Video explains the difference between advised and non-advised sales and independent financial advice IFA versus restricted financial advice.
“Hello there and welcome to yet another one of my unscripted ‘I make it up as I go video blogs‘. The subject for the video is: Independent Financial Advice. Independent Financial Advice explained.
So I'm going to run through what the regulator says independent financial advice should be and then to give you a little bit of guidance on some of the shortfalls. So first things first, I want to make a distinction between ‘advice’ and ‘non-advice’.
Where somebody gives you advice, financial advice, they are responsible for suitability, affordability, product research, an advising that a particular course of action is the best solution for you. [And] when our advice is given your financial adviser, irrespective of whether they are an independent financial adviser or whether they are restricted or tied financial adviser, they are required to quote you a fee for doing the work.
That fee can be paid from the pension, the investment, life insurance policies et cetera or you can pay the fee separately so that you get discounts on your pensions and investments. That's very different to ‘no-advice’. When no advice is given and a lot of the banks and building societies do this and a lot of online platforms do it where: you answer a series of questions and based upon that decision tree of questions: yes, no, yes, no, yes, no, yes, no. You are then presented with some solutions or may be one solution and you choose yourself whether to take out that particular pension, investment, ISA, whatever it might be.
Where there is no advice full commission can still be paid. So be aware initially that first distinction: ‘advice’ means a fee must be quoted, ‘no advice’: no liability for the firm that you're doing it with but they can still get paid for commission.
Now in terms of how financial advisers quote fees, fees are supposed to be, according to the Financial Conduct Authority, the regulator, clear and fair. [And] what the regulator has said is your financial adviser is supposed to give you round pound numbers. Now, a lot of financial advisers quote on a percentage basis where they will say: ‘we charge 3%, we charge 3% plus an ongoing charge of a 0.5% a year or 1% a year or something like that. I would be very careful with that and just work out the numbers: what is 3% of £50,000? What is 1% per annum of £50,000? et cetera.
Or use a financial adviser, like ourselves, when we quote a specific pound notes, set, fixed fee for doing the work.
So I know that's sort of taken a little bit longer but I just wanted to set, sort of, the ground here: advice versus no advice and fees versus commissions versus percentages versus set fees.
[And] finally moving on to the real topic: independent financial advice versus restricted financial advice.
A restricted financial adviser means exactly ‘what it says on the tin’. They are restricted in some way, shape or form. That may be that they’re not authorised to give pensions advice or they're not qualified to give mortgage advice or they're not authorised to give final salary, quite complex, pensions advice or they are not authorised to give care fees advice or qualified to give care fees advice. So some advisers will have qualifications but they only have qualifications limited to where they choose to work, so that is a restricted adviser. Other types of restricted adviser on where they are limited by the companies that they consider and recommend. So for example you may have a company, a financial advisory firm, that only sells one company’s investment products, pension products ,insurance products et cetera as opposed to other advisers where they will offer something called ‘whole of market’ advice.
So an independent financial adviser, for an adviser to call themselves that
1. They must quote you a fee, as I’ve already suggested
2. They must offer ‘whole of market’ advice and what I mean by that is they really should research the whole of the market and compare the whole of the market when they are making recommendations, when they are giving financial advice to you.
[And] that’s another pitfall that I would be very careful of. Some independent financial advisers use something called a platform where that platform is only with one company it maybe with two companies so there's lots of different funds to choose from: Legal and General, Scottish Widows, Prudential, Aviva, Gartmore, Henderson, Fidelity, Jupiter whoever it might be; lots of funds inside the platform but they only use one provider’s platform.
It might be a SIPP platform, a self invested pension or it might be an ISA platform or it might be a general investment account platform. [But] is that really independent advice because sometimes these platforms may levy different tiers of charges which can become quite complex?
So what is an independent financial adviser? A independent financial adviser is a higher qualified financial adviser usually to around about degree level that they qualified in financial services, they are independent they therefore must do whole of market research, cover the whole of market to make best recommendations for you and also not forgetting they should quote you a fee upfront before they do any work for you. So if you got somebody doing research or offer new terms of this that the other before they even quoted their fees to you then getting a little bit close on the rules there.
So that’s what an independent financial adviser is:
• independent financial advice
• whole of market
• fee must be quoted for advice
and there we go. Hopefully that gives you an explanation of what an independent financial adviser is. If you’ve got any questions, I'm an independent financial adviser but I don't wear a pinstripe suit and those are forbidden in my company: a sharp suit doesn't make a good independent financial adviser! Thanks very much for watching.”