a PhD is level 8.

In particular a Chartered Financial Adviser is an Ofqual level 6 qualification and is one of the highest levels of qualification in the UK. You should check exactly what qualification any advisor has obtained. For this reason, and even though this site provides information rather than advice, we have prepared the information on the site with the help of a Chartered Financial Planner.

Finding a financial adviser

It is always good to be able to go to a Financial Adviser that has been recommended to you by someone you know based on their track record. However many people aren't in this position and don't know who to trust.

There are a number of web sites that can help. For example the Personal Finance Society, which is the professional body for financial advisers in the UK, provides a search service on www.findanadviser.org to help find an adviser who is a member of the society local to you. Their mission is to protect consumers by setting standards and driving higher levels of professionalism. The society says that 'Members of the Personal Finance Society are associated with the highest standards of professionalism. Through professional qualifications, a commitment to ongoing development and adherence to a respected code of ethics they can be relied upon to act in the interest of consumers, offering trusted financial advice'.
Other useful sites are http://www.unbiased.co.uk  and http://www.mylocaladvisor.co.uk

Alternatively you can use the LaterLife selected advisors.

When selecting an adviser make sure you understand what level of qualifications they have and ask other questions about their experience, their services, their costs and their approach to financial planning. The Institute of Financial Planning, one of the industry bodies, provides a very useful checklist of questions you should ask.

Preparing the information you need

When you first discuss your finances with a financial advisor they have to obtain a picture of your (and if relevant your partner’s) investments. If you prepare a summary of this beforehand it can save a lot of time (and now money). You should include the following:

  • Assets / liabilities (loans & mortgages)
  • Existing insurance policies, investment plans, private pension arrangements (including policy documents / schedules if available)
  • Occupational pension schemes and other employee benefits (e.g. last pension statement)
  • Wills / Enduring Powers of Attorney
  • Existing Trusts (if applicable)
  • Evidence of current earnings (e.g. payslips / P60s)
  • Tax Coding & Reference / National Insurance number
  • Other information you may consider important and relevant to your circumstances

 ideally provide this in the form of a spreadsheet

Further information

For more information visit the Financial Conduct Authority and the Prudential Regulation Authority web sites. If you visit the FCA web site www.fca.org.uk you can use the search facility there. 

 

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