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How to Find a Good Financial Advisor

(sometimes called an IFA)

A common problem with financial advisers, normally referred to as IFAs (Independent Finance Advisers), is that they're often not as unbiased as they should be.

This means their advice can sometimes favour their own income first, rather than that of the clients.

These problems are normally linked to how an advisor is compensated. Most customers are unwilling to pay for financial advice, so advisers are paid by commissions on the products they sell.

An example -

  • Pension company A pays a £3,500 bonus for every new client delivered to them by a financial adviser, versus
  • Pension company B pays £750

Sadly, many advisers will push company's A products over B's because it pays them a higher commission even though it may be an inferior product to the other option.

A slightly cynical view yes, but sadly we need this mindset to get the best for our hard earned money. But let's not complain too much about this behaviour and instead realise the following -

  • This is how the majority of finance firms now behave - using their clients to make themselves money is goal number 1
  • Therefore the smart strategy is to recognise it and understand how to defeat the games, so getting a great service or product
  • The way to do this is simple - Research and it's one of this site's 10 Secrets of Good Personal Finance
Want a good financial adviser - Start asking questions

If you want to make sure you have the best chance of getting sound and unbiased financial advice then do the following -

1. Contact at least 2-3 Independent Financial Advisors (IFAs), if not more depending on how complex you think your financial matters are. Get potential names from -

  • The internet (search for IFA or financial advisers UK etc)
  • Unbiased.com - lists IFAs and other professionals such as solicitors although I'd bet that many aren't that 'unbiased'
  • The Yellow pages and the local press
  • With modern communications it doesn't matter if they're close or not. Yes, if you can find a good IFA nearby that's better than one 300 miles away, but I'd rather do business with someone good in Scotland rather than a so-so advisor in my own area of the south east
2. Ask the potential advisers some or all the following questions. You may want to consider putting them in writing.

1. How unbiased is your advice

  • Are you a tied or non-tied (sometimes called 'multi-tied') advisor?
  • This is an important point - tied means they can only sell the products of a limited number of providers, non-tied means they can sell any product from any provider
  • For example, most banks and building societies are tied, they can only sell their own products or those from related companies (Natwest for example is owned by The Royal Bank of Scotland)
  • As a good rule of thumb don't do business with a tied adviser because it limits your choices

2. How are you paid

  • Can you supply a menu of your typical commissions, and how do these compare with the industry average?
  • Do you also offer a fee-based service, and if so how much does this cost (industry standards are between £50-£250 an hour)?
  • If you do work on a fee basis will you also be earning commissions from products you recommend?
  • If you receive a commission do you offer a 50% rebate? This means that if they sell you a commission paying product it's split with you. The rebating of commissions is common in the industry

3. Can you justify the costs of the products involved

  • If you recommend product A, can this product be bought more cheaply in another format?
  • Also, can you give a detailed explanation of why you have suggested this product over other similar products?
  • Remember - finance firms love selling complex products

4. Can you supply references

  • You are dealing with an important product here, your money. Therefore insist on some references, especially if you want to start a long-term relationship?
  • A good advisor will have no problem putting you in contact with some of his present clientele

5. Are your products suited to my risk profile

  • Is the product being suggested suitable for my risk profile?
  • Risk profile means - how old you are, your job, how much you earn, do you have a family, your total savings and investments etc
  • As a rule of thumb the older one gets the more conservative and less risky their investments and financial products should be - eg income paying bonds rather than speculative stockmarket funds etc
  • Remember - There are no stupid questions

6. Are you registered

  • You must be registered by the financial regulator, the FSA, to offer official investment advice, so look for this on their notepaper/website
  • And if you need a specialist tax advisor then make sure they have the relevant qualifications

7. Can you tell me details about you and your firm

  • Who are you
  • When did you start working for the business
  • How many people does the firm employ (note, sometimes the best advisers work independently)
  • How many clients have you got etc
  • A lot of these facts should appear on the company's website

8. Can you recommend an instant access high paying savings account

  • This is a great question to ask because no bank will pay a commission to an adviser for recommending an account
  • Research this matter yourself and check if your pick is markedly different to theirs
  • If the adviser recommends a poor account I'd suggest they're not worth dealing with, as all it takes is a few minutes of simple research to find a good answer
  • See also - 5 minute guide to instant access savings accounts
Summary

We often don't like asking people these hard hitting questions, but if we want the best for our money asking them is a prudent and sensible strategy. Otherwise we might be leaving ourselves open to the possibility of bad investment advice, tricks and all sorts of excess charges and overpriced fees.

Finally, I'd also bear in mind this site's 10 Secrets to Good Personal Finance when looking for an IFA or dealing with any financial advisor.

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