Information of the types of adviser available and when to seek advice
The burgeoning choice of financial products on the market – more than 30,000 (source IMA, DTI, AKG) at the last count – can be daunting and lead many people to leave their money languishing in the wrong place.
Yet when headlines present a bleak picture of our financial future if we don't start saving more wisely for our retirement, right now, then it's clear we should be doing more about putting our money through its paces.
Whether you're looking for the best way to save for retirement, a mortgage, advice on how to invest for the future or protect you and your family with a life assurance policy, the most suitable product for you is almost certainly out there. It's simply a case of how to find it.
Now perhaps more than ever it is important to get sound, unbiased advice on what financial products you should have, especially those of us who are too busy or who lack the confidence to research the market on our own.
If you are wondering what sort of advice is out there, where and how to find it and how much it will all cost, read on.......
What advice?
Until recently, there were two main ways of seeking financial advice for products such as life assurance, personal pensions and collective investments like unit trusts and Individual Savings Accounts: either through an independent financial adviser or a tied agent.
Following a radical shake-up by the consumer watchdog the Financial Services Authority (FSA) of the way financial products are sold, there is now a third way: through a multi-tied agent.
How do the types of advice differ?
INDEPENDENT FINANCIAL ADVISERS (IFAs) offer unbiased financial advice to their clients and recommend the most suitable products, if any, after researching the whole market. The key differentiator is that they act on your behalf and will offer you the option of paying by a fee, as well as the option of paying by commission.
TIED AGENTS can only advise on the products of one provider.
MULTI-TIED AGENTS are financial advisers allowed to recommend the products of a limited selection of providers, rather than just one.
The big advantage of independent financial advice is that you have access to all the products on the market through a qualified practitioner (more about qualifications later). An IFA's job is to research and recommend the most appropriate financial solutions after asking their clients a whole range of detailed questions about their circumstances, their financial goals and their attitudes to risk. IFAs are answerable to the FSA to ensure that they keep to the rules. As they act on your behalf they provide personalised written reasons why they have recommended particular products or a course of action.
Tied advice: many people buy financial products through tied agents, such as the sales staff who work at their bank or building society. When they want a pension or investment product they often find it easier just to nip into their bank and accept what is sold through that organisation's relationship with a single life insurer or investment house. The person providing the product information or advice is acting on behalf of the product provider. Many people buy products this way, usually because they feel more comfortable buying from a big name organisation and assuming, sometimes incorrectly, that they are bound to get a good deal. What they are actually getting is limited information from a small selection of products. Confusingly, some banks also have an IFA available upon request!
Multi-tied advice: Multi-tie advice arrangements were introduced in late 2004 because the FSA believed the 16 year-old regime of 'polarisation' (the official term used for the system of either tied or independent advice) wasn't working efficiently for consumers. By giving organisations the opportunity to link up with several providers instead of just one, the regulator hopes to create more choice for those consumers who are not inclined to research the market or to use an IFA themselves.
Banks and building societies that previously had a single tie to a financial product provider are likely to include in their range one or two products from other providers. This will avoid the time and costs of having to look across the whole market for the 'best' products. Customers need to check out the breadth of products and providers on offer and decide if the choice of products available is a suitable enough range for them.
When to seek independent advice:
Your first job, buying a house, getting married, starting a family, saving for your children and planning for retirement... these are just some of the big stages in your life that put additional pressures on your finances.
It makes sense to take control at each stage and revise your financial plans to match your changing lifestyle. If you are too busy to take the DIY approach, then an independent financial adviser (IFA) can offer a helping hand through the maze of products and financial planning strategies.
An IFA can help clarify your financial priorities and your short, medium and long-term financial goals. He or she asks detailed questions about your financial circumstances, your existing investments, debts, state of health, your future goals, your risk tolerance and what you want from life. Then he or she will advise you on how to develop a budget and make recommendations that will help you manage your finances and allow your money to grow for the future whilst ensuring you and your family are financially protected.
An IFA can also take the pain out of the research required and pinpoint the most appropriate products to meet your aims such as saving for your first home, your children's future or your retirement needs.
Discover the different ways of how you can pay for independent financial advice
