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How To Select A Financial Adviser

10/01/20 Retirement Ready

Finding the right financial adviser is crucial and is not always as simple as it may seem. In this article, we look at the key issues to consider.

Financial advisers tend to offer a range of services from general financial planning to investment advice, Inheritance Tax and estate planning and more specialist advice, such as final salary pensions transfers. It is important that you consider the services you need. The key issues to check are:

  • FCA Qualified and regulated.
  • Qualifications and experience.
  • Building relationships.
  • Independent or restricted status.
  • Firm size and specialisms.
  • Fees and charging methods.
  • Testimonials and case studies.
  • Recording standards and systems.

Each of these is covered below but before delving into the detail we review how to build a list of advisers for consideration.

Building A List Of Potential Financial Advisers

The first step is to identify the type of advice that you require. In a perfect world, the Financial Conduct Authority (FCA) list of authorised and regulated Financial Advisers would be a good starting point. Unfortunately, the search facility on the current FCA website is far from user-friendly.

VouchedFor and Unbiased have made a reasonable attempt at filling the void and are useful tools to narrow down the choice of Advisers. They both take steps to try to ensure all listed Advisers are regulated and offer an appropriate level of service. Be aware, however, that if you do select an Adviser through these sites the Adviser may pay a fee for the introduction.

There are a number of companies that advertise online offering to introduce you to a Financial Adviser. Type in financial adviser in <location> and several Ads will appear at the top of the search results page. In general, these websites are lead generation websites. They will take your details and sell those details to whoever will pay the appropriate fee. It is unlikely any effort will be made to match you with an adviser who best meets your needs.

Recommendation and Referral

Generally, a referral is a good starting point but is important to note that some Financial Advisers specialise in certain areas. If a friend or colleague has received good quality advice on the issues surrounding trusts and inheritance tax planning it does not mean that same adviser will be able to give the most suitable advice on a final salary pension transfer.

Trade Unions or other groups may have a list of advisers that they recommend but this does not necessarily mean they will offer the best advice or value. A referral or recommendation may be a good start but you must do your own due diligence on any Adviser you choose.

The Local Issue

The Advisers nearest to you may not always be the most suitable choice. A local Adviser is convenient and more face to face contact can help build long term relationships and trust. However, the right financial adviser for you with the best match to your search criteria should not necessarily be sacrificed because they are not local. There are many ways to communicate both online and offline at a distance.

Qualifications And Experience

There is an important distinction between advice and guidance as defined on the FCA website. In general terms advice includes a recommendation that is personal to you, guidance is more general. Only Financial Advisers authorised and regulated by the FCA can offer advice.

Taking action based on advice from someone who is not authorised by the FCA means you are not eligible for Financial Ombudsman compensation, If there is a problem you will be on your own.

If someone offers advice and they are not regulated it could be a clear sign of a SCAM. It is therefore important to check any adviser you plan to work with. Ask about any advanced qualifications that they may have for the areas of specific interest e.g. special permissions to advise on final salary pension transfers.

Finally, you need to be sure any adviser you choose has experience in your specific area of interest. Financial Advice covers a wide spectrum and it is difficult to be qualified and experienced in everything. Qualifications are an excellent starting point but it is only with experience an Adviser will come to understand the real issues. Those with long term experience are best placed to offer the highest quality advice. Some areas of advice are closely linked (for example pensions and investments) and it can be useful to choose an Adviser accordingly.

Can You build a relationship

A good Independent Financial Adviser will need to build a detailed understanding of a potential new clients situation and needs. Building trust from the outset is therefore important. Failure to disclose all relevant personal information will only ensure the adviser is not in a position to offer the most suitable advice.

If trust cannot be established early for whatever reason it is probably best to walk away. On the flip side if trust can be built it is a waste to change adviser without good reason. It is important to build a relationship with an adviser that will last over the long term.

Independent or Restricted Advisers

Advisers are either independent or restricted. Independent Financial Advisers can recommend the full range of available products from the full range of potential suppliers.

Restricted advisers may be either restricted in the range of products they offer or the number of suppliers they can choose from. The choice between Independent or Restricted depends on personal circumstances and preferences. A specialist Restricted adviser can be the most suitable choice depending on circumstances.

Firm Size And Specialisms

Larger financial adviser firms will probably have specialists in many areas of financial advice. Smaller firms may specialise in only one or two areas. The decision on which firm to use comes down to personal needs, acceptable costs and the level of personal service required. If advice on a specialist area is required it is important to ensure the adviser has the relevant qualifications and permissions to advise in that area. The FCA register can be used to check.

At one extreme a single Adviser firm may offer the highest level of personal service but what if they become temporarily overloaded with work, or they are on holiday or sick when you need them. At the other extreme, a larger firm may seem impersonal but they will have more coverage of specialisms and they will be there when you need them most. However, their fees may be higher.

Financial Advice Fees

Since January 2013 all financial advisers work on a fee basis, not commission on whatever product or investment they may recommend. It is important to ask for details of all fees and how they will be charged. Ask about on-going advice costs and whether VAT is charged.

It is important to check a financial adviser will actually perform the required work. Some may sub-contract to another Independent Financial Adviser firm, effectively increasing fees. Many suitably qualified financial advisers (including The Pension Review Service) do not charge for initial review meetings so you can evaluate a number of possible options for free.

The key issue is to understand what is covered in any financial advice fees and what is not. Fees can have a major impact on the value of an investment over the long term and it is important to avoid any nasty surprises. We have written about the elements that tend to make up a total fee and their implications elsewhere on this blog.

Fees are important and should be minimised but it is important to remember it is the long term performance of investments that matter most. Saving a few hundred pounds on fees each year is to be applauded but not if it is at the expense of a poor choice of investments growth. When choosing the right financial adviser for you the cheapest is not always the best.

Testimonials and Case Studies

A good adviser should have testimonials from previous clients. VouchedFor and Unbiased also have their own rating systems. Reviews can show in the GoogleMyBusiness panel online and via tools such as TrustPilot. Not all reviews are genuine but they do give an indication of what to expect. Case studies relevant to a particular area of interest can be particularly useful when making a decision.

It is important to remember testimonials, business addresses and case studies can all be faked. This is a popular approach for SCAMMERS so it is important to not rely on Case Studies, personal references (‘X’ does it so it must be OK!) or testimonials alone. Ask the adviser how many complaints (if any) the firm has had upheld against them or check on the FCA register.

Recording Standards & Systems

A good Independent Financial Adviser will record everything relevant in writing so you both have a record of what was discussed and agreed. The best Independent Financial Adviser firms will also have robust internal systems and processes both to reduce the prospect of any errors and to minimise costs. Check what systems are in place, ISO 9001 certification is a good place to start.

SCAMS

Don’t fall prey to SCAMS. As a minimum make sure whoever you are talking to is on the FCA register, be wary of any pushy sales tactics, anyone who tries to avoid explaining everything in full and those making promises that appear to be too good to be true. It is important to invest in only conventional assets. Anyone who suggests they have an investment opportunity with guaranteed returns (especially unusually high returns) or claims only a small group of ‘those in the know’ are aware of a particular investment should be treated with extreme caution.

Make sure the investment is a UK based investment and regulated by the FCA. Offshore schemes give you very little protection. As you and your chosen Independent Financial Adviser may work together for many years to come it is important to choose wisely. Make sure you understand exactly what you need before starting your search and take your time.

The local IFA or the one recommended by your friend or colleague is not necessarily the best choice. Finding the right financial adviser is important. A poor choice of IFA and/or investment could leave you thousands of pounds worse off.