At some point in your life you may need to seek out the expertise of a financial adviser. But how do you find a good financial adviser and avoid being ripped off? We've compiled a list of 10 things to check when looking for and choosing the right financial adviser:
How to choose a good Financial Adviser
1 - Get a recommendation
The best way to find a good independent financial adviser (IFA) is via a personal recommendation. However, if you don't have a personal recommendation then there are online services that can help you find a financial adviser. In the absence of a personal recommendation then the best way to find an IFA is to use VouchedFor* which allows you to find an IFA near you by searching its database, plus it rates the financial advisers based on genuine client reviews.
2 - Authorisation
Before doing business with an IFA the most important thing to check is their authorisation. All financial advisers have to be authorised in order to provide financial advice; rather frustratingly however, due to technical and structural changes in the Financial Conduct Authority's (FCA) financial services register, it may not be possible to check the status of smaller firms until Spring 2021.
The Senior Managers and Certification Regime (SM&CR) has been introduced primarily to reduce harm to consumers and to strengthen market integrity. The aim is to improve the standards of conduct by making senior people in firms more responsible and accountable for their conduct, actions and competence. Smaller firms have until the 31st March 2021 to certify their staff and submit the information to the FCA. The FCA will then publish the information on the financial services register around Spring 2021. During this transition, it would be advisable to be extra vigilant and carry out additional research where possible or even better, use a company such as VouchedFor* who will do the additional checks on your behalf.
3 - Qualifications
There are a host of qualifications that advisers could and should take in order to ensure that they are competent to give financial advice. While the industry standards are constantly changing I personally wouldn't do business with anybody who hasn't at least attained the Diploma in Financial Planning (DipPFS), formerly known as the Advanced Financial Planning Certificate (AFPC). Preferably you would want someone who is either a Certified Financial Planner (CFP) or who has attained Chartered status with the Chartered Insurance Institute (CII). Both of these qualifications demonstrate the financial adviser's financial planning credentials. You can check any independent financial adviser's qualifications via the Chartered Insurance Institute’s website.
4 - Experience
Qualifications are one thing but experience is also important. Some people prefer an adviser with a few grey hairs as a sign that they've ‘been around the block’. However, the financial advice industry is one in desperate need of some youth given that the average age of an IFA is 58. While experience counts it should not be at the expense of access to the latest innovations and developments. More importantly, the younger advisers entering the industry now have raised the benchmark for professionalism and qualifications.
5 - References
Ask to speak to a couple of the IFA's existing clients to get an idea of the level of service they've received. It may not be particularly insightful given that the IFA can choose the people you talk to but if an IFA refuses your request then you might ask yourself why? Alternatively, look through the client reviews on VouchedFor* for any financial advisers that are on your shortlist.
6 - Location
It goes without saying that you should meet anyone who is transacting business on your behalf, so make it easy by choosing an IFA near to you. If you enter your postcode in the box below you can immediately find a financial adviser (IFA) near you.
7 - Understand what services they offer
The services a financial adviser offers will vary and so make sure that the financial adviser you speak to is qualified in the area that you need assistance in. Some advisers offer financial advice on a range of topics but do not sell financial products, while others provide advice in specific areas such as taxation. Ask about their credentials, their areas of expertise and do some research on the firm that they work for. Remember, anyone who sells financial products or who gives investment advice must be authorised and registered with the Financial Conduct Authority (FCA).
8 - How often do they review your situation?
Ask them how often they undertake a review. A good financial adviser will ensure that they review your situation at least once a year. Many will undertake a review more frequently, but a thorough review once a year is normally enough to ensure that your financial plan is in line with your changing circumstances.
9 - Cost
Make sure that you understand the full costs of the advice from the start. Although the amount you pay your financial adviser will depend on your particular needs, an adviser should still be able to provide you with an estimate of costs based on the work they will be carrying out for you.
10 - Get it in writing
You should ask for the cost of the services to be disclosed in writing in advance of working with a financial adviser. This ensures that there are no nasty surprises along the way and clarifies exactly how you will be charged for the services they will provide. Finally, make sure you ask your financial adviser to provide you with a written agreement that details the services that will be provided so that you are both clear on the work that will be carried out.
In order to get the best service from your chosen IFA you need to matter to them. Ask them about the general size of their existing client portfolios as well as the number of clients they look after. If an IFA looks after a large number of clients, far wealthier than you, you need to be reassured that you won't be at the bottom of the pile. If you find an IFA whose existing clients' needs are similar to your own then this should help ensure that your needs are also met.
Area of speciality
Whether you are seeking independent mortgage advice, pension advice, inheritance tax advice or investment advice make sure you check the IFA's level of expertise and qualifications in the areas in question. Many IFAs specialise or offer restricted advice.
It may sound crazy but being able to trust someone and build a rapport is an important part of the advisory process. If you don't feel comfortable discussing your finances with your chosen IFA then how can you trust or value their advice?
Make sure you have a clear understanding as to how and what you will be charged. If an IFA is paid via commission from certain products that they sell (mortgage or insurance) make sure you fully understand how this works because despite what they may tell you, you ultimately foot the bill. The Retail Distribution Review (RDR) means that advisers now have to be more transparent about what they charge you for giving financial advice. But make sure you understand how much you are paying and what services you will get in return. Some IFAs offer a free initial meeting with fees contingent on whether you act upon their recommendation. Others will charge a fee of around £500 for an initial review. Be clear how the IFA fees are calculated as many base it upon a percentage of the assets that they invest for you. It may be preferable and cost-effective to agree a fixed fee upfront.
Find out what service standards you can expect. How often will you receive valuations or have review meetings?
Not all financial advisers are independent. Some are tied to banks and building societies. Therefore they will only sell their own products which may be inferior to those on offer elsewhere. Independent Financial Advisers, on the other hand, can sell you any products on the market. As a general rule of thumb, never take financial advice from your bank or building society.
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