1. The tied advisors are often found in local Branches of Banks and Building Societies and large direct sales forces. They are able to advise you on which product to take out, but the product will always be with their tied provider. They are not able to compare products that other companies offer to see which is the best for you. 2. The Independent Financial Advisor (IFA) is able to advise you which product to take out as well as which company to use.
There are usually two methods of remuneration for IFA's.
A commission from the company from with which the IFA places your business.
The customer pays the IFA a flat fee for the time that he spends advising you. In this case the company with which the business is placed pays no remuneration to the advisor or the advisor refunds their commission to the customer.
The commission IFA's receive for placing business varies between providers. Therefore your advisor could receive differing payments (i.e. their salary) from placing business with different providers. The advisor is duty bound to give you best advice, however there have often been questions raised as to whether your advice can be truly independent if significant financial incentives are in place to place business with one company over another.
The recent coverage of the Pension and Endowment mis-selling Scandals have in part been attributed to the large commission payments made to advisors to incentivise the selling of these policies. Commission payments affecting advisor decisions have played a part in the previous scandals in the industry so please be aware of the reasons that your advisor is recommending a company and the commission they are receiving.
As with most industries you will find good and the bad advisors, and the good advisors can offer invaluable help and guidance with your finances. The best way to avoid an unfortunate encounter is to be aware of how the industry works and the possible pitfalls.
What do they actually do?
Financial advisors should do two main things when establishing which financial products are suitable for you
Ask details about you, your finances and your present and future needs. (This is usually called a 'fact-find')
Explain why a product is suitable for you and give you this explanation in writing.
To enable advice to be given the advisor needs to be appropriately qualified and to evidence the maintenance of their knowledge and competence. The advisor should either have the Certificate in Financial Advice Papers 1-3 or the Financial Planning Certificate Papers 1-3. These are the basic qualifications that an advisor needs to practice but as with most industries there are further qualifications they can obtain. If an advisor has a specific advanced qualification in the area that you are seeking advice then this can only be a benefit.
If you feel that you have been wrongly advised you have the right to complain, initially to the company that gave you the advice, then if you feel that they have not satisfactorily dealt with the complaint, then you can complain directly to the Personal Investment Authority.
