THE new tax year is always a good incentive to review your finances, but with a host of changes to the financial landscape, and so many products on the market, it’s not always easy to see the wood for the trees.
An independent financial adviser will look at individual circumstances and provide tailored advice. This advice will take account of a client’s financial needs and goals for the future, and add value by providing suitable products for their financial situation. They will also provide invaluable support.
Currently, when looking for financial advice, you will come across three types of adviser: independent financial advisers (IFAs), multi-tied advisers, and tied advisers.
Before making any decisions, it’s important to compare services and charges. Talking to a few different advisers can make a difference in helping you understand what options are available, as well as giving you an idea of the costs for differing levels and types of advice. Firms have a “menu” detailing their charges and services and your adviser will talk these through with you in advance, as well as giving you an overview of the way you’ll receive advice.
GETTING READY FOR RDR
In the past, financial advisers have typically been remunerated through commission when they sell a financial product. This commission is funded through product charges, which you pay when you invest money or pay premiums, and must always be disclosed before a product is sold. Over past years, this commission was often “factored” by the product provider, so the financial adviser would receive a larger amount of the commission up front.
But radical reforms contained in the Retail Distribution Review mean that product provider factoring will be abolished at the end of 2012 and advisers will be remunerated through a system called Adviser Charging. This means that your financial adviser will need to agree with you, in advance of doing any work, how much they will charge.
The new remuneration system should help improve impartiality, as it will remove product providers from decisions about how much an adviser is paid, placing this responsibility on an agreement between the adviser and their client.
CHANGES TO QUALIFICATIONS
Current rules mean that financial advisers must hold a qualification at QCF Level 3, broadly equivalent to a GCSE. With the world of financial advice becoming increasingly complex, the new requirements will mean advisers need to be qualified to QCF Level 4, which is Diploma standard.
Advice will be categorised as independent, restricted, simplified or basic. Independent financial advisers can advise on financial products across the whole of the market and assess overall financial needs.
We believe the changes will make the cost of advice transparent and more comparable, encouraging consumers to shop around and competition, which is the biggest driver in lowering costs.
It’s important to remember that financial advice has never been free. Changes from next year mean that the cost of advice will be spelled out from the outset, where it was once priced in. What won’t change is the value of seeking independent advice on your financial situation. This will continue to pay off, both in the short and long term.
Karen Barrett is chief executive of unbiased.co.uk
THE THREE TYPES OF FINANCIAL ADVISERS
1 An independent financial adviser (IFA). This is the only type of adviser who can select from all the products available in the market.
2 Multi-tied advisers can recommend the products of a limited selection of product providers.
3 Tied advisers can only advise you on the products of one provider, for example someone who works for a bank or insurance company.
GETTING THE BEST ADVICE
■ Make sure the adviser explains to you how much the advice will cost and what you will get for this.
■ Ask what qualifications they hold.
■ Ask why any product or company they recommend is suitable to you.
■ Make sure the adviser knows your attitude to risk and takes a record of your financial background and what you want from life.
■ Find out what, if any, ongoing service will be provided by your adviser.
■ Ask what plans your adviser has to operate under the new RDR rules.