Five Key Questions To Ask Your IFA

Wide-ranging rules to protect consumers by governing how independent financial advisors are paid and how they work have come in to effect.

At the heart of the change is a desire by the Financial Services Authority (FSA) for financial advisers to offer the best products in the interests of their clients and not those paying the best commission to the advisor.

To underline this, commission payments made to advisors are banned from January 1, 2013.

The FSA also stresses that advice was never free because financial providers paid IFAs a share of the fees paid by consumers collected as part of their premiums.

Advisors also now come under two categories – ‘independent’ which covers those who are offering a range of products from financial providers and ‘restricted’ which covers those who limit their offerings.

The cost of ‘free’ advice

The changes are covered by the Retail Distribution Review (RDR) and the FSA has produced a consumer guide to help people understand the changes and, they say, clients should ask advisors five key questions:

  • How much their advice costs  and how the cost is worked out
  • What the payment arrangements are
  • What the advisor can – and cannot – advise on
  • When investments are reviewed.
  • Proof that the advisor is qualified to give them advice.

This follows moves to tighten up on the qualifications necessary to become an advisor

A FSA spokesman said: “It’s vital that people get a service from a financial advisor that is suited to their circumstances and which is in their best interests.

Higher professional standards

“The changes which have come in also make the cost of any advice which is given clear because where else would someone pay for something without knowing in advance what the costs are going to be?”

The RDR has been a long-time in the pipeline and is aimed at reducing mis-selling, improving the quality of advice and help build confidence in the trustworthiness of financial advisors.

To help this aim, advisors must now be qualified to higher professional standards  – which include at least 35 hours of professional development every year – and they must subscribe to a code of ethics.

In addition, all financial advisors must now be members of a professional, accredited body and hold a ‘Statement of Professional Standing’ before they are allowed to give advice.