Choosing an Independent Financial Advisor
Arranging and prioritising your personal finances can be complicated and time-consuming. An independent financial advisor (IFA) will be able to make your life easier by helping you choose your investments and then watching them for you.
You could get financial advice from your bank, but it won’t be impartial because each institution only offers its own products, and these may not necessarily fit your needs.
Finding an IFA
An Internet search or a website such as IFA Promotion (www.ifap.org.uk) will help you find an advisor in your area. Arrange meetings with a few IFAs for initial discussions that will be free of charge. Always visit the firm’s offices for a better idea of how it operates. Ask how long the business has been operating – you may feel more comfortable with a firm that has a long track record.
Ensure that the advisor is fully qualified. They must have at least all three components of the Financial Planning Certificate (financial services and their regulation, protection, savings and investment products, and identifying and satisfying client needs) or an equivalent. Something better is preferable – like the Advanced Financial Planning Certificate is preferable.
Even if an IFA boasts a wealth of qualifications, he or she is unlikely to be an expert in all fields. Don’t be afraid to ask if another of the firm’s advisors may be able to help in some matters. In a larger organisation you may end up dealing with more than one advisor as a matter of course. You may find a smaller firm more suitable if you prefer to deal with the same person all the time.
A large company is likely to have a well-staffed research department with an array of analytical tools at their disposal, but a good advisor who works from home should also be adept at researching facts with the help of just the internet and a few software programs.
Importantly, make sure that the IFA is regulated by the Financial Services Authority (FSA) or a similar regulatory body. The FSA’s website (www.fsa.gov.uk) enables you to check the validity of advisors and firms.
Be prepared for open and honest discussion with the adviser about your finances. They need accurate information from you in good time to make your money work effectively. Discuss your financial goals and how they can be achieved.
An advisor who simply hands you a sheaf of papers once a year is no good. Remember, he or she is working for you, not vice versa, and should be willing to meet with you regularly. They should also be happy for you to talk directly with providers of products in which you are investing.
Paying an IFA
There are two methods of payment – commission and fees. With the former, your investment pays your advisor a small percentage of whatever you earn. Amounts vary from product to product. On average, advisors earn 0.5% commission on the value of your investments each year.
The prospect of commission shouldn’t influence the IFA’s advice, but it does mean that some advisors are more independent than others (because some won’t recommend investing in financial companies and products that don’t pay commission). Good advisors will recommend products, such as tax-free ISAs, that earn no commission.
An hourly fee – which can be anything between £50 and £250 – removes any influence of a commission for your IFA, but may prove more costly. Setting up a personal pension, for instance, can take several hours. And you have to pay every time you take advice, even if you don’t buy the product.