5 tips for finding a financial adviser you can trust
By Emma Lunn
Many people use financial advisers to help them navigate their long-term financial goals, such as buying a house, investing money or saving for retirement. This can help free up more time to concentrate on day-to-day financial housekeeping like budgeting and paying down credit card debt. Whether those plans are successful, however can depend very much on the level of advice you receive and how good your adviser is.
Here are five tips for finding a good financial adviser -- and avoiding unqualified ones.
1. Know what
an adviser does -- and doesn't do
A financial adviser won't give you advice on cutting your bills, paying down your credit card debt or day-to-day budgeting. So if that's the kind of advice you need, you'll have to look elsewhere. A credit counselling agency, for example, would be a better fit for helping you make a plan to pay down your debt. Essentially, a financial adviser's role is to match you with financial products, such as insurance protection, annuities, investments and mortgages.
"They will look at your individual circumstances and will provide you with tailored solutions taking into account your financial needs and aims for the future," says Karen Barrett, CEO at Unbiased.co.uk, an independent financial adviser locating service
2. Don't use
an adviser at your bank
You bank will often encourage you to meet with one of its financial advisers. However, be aware than an adviser who works for a bank will be "tied" to the bank -- and can only sell and advise on products offered by that bank.
Instead, go to an independent financial adviser (IFA). IFAs are free agents, who will be able to sell and advise you about products from across the market. They will also be able to guide you toward products that are tailored to your interests and goals.
"These are much broader roles than simply recommending individual products or investments," says Chris Hannant, policy director at the Association of Independent Financial Advisers (AIFA). " An adviser helps to ensure investments or products meet the client's attitude to risk, their portfolio is suitably balanced ... and their investments are suited to their current and future financial needs."
3. Know how your adviser will be paid
Before dealing with an adviser, find out how he or she will be paid. Will you be paying your adviser directly, or will your adviser be earning money from commissions? Keep in mind that things are about to change -- new rules that affect how IFAs are paid are scheduled to go into effect in January 2013.
At that time, most advisers will no longer be able to earn commission from the financial products they sell, according to Barrett. Instead, clients will need to pay a fee for the advice they receive.
"This fee will be outlined from the very start and agreed with you before any advice is provided," Barrett says. "It is worth having this discussion with your IFA to ensure that you fully understand how they currently charge and how this will change next year."
"If you are dealing with an adviser who is unauthorised, they are breaking the law and you will not benefit from the protection that authorisation gives consumers," says Hannant.
In addition to registering with the FSA, IFAs need to hold certain qualifications in order to be allowed to give advice. There are lots of different ones, but they are all measured by the national Qualifications and Credit Framework (QCF). From January 2013, all IFAs will need to be qualified to QCF Level 4.
Ideally, an IFA will also hold a Diploma in Financial Planning (DFP), or an Advanced Diploma in Financial Planning (ADFP).
Unbiased.co.uk emphasises that any qualified IFA will be happy to show you proof of education and any certifications earned. In addition to making sure your adviser is properly registered, this will allow you to see if he or she is qualified for your specific needs (retirement, for example, or small business finance).
5. Shop around.
It's important to shop around before deciding on an IFA. Ask family and friends who they have used, and ask if they were happy with the service.
Or, you might use an IFA finding service, which can recommend an IFA in your area with expertise in the subject area you want to discuss. Unbiased.co.uk and Findanadviser.org are two well-known adviser finding services.See related: A record number of Brits are retiring deep in debt; Editor's pick: 5 great personal finance apps
Published: 15 March 2012
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