In a nutshell the three proposed changes on the way are:
1. Clearer differentiation between independent advisers and those who are restricted in any way
2. Higher qualification requirements
3. An end to commission influence in investment advice
Much of the reason for this stems from the public becoming fed up – and rightly so. They’ve had enough of the cynical packaging of a commission-paying product beneath the veneer of a genuine service. I recently read an article by an independent financial adviser (IFA) firm in a Money supplement to a national newspaper. It said how much they listen to clients and empathise with their needs and it sounded great – but then it said the solution is based on recommending a suitable product, which spoilt it for me.
Sometimes people do need a product – but what if they don’t? The problem is that when you only have a hammer, every problem looks like a nail. This is typical and there are three main reasons.
Firstly, the public often thinks that financial advice is free because it is most often paid for by “invisible” commission. They do not perceive this to be coming out of their pocket.
Secondly, many advisers just don’t offer an adequate service to justify charging fees. When their clients say “I won’t pay fees”, what they are actually saying is “I would pay a fee if you offered me a service which I would buy, but you don’t.”
And thirdly, there are still very few advisers in the UK who can demonstrate the qualifications and skill with which to construct a thorough and workable financial plan.
So what should I ask when choosing a financial planner?
Will you properly consider what I want to achieve in life, rather than just pigeon-hole my goals to fit convenient financial products?
What is your process and is it easily understandable?
Can you explain if and why I might need to take any investment risk? If I do need to take any risk, will we have a proper conversation about it, rather than just completing a questionnaire?
Do you have access to specialists in tax advice, pensions, overseas issues and other complex areas?
Can you provide a detailed plan showing me whether I will have enough money to do what I want in life?
Can you also show me what needs to happen for me to achieve my objectives?
Will you walk me through your reports in person, so I understand them?
Can you explain things in plain English, several times if necessary, because this is unfamiliar to me?
You will notice that there is nothing in the above list that relates to products and that’s because people want solutions, not products. Sometimes a product is necessary, but only as a means to an end. Proper financial planning offers clarity, simplicity (where possible) and economical solutions.
Andrew Kemp APFS CFP(CM) is a Certified Financial Planner(CM) at Radcliffe and Newlands Ltd. Tel: 0845 021 7000. firstname.lastname@example.org