One of the problems with financial advisers, commonly called IFAs (Independent Finance Advisers), is they're not unbiased enough. Therefore they often give advice which favours their profits before their customers.

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

An example -

• Fund management company A pays a £1,000 booty for every new client delivered to them by a financial adviser, versus
  
  
• Fund Management company B pays only £300
  
  
• Sadly, many advisers will push company's A product over B's because they will earn more money

A Cynical view yes, but you need this mind-set to get the best for your money.

But let's not complain too much and instead realise that -

1. This is the way the world works, especially where financial products are involved (investment products and personal finance ones such as mortgages)
2. Start to focus your energy on finding the right financial adviser who will strike a sensible balance between earning fees/commissions and offering good advice.

Let's just recap that final point again. Good business is where both sides get a fair deal. The goal therefore is not to get something for free, rather to let both you and the adviser do good business together.

Want a Good Financial Adviser - Ask These Questions

If you want to make sure you have the best chance of getting sound and unbiased financial advice then consider putting these questions to a prospective financial adviser, making sure you receive satisfactory replies. And it's always a good idea to get them in writing.

1. How unbiased is your advice?

• Are you a tied or non-tied (sometimes called 'multi-tied') adviser?
• 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 to 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 product that pays them commission this is split with you. In effect you get the product for half-price.

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?

4. Can you supply references?

• You are dealing with an important product here, money. Therefore insist on some references especially if you want to start a long-term relationship?
• If the adviser is good and honest then he should have no problem with this question

5. Where do you get your research from?

• Many financial advisers are one-person operations (this in itself is not a bad) but still ask them how/where they get their information on the market place?
• Again, if they suggest product A, how did they come to this conclusion, what was their thinking and logic behind the recommendation?

6. Are your products suited to my risk profile?

• Is the product being suggested suitable for my risk profile? Risk profile means who you are, how old you are, how much you earn, do you have a family, how much savings do you have etc
• As a rule of thumb the older one gets the less risky their investments and financial products should be

7. What are your qualifications?

• As most of these qualifications won't mean anything to the average person it's a good idea to call the FSA helpline (0845 606 1234) to discuss what the qualifications are and what they mean
• Also, if getting advice on something tricky like tax is your adviser qualified for this? If it's a complex matter then a tax accountant may be more suitable

8. Can you tell me details about your firm?

• Who are you, when did you start working in this business, how many people does your firm employ, how many clients have you got etc

9. Can you recommend an instant access high paying savings account?

• This is a great question to ask because no bank pays commissions to advisers for recommending their accounts
• Research this matter yourself (look at the Best Buy Tables for starters - available in most Weekend papers) and see if you pick a different account to the one recommended
• What you're looking for here is the adviser to suggest one of the best, if not the best paying deposit account at that time
• If the adviser suggests an account that pays say 5.5% and you easily find an account that pays 6.5% then I would suggest the adviser is not worth dealing with
• But if the difference in the interest rate between their suggested account and your account is less than 0.5% then that's nothing to worry about

Summary

We in the UK often don't like asking these types of hard-hitting questions. But if you want the best for your money and finances then asking a potential financial adviser these questions is critical. Otherwise you may be leaving yourself, and more importantly your finances open to the possibility of tricks and (legal) skimming by all sorts of fees and charges.

It's your money, you've worked hard for it but you're going to have to do a touch more work to make sure you get the best for it.

Good luck and feel free to email us if you have any comments on this article.