Scoping out a financial advisor to trust with your money is no mean feat. We show you how to make sure you find an IFA that puts your interests first.
First of all, it’s important to establish the difference between a Financial Advisor and an IFA (Independent Financial Advisor).
What makes an IFA different is that they are independent – that means they aren’t acting on behalf of any particular product, provider, or other body. They usually work for themselves, acting on behalf of you, the client, alone. This badge of independence is important because it means that the advice they give you must be impartial.
An IFA’s role is simply to help you reach your financial goals. They do this by looking at your financial circumstances and building up a picture of what you want your finances to look like in the future. In the process they will take into account your pension plans, savings, investments, insurance cover, loans, and mortgage, as well looking at how you can make your finances more tax-efficient.
An IFA will spot the areas in your personal finances where improvements could be made in order to help you reach where you want to be financially in the future.
1. Find out what an IFA can and can't do for you
In a world where more and more of us are taking our finances into our own hands and educating ourselves instead of looking to others for help, it might seem that paying out for a financial advisor is unnecessary. But while educating yourself about finances can only ever be a good thing, some areas of finance can still be extremely thorny – and best handled by an expert.
This is where an IFA can come in, bringing with them years of experience and expertise in order to help you make the best decision possible to suit your circumstances.
IFAs can advise on:
- Mortgages/equity release
- Investments
- Savings
- Insurance
- Pensions/retirement planning
- Tax-efficiency
Plus, as well as helping you choose the right products in these areas, they will assess your short and long term financial aims and advise how you can best reach these. It may well be that after your IFA has assessed your financial circumstances, they simply suggest a change in lifestyle rather than recommending you buy a particular product. If an IFA is truly independent your financial wellbeing will always be at the heart of any advice they give you.
It may also be reassuring to know that if your IFA gives you advice that transpires to be ‘bad’ advice, i.e. hinders your ability to reach your financial goals rather than improves your prospects, he or she will be accountable. You can claim compensation from the Financial Ombudsman if things do go wrong.
2. Get clued up about what to look for
The key aspects of the perfect IFA are that they are:
-
Independent;
they are a free agent acting on no-one’s behalf but their client. Avoid ‘tied’ or ‘multi-tied’ financial advisors as this means they are acting on behalf of a particular provider or body - Whole-of-market;
they will look at the entire financial market when selecting a product for you rather than just a select portion/products or investments from a specific provider - Qualified;
at the very least they need to hold a Certificate of Financial Planning recognised by the FSSC (Financial Services Skills Council) - Regulated;
they need to be regulated by the FSA which you can check by searching for them on the FSA register.
3. Start your search
Before you begin your IFA search, ask a few people you know such as friends, family, and work colleagues to see if they have used an IFA before and if they can recommend one. A good personal recommendation from someone you know who has used an IFA can be invaluable, as it will speak volumes about their character and ability.
If you are recommended an IFA however remember to check them out on the FSA register first to make sure they are properly regulated.
Otherwise, the best place to start is to use a search engine such as Unbiased.co.uk. By typing in your postcode you’ll be shown a list of all the authorised, regulated IFAs in your local area. The ‘Find an IFA’ function on the Telegraph website is also a good way to get the ball rolling.
Once you’ve found a few in your local area, arrange to have a short conference with them in person. This will usually be free of charge as you are only testing the water and will need to interview your IFA at any rate before they start work for you.
4. Interview before you commit
Before picking an IFA you should arrange to have a short conference with them to meet them, get to know them a little, and scope out the sorts of ways they might be able to help you. Take along all your current financial information such as paperwork for your mortgage, savings, investments, insurance and have a clear idea in your head as to what you want your IFA to do, and what your financial goals are.
The IFA will then be able to look at your financial situation and explain how they would help you if you took them on. You should also take along a series of questions you plan to ask your IFA. Asking the following questions will be useful:
- Are you independent and whole-of-market?
- Are you regulated by the FSA (you can check this yourself too by checking the FSA register)
- What are your professional qualifications? A Certificate in Financial Planning is the minimum, moving up through a Diploma in Financial Planning to ultimately become a Chartered Financial Planner.
- What sources do you base your advice on?
- What are your particular areas of expertise? If there are certain areas you especially need assistance in, such as investments, ask them about their experience in this area
- How do your services work on an ongoing basis, i.e. will there be a monthly or annual review of my finances? Will your advice be mostly face-to-face or over the phone?
- How long have you been established as an IFA?
- And perhaps most importantly, how much will this all cost? Ask for confirmation of their hourly rates, whether VAT is included in this price, and for an estimate of initial outlay.
As well as quizzing your IFA on their professional standing and experience, this initial meeting is also extremely important for you to get a feel for what they are like as a person. Remember, your IFA is a fellow human being after all and you will be sharing some of your more personal financial issues with them.
As such it’s essential that you feel comfortable and at ease around them. Note whether the IFA seems personable and genuine but also if they seem competent and professional. Ultimately, if you don’t feel comfortable with them on a personal level there’s no point in pursuing them further, as it will be difficult to establish any kind of relationship with them in the long run.
5. Negotiate on cost
The amount that hiring an IFA will cost is dependent on whether you go for a commission-based IFA, a fee-based IFA or one that charges both. Although nearly all IFAs used to work on a commission-only basis they now by law must offer either commission or fee-based work, so you can make your own decision as to which would suit you better.
- Commission-based:
this means your IFA is paid by getting a cut of the money you spend on whichever financial product you choose. Therefore what you pay your IFA is directly linked to what sorts of financial products you choose, and as such will be much more if you choose to invest a large sum of money, for example - Fee-based:
this means you simply pay your IFA a flat fixed hourly rate for work undertaken. What you pay them will be the same whether you invest a large sum of money in a high-risk investment or open an ISA. The hourly rate will often be between £50-£250 (remember to ask if VAT is included).
Paying your IFA based on commission can create the suspicion that your IFA isn’t completely impartial, because it will obviously be in their interests to recommend the higher-earning products such as investments. In any event it is certainly better to go for a fee-based approach if you are intending on investing large sums of money as you will then pay a flat fee that isn’t linked to the amount of money you are investing.
However, paying your IFA a flat fee can turn out to be more expensive, and also means you have to cough up large amounts of money up-front rather than simply paying when you choose a particular financial product.
Ultimately it’s down to you to decide whether the commission or fee-based approach will suit you better.
If you find an IFA you like but that is a little outside your price range it's always worth asking them whether they'd drop their fees to a more affordable range. Remember they need to be financially savvy to do what they do and they may well be open to negotiating on cost in order to secure your business for the long term.
