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Tuesday, 30 June 2015

FIND GOOD FINANCIAL ADVICE

UPDATE 1 MAY 2017

THIS BLOGPOST WILL SHORTLY BE UPDATED. CHECK BACK SOON.

How do I find a good financial adviser? It's a question I am often asked. And there is no easy answer. Especially if you do not have a lot of money.  

My first question is do you need financial advice? Unless you have a big lump-sum (tens of thousands of pounds or more) or a lot of surplus income to invest (many hundreds of pounds a month) you probably don't need financial advice and probably will not want to pay the fees good advisers charge. See free financial advice below for other services that can help you.  

But if you do want regulated financial advice - and many people thinking of exercising their new pension freedoms are desperate for advice - then here is my guide. 

You must pass financial advisers through three filters.

Filter One
Only ever use an Independent Financial Adviser. This filter has been weakened and confused by the changes the FCA and, before it, the FSA have made. Under the simple polarisation regime introduced in 1988 there were two sorts of financial advice. Independent and Tied. Or Good and Bad. Tied advisers in banks were not advisers in any true sense of the word as they could not by law recommend the best product from another bank even if they knew about it. And the evidence of mis-selling has borne out their inadequacy.

Then in June 2005, the FSA added a middle ground of ‘multi-tied’ advisers. Some claimed they were as good as independent. After all, they said, how could independents really know all there was to know about thousands of products? In reality, they said, IFAs also had a panel of those they knew and trusted. It was all nonsense of course. Multi-tied advisers were compromised by their status which allowed collusion with product providers on commission and special deals, distorting the market in favour of everyone except the consumer.

Then after years of discussion the Retail Distribution Review reintroduced polarisation from 31 December 2012 into independent and restricted. It also, following my advice over many years, ended the conflict of interest between advisers and their customers by scrapping commission payments. Financial firm or products were now banned from paying commission to the adviser who recommended them. 

But ‘restricted’ was itself further polarised into two groups. 
  • As you would expect, one group comprised firms which did not look across the whole market. They remained tied or multi-tied to individual providers. And some did deals to get providers to pay to be on their list of favoured suppliers. Money that looked, smelt, and sounded very like sales driven commission.
  • The other group was less expected. They were firms that specialised in just one or a few areas. For example, a firm that specialised in annuities, knew everything about annuities from the whole of the annuity market, but did not advise on investments or pensions could not call itself 'independent'. It was called ‘restricted’. 
This confusion between useless firms that simply sell products from a few providers and genuine specialists who know all there is to know about one type of product is not really in the consumer's interest. Not least because those two groups do not have separate names. They are officially all just 'restricted' - though that is a term hardly any of them uses. 

So by quite reasonably filtering out the restricteds who are tied or multi-tied you also lose the whole-of-market specialists as well. They may be good financial advisers. But I still reject them. Don’t blame me. Tell the FCA to change its daft rules.

Filter Two 
Only ever use an IFA who is a chartered or certified financial planner. This brings you down to the best qualified 4500 - one in five or so – of independent advisers who are beyond what is called QCF Level 6. So they have put a lot of effort into being the good guys and the chances of a bad guy (or gal) remaining in there is tiny.

Again, lots of good advisers will be rejected by Filter Two. Sorry. Get the qualifications.

Filter Three 
Only use a financial planner who you can pay in pounds. Never choose one who wants to charge you a percentage of your money. You earned, made, or inherited it. Only HMRC is entitled to a percentage of it. 

Percentage fees are a hangover from the days of commission. If you cannot afford the fee in pounds you probably do not need financial advice. 

You should also pay upfront from your non-invested resources rather than out of your invested money. One drawback of that approach is that a fee taken out of your pension fund comes from money which has already had income tax relief. So ultimately that fee costs you less than if you paid it out of your taxed income. It is all part of the massive taxpayer subsidies for the financial services industry (relief from VAT costs £4.5 billion a year). They should be stopped of course. But until they are, if you must, pay in tax-subsidised pounds from your pension fund. But ideally - and with all other investments - pay in pounds out of your non-invested resources. That way you see the money you are paying and can ask yourself – is it worth it? And never pay a percentage of your fund. Ever.


These three filters will take you a long way towards finding good, safe, but often expensive, financial advice. I apologise to the good, safe, and perhaps cheaper advisers it filters out. They can get themselves through my three filters by becoming independent or getting financial planning qualifications. 

Web research
Find your initial list of financial advisers using one of two websites 
  • www.unbiased.co.uk Each entry says clearly under the name of the firm if they are independent or 'restricted whole of market'. At the top of the list there may be an adviser who has paid for an advertising box - it has a coloured background and 'AD BETA' in small letters in the top right hand corner. After that advisers are listed for their relevance. Those with the most details and facilities on the site have paid more for that but the fee does not affect their position in the listing. You can tick specialities to help find the kind of adviser you want. And you can specify certain qualifications too.
  • www.vouchedfor.co.uk only lists IFAs and you can then filter out the non-planners. 
Neither service lists all financial advisers. They have to pay to be on the lists and not all think it is worth it. With both there are ways of paying to get a better position. There are other lists but they are generally not as useful.

Free financial advice 
If you want financial advice outside the regulated professionals, then try the free and Government approved Money Advice Service whose website is very good on a whole range of money issues, some of which many financial advisers will know little or nothing about. Although there are plans to scrap it, that will not happen for some time. Or you may want to consider paying £1 a month for the Which? Money Helpline.

If you have pension questions then the Pensions Advisory Service offers an excellent website and a helpful helpline on 0300 123 1047. The service is free and approved by the Government.

Specific advice about the new pension freedoms can be found at the Government's Pension Wise website. Or you can call 0300 330 1001 to book an appointment for one-to-one telephone advice, or a face-to-face interview at a nearby Citizen's Advice office.  

Footnote
Only the term 'independent financial advice' is regulated. Anyone can call themselves a 'financial adviser', an 'investment manager', or a 'property specialist'. And they do. Those terms are meaningless. If an adviser does not use the word 'independent' or does not say simply say 'yes' when you ask if they are independent, then they are not. Avoid them. And always ask for a FCA number and check it out on the Financial Services Register. Sadly - and madly - the register does not say if the adviser is independent or restricted.

Paul Lewis
11 September 2016
Vs. 1.25

This piece is expanded from an article I originally wrote for Money Marketing which bizarrely has someone else's by-line on it!