8th December 2011
The retail distribution review (RDR) in January 2013 will make independent advice entirely impartial, and the preserve of those who are prepared to pay fees for advice. While not everyone will be able to opt for this advice as a result, and face turning to their high-street banks or ‘restricted advisers', there will be a mass of wise investors wanting to make the most of any advice on offer.
Last month IFA Promotion group Unbiased reveals that 47% of adults questioned said they felt more anxious about their finances than six months ago with savings and pensions topping concerns. But – the good news is – there is a bigger range of advice on offer than ever before, whether this comes from advisers or through your own research.
As the Institute of Financial Planning says: "Putting some simple financial plans in place and making some smart decisions to help achieve your goals and dreams in life is the first step towards really taking control of your life and gaining valuable peace of mind."
Taking a holistic approach
There are benefits to a holistic approach to sound financial planning, as some independent financial advisers (IFAs) may take a "simplistic" approach to consumers' needs by simply suggesting products. There is nothing wrong with advice from many IFAs, but it's not as complete for the client as it could be.
To ensure you get the most thorough advice possible, check the adviser's qualifications. The ‘gold standard' of independent financial advice is a professional who has qualified as a chartered financial planner, a qualification awarded by the Chartered Insurance Institute – the Personal Finance Society lists chartered financial planners. Other professionals take the certified financial planner (CFP) route and are listed at the Institute of Financial Planning. This requires an adviser to have at least three years' experience and to adhere to a code of ethics.
Certified financial planners should consider their client's long-term situation through detailed analysis before making any recommendations.
The perception of advisers
It's fair to say that financial advisers have often had a bad press – particularly when on offer from banks themselves.
On the general reputation of his industry, Brian Dennehy, independent financial adviser at Dennehy Weller & Co, says: "My sense is that most of the population that have encountered independent financial advisers, and used them regularly, will have experienced a range of benefits, soft and hard.
"In contrast, as in so many spheres, there is a very loud, even angry, minority who don't share this view. They typically emerge with angry (anonymous!) comments underneath online articles on investment and personal finance. They always ring radio phone-ins (remaining faceless). And they fill the postbags of certain journalists – who sadly take this as representative, having little experience of independent advisers themselves.
"I have experienced all of the latter. They don't worry me unduly, I try and stay calm and give a balanced view – though often this will have absolutely no impact on the person in question, it provides a better impression of our industry than a adviser talking head who sees such occasions as a battle ground – they aren't.
"There are many benefits derived from what we, and all advisers, offer to our clients. We tend to draw this out by illustrating with hard facts how we have improved clients investment performance against benchmarks, indices, and apparently decent alternatives. And we publish all of our research, so we are continually open to scrutiny – this keeps us on our toes, and means our standards must not slip."
For an alternative perspective, Kim Stephenson, Mindful Money's psychologist blogger, and a former financial adviser, says: "The question I'd ask is, what do people want? I had situations as what is now an IFA where I saved clients tens of thousands of pounds above our fees (and that was when a thousand pounds was worth something). We got most of our business from accountants and solicitors who couldn't provide the same services and didn't have the same expertise, and our hourly rates were about a third to a half of theirs. The "they are all crooks" is the same oversimplification as saying they (or any group) are all saints. Some are very good and worth many times what you would pay them, some are good, most are OK, some are incompetent and some are crooks. And some are IFAs, some are "wealth managers" (whatever that means) some are "consultants" (whatever that means), some work in small companies and live or die by their reputation, some work for big firms that are strict on standards, some work for big firms that couldn't care less what happens as long as the commission comes in.
"The thing to do is look at their qualifications (are they a chartered financial planner or the equivalent), what professional organisation do they belong to and consequently what code of ethics do they follow, what PI do they have and can you get them struck off by complaining if they get it wrong? If you can and you're paying a reasonable hourly rate, what's the problem? If you are paying some cowboy with no qualifications who claims to have a crystal ball to tell you what to invest in and you give him 2% of the fund irrespective of performance relative to the market just because they work for a company you've heard of, who is behaving scandalously?
"That, too is an oversimplification, but the point is that people really need to think about what they want and who they are talking to, not just say – "financial adviser" – as if it is a unitary concept that always wor
ks the same way and provides the same service."
Where else to find advice?
Whatever you think of IFAs and financial planners, we have more financial information at hand than ever before with the growth of websites and guides offering to walk us through the investment maze. You can take a holistic approach yourself, if you have the motivation to do so. In addition, a global financial crisis has thrust the financial world onto the front page and made us increasingly aware of the terminology and basics of the investment world.
So those who can't pay fees for financial advice may want to get online. While it won't be case specific, the growth of online communities allows investors to crowd-source when it comes to answering their queries. For example, many independent financial advisers like Hargreaves Lansdown offer a wealth of research, information and example portfolios for investors who want to take matters into their own hands. You could also try consumer sites such as The Motley Fool for example stock selections and information that will help you make wise decisions.
Candid Money is run by former IFA Justin Modray. It offers a wealth of information including criticisms of products, advice on how to get commission refunds and a customer-generated review of advisers where they receive one to five stars. You can also take a test to see what you understand about money. Meanwhile, Money Advice Service was set up by the government and paid for by a levy on the finance industry. It tackles subjects such as divorce and separation, children, and job loss as well as more conventional insurance, pensions and investment.
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