| The short answer is to use an Independent Financial | | | | client. It is possible to obtain a rebate of part of an |
| Advisor, investigate them throughly and make sure | | | | IFAs commission in some circumstances, most |
| you understand any product you buy. | | | | commonly in Execution-Only cases. The size of |
| However many people are unsure exactly what is a | | | | commission and whether it is included in the price of |
| Independent Financial Advisor or IFA so I will explain | | | | the investment or deducted from the amount you |
| the types of Financial Advisor, how an Independent | | | | invest depends on the product. This is not free |
| Financial Advisor is different from the other types of | | | | advice. The client pays for the commission in the |
| advisor and their obligations to a client. | | | | cost of the product. |
| What is a Independent Financial Advisor? | | | | - Fees: Offered by all IFAs, this can be cheaper than |
| An Independent Financial Advisor (IFA) provides | | | | paying commission if the product is large, complex or |
| financial planning, offers unbiased advice and | | | | specialist. Paying a fee for advice removes any |
| recommends suitable financial products from the | | | | incentive for an IFA to recommend a wrong product. |
| entire UK market. | | | | This makes it a good way to ensure that the advice |
| All IFAs are regulated by The Financial Service | | | | is impartial. |
| Authority (FSA) which requires them to hold strict | | | | - Combination: It is possible use a combination |
| qualifications and show a high level of competence. | | | | commission and fees. The IFA will refund part of the |
| The term Independent Financial Advisordates from | | | | advice fee when a product is bought.. |
| 1988 when the UK government introduced a | | | | It is usually easy to find the cheapest option for each |
| polarisation regime where an Advisor was either tied | | | | investment because the FSA require that the size |
| to a single insurer or was an independent practitioner. | | | | and type of any payment to an IFA are made |
| Since 2005 the UK market has been depolarised. | | | | known to a client. |
| There are now four type of Advisor. | | | | What are an Independent Financial Advisors |
| - Independent financial Advisors who work with | | | | obligations to a client? |
| products from the whole of the financial market and | | | | FA are obliged by the FSA to provide the most |
| allow their customers the option of paying by fee or | | | | suitable advice for your particular personal objectives, |
| commission. | | | | situation, requirements and appetite for risk. |
| - Whole of market Advisors, who work with one | | | | To do this they usually conduct a |
| company but only on a commission basis. | | | | “factfind” of a your financial position , |
| - Multi tied – work for more then one financial | | | | preferences and objectives. It is important to be |
| organisation. | | | | frank and open about your financial situation during |
| - Tied – work for one organisation, typically a | | | | this process. This is much easier if you have a |
| high street bank. | | | | personal rapport with your IFA. Using a well planned |
| When Choosing a Financial Advisor ask whether he or | | | | system for Choosing a Suitable Financial Advisor help |
| she is independent, multi-tied or tied. | | | | make this more likely. Once the fact-find is done they |
| What qualifications does a Independent Financial | | | | are able to advise the most appropriate action need |
| Advisor need? | | | | to meet the objectives and possibly recommend a |
| There are no set entry requirements for becoming a | | | | financial product. |
| financial Advisor. Many employers consider a strong | | | | The FSA requires every IFA to tell you about the |
| background in sales, financial services or customer | | | | service they're offering and provide you a "Keyfacts- |
| service to be more important than formal | | | | about our services" document. Insurance brokers |
| qualifications. However for a person to be allowed to | | | | may give you this information in another format. The |
| practise as an Independent Financial Advisor the | | | | document describes |
| Financial Services Authority (FSA), requires the | | | | - the service on offer; |
| following qualifications. | | | | - whose products they choose from; and |
| The entry level qualifications are the | | | | - whether you'll have to pay a fee for the service or |
| - Financial Planning Certificate | | | | if they'll get paid by commission on what they sell |
| - Certificate in Financial Planning (CertPFS | | | | you. |
| Both are issued by Chartered Insurance Institute | | | | "This document is important – it can help you |
| (CII) and are about equivalent to a challenging GCSE. | | | | shop around and compare services, product ranges |
| Treat them accordingly. | | | | and costs, so make sure you are given one and if |
| The most common advanced qualifications are | | | | you're not, ask for one." |
| - Advanced Financial Planning Certificate (AFPC) | | | | How to go about Finding a Financial Advisor |
| - Certified Financial Planner licence. | | | | You can ask family of friends for a recomendation of |
| IFAs with higher level professional qualifications may | | | | someone they trust. Alternatively you can ask |
| have the letters APFS or FPFS after their names. | | | | another professional you have experience of dealing |
| What about high level professional qualifications? | | | | with for a refferal. Professionals tend to know other |
| The highest professional status for a IFA is a | | | | profesionals and a have an opinon about them. |
| Chartered Financial Planner which was recently | | | | You can investigate any IFAs before doing business |
| introduced. | | | | with them. Check that the firm is on the FSA Central |
| In addition to these qualifications the FSA requires all | | | | Register and is allowed to give financial advice, . |
| IFA to undergo Continuous Professional Development | | | | - The Central Register is available on the FSA |
| (CPD) to keep upto date with developments in the | | | | website at |
| profession. | | | | - You can also make checks over the phone on 0845 |
| Throughout their career an IFA may take many | | | | 606 1234. |
| advanced and more specialised qualifications to | | | | In summary |
| develop specific areas of expertise. You should ask | | | | Although the UK consumer financial market is among |
| your IFA about them because he or she will gain the | | | | the most heavily regulated and thus the safest in the |
| more advanced qualifications as their career | | | | world, It is your responsibility to understand the |
| progresses making qualifications a useful benchmark | | | | terms on which you do business. |
| of an Advisor's specific expertise and experience. | | | | You can avoid many of the most common pitfalls by |
| How are Independent Financial Advisors paid? | | | | following these steps. |
| The vast majority of IFAs are paid by commission | | | | |
| either in full or in part. The obvious problem with this | | | | 1. Only use an independent financial advisor listed on |
| is that the product offering the best commission may | | | | the Central Register |
| not be the best product for your interests. | | | | 2. Choose an IFA you feel comfortable with. |
| The FSA recognised that this might be a problem and | | | | 3. Ask them about their qualifications and specialist |
| since depolorisation of the market in 2005 has | | | | areas expertise and choose on suitable to meet your |
| required a financial advisor to provide clients the | | | | goals. |
| choice of either paying commission or a fee for | | | | 4. Investigate whether you are better paying a fee |
| advice. Despite the conflict of interest, consumers | | | | rather then a commision. |
| have been reluctant to pay for something they see | | | | 5. Before purchasing a product or signing anything |
| that they already get for free. | | | | you must make sure you understand what you are |
| Today there are three main ways an IFA recieves | | | | being told. |
| payment. | | | | 6. Read the "key facts" documentation they will |
| - Commission: Typically the advice of the IFA is paid | | | | provide you. If they dont provide this, ask for it. |
| for by a commision from the product provider. The | | | | 7. If you are unsure about something clarify it. |
| size of the payment must be made known to the | | | | |