What is an Independent Financial Adviser
It is important to establish the difference between a Financial Adviser and an IFA (Independent Financial Adviser).
Independent Financial Advisers can consult on any and all products that they think meet your needs, whatever branch of personal finance it falls under and covering the whole market.
What makes an IFA different is that they are independent - that means they are not 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.
Since 31st December 2012, IFAs have been split into two different categories: Independent Financial Advisers and Restricted Advisers.
They will need to tell you before your consultation whether they offer whole of market or 'restricted' advice, respectively.
'Restricted' financial advice means the adviser specialises in a single area of personal finance, offers advice on a limited number of products, or only consults on a specific list of companies.
While the scope of their advice is thereby limited, they are still FSA accredited and must still offer objective advice.
What can they offer?
The role of both Independent and Restricted Financial Advisers is simply to help you reach your financial goals.
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.
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.
What can an IFA 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 (or Restricted Advisers, depending on their speciality) can advise on:
While Restricted Advisers may not cover every possible product and market out there, many are now moving to a 'nearly whole of market' model so it is likely that they may still be able to advise on the right the mix of product options for your needs.
If an IFA is truly independent your financial wellbeing will always be at the heart of any advice they give you.
Make sure you check exactly which areas they cover before agreeing to use their service.
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 your IFA gives you bad advice, he or she will be accountable. You can claim compensation from the Financial Ombudsman if things do go wrong.
Get clued up about what to look for
The key aspects of the perfect financial adviser are that they are:
Independent - they are a free agent acting on no-one's behalf but their client.Even Restricted Advisers who only advise on a select range of products and/or companies are accountable, and offer objective advice
Whole-of-market: This applies to Independent Financial Advisers only. 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
Targeted: This applies to Restricted Financial Advisers. They will look at products within their specialism to select the best options for you, which can let you hone in on a particular product type if you already know the area you want to look at
Qualified: They need to hold an FCA-recognised Diploma in financial planning, an FCA-recognised Transitional Qualification andthe Qualification gap-fill. They must also hold a current and valid Statement of Professional Standing (SPS)
Experienced - they must have a minimum of one year's supervised or three years' unsupervised experience within Financial Planning
Regulated - they need to be regulated by the FCA which you can check by searching for them on the FCA register.
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.
If you are recommended an IFA, remember to check them out on the FCA register first to make sure they are properly regulated.
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.
Otherwise, the best place to start is to use a search engine such as Unbiased.co.uk. By typing in your postcode you will 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 have found a few in your local area, arrange to have a short conference with them in person. This will usually be free of charge.
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 an Independent or Restricted Financial Adviser?
For Restricted Advisers: what percentage of the market do you cover, and what specific areas?
Are you regulated by the FCA? (Ask to see an in-date SPS certificate. It is also worth checking the FCA register)
What are your professional qualifications? A Certificate in Financial Planning is the minimum, being a Chartered Financial Planner the most qualified.
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 such it is 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.
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.
Ultimately, if you do not feel comfortable with them on a personal level there is no point in pursuing them further, as it will be difficult to establish any kind of relationship with them in the long run.
Negotiate on cost
The 'Retail Distribution Review' means that since January 2013, new rules are in place to simplify how you pay for financial advice.
Independent and Restricted Financial Advisers need to declare up front what fee they would charge for their services, leaving room for you to compare and even negotiate prices.
This is intended to prevent IFAs from basing advice on vested interests, such as higher commission offered by a particular product.
Exactly when, how and how much you will pay depends on the scope of the advice you need and the pricing structure you agree with your IFA or Restricted Adviser.
An IFA needs 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.
You will not necessarily need to pay an up-front fee; however you will need to agree what fee you would be liable pay if you go ahead.
In the long run this should prove cheaper than IFAs taking commission from your investment, and it should also make the whole system more transparent.
If you find an IFA you like but that is a little outside your price range it is always worth asking them whether they would drop their fees to a more affordable range.
Knowing the cost up front should also mean you can compare the price of different IFAs before picking the best one for your needs, so you can make an informed choice.