Do I need independent financial advice?
Independent financial advisers – who can sell and recommend products from across the entire market – can no longer be paid via commission (which had the potential to skew their advice). Instead they now all charge an up-front fee for their services.
This is good news for the consumer in so far as you can be sure their recommendations aren't being influenced by commission; however it does mean you have to find the money to pay them.
Hourly or fixed fees
This will either be a fixed fee for an agreed job – such as investing an inheritance or setting up a pension – or it might be an hourly charge. Fees will of course vary across the country and between different advisers, but as a guide unbiased.co.uk says the average hourly fee in 2013 was £175, while the average fee for a financial review plus report was £500.
The average consumer may baulk at these prices, so at which point does independent advice stop being a luxury and start becoming a necessity?
Don't pay for what you don't need
"Most people don't need to pay for financial advice," says Patrick Connolly, an IFA at Chase De Vere. "They need to pay off their debts, pay off their mortgage, join their company pension and look at what protection their employer offers.
If they have money to put in the stockmarket, Connolly suggests the typical DIY investor should be playing it safe with either a global equity fund or a multi-asset fund: "You don't need to invest in Japan or anything specialist like that," he adds.
There are three types of person that Connolly says needs advice. "It could be that they have a larger portfolio, say £50,000 plus, and they really need to spread the risk." Then there are higher net worth individuals on high incomes and finally those with one-off specific needs. "This might be turning a pension into an income, protection for the family, a divorce or an inheritance."
He adds: "Advice adds value when the price for getting it wrong is too high."
Choosing an IFA
Unfortunately getting a good IFA is a bit like finding a good mechanic. "Speak to family and friends for recommendations," Connolly suggests. Wealthier individuals could do well by getting tips from their accountant or solicitor.
Without a sure-fire recommendation from someone with similar needs to you, Connolly suggests you speak to three advisers. "Make sure you see the whites of their eyes before you make a decision. Most will offer you a free consultation."
Make the most of free consultations
Use this free time with a selection of advisers to really get a feel for them. You want to be sure they have got the right understanding of you and what you want to achieve. You should also get an outline of charges and an indication of what you will get in return. "If you get on well and have a good feeling about them, that's a great starting point," says Connolly. "And if you don't trust them at the outset, definitely go somewhere else."
Questions to ask before appointing an adviser:
1. What is the advice process and how does it work?
2. What service will I receive?
3. Who will be giving me the advice?
4. What qualifications do they have?
5. What are your company's values?
6. How much can I expect to pay?
7. What is the review process?
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.