Getting Financial Advice – How to Make Sure You Get the Right Advice For Your Personal Finances

Once you have identified your goals, it is time to find out how to best go about achieving those goals. The financial services industry is a complex business, and there are few of us who could be expected to navigate its murky waters without help.

Perhaps the most important decision you can make when considering buying any financial product or service is the decision on the kind of advice you will seek out.

This is an area where some care is required. As complex as the financial services industry is, so too are the relationships of those who work within it, and you must be sure you understand the relationship between the person giving you advice and the product they are advising you on.

Always remember that the primary purpose of such advice is to help identify what your needs are, not to encourage you to purchase specific products. It may be that the best advice is to do nothing. Sometimes, an adviser will appear to go to a great deal of trouble on your behalf, in the hopes of encouraging you to feel obliged to stick with them – always remember you can say NO.

The rights you are entitled to in receiving advice vary according to the type of product. Check with the appropriate independent authority (as defined in various places in this guide, and in the Useful Information section) as to what your rights are with regard to a given product.

If you choose to buy a product without seeking advice, your rights are often less than they might be otherwise. In some cases, the attitude is ‘you didn’t seek advice, so it’s your own fault’. While it may be appropriate in some cases to go it alone, getting good advice is always worth the investment.

What may seem like advice may not be – do not mistake information for advice! If you buy from a direct mail shot, through a website or from a ‘direct’ company, you may be considered to have not taken advice, as far as your rights go. Marketing material is not objective and impartial – an obvious point, but worth restating.

Broadly, the kind of advice you can get falls into two categories: independent and tied. Both have their advantages and potential pitfalls.

Tied Agents

Tied advisers generally sell and advise on the products of just one company. They may or may not work directly for that company – sometimes they simply have strong ties and a good working knowledge of that company’s products. They may be able to get access to a good deal because of their exclusive relationship with the provider.

They can tell you which of the company’s products suits your needs. They have a responsibility to advise you honestly, and if none of the company’s products suit your needs they should tell you so. But always be aware that they are not necessarily trying to advise you on the best over-all product for you, but rather the best product that the company itself has to offer you. They should not tell you a product is appropriate for you if it is not, but sometimes what is ‘appropriate’ can be a slippery concept.

Tied agents almost always work on commission, though there is some movement towards having advisers tied to specific companies working for a flat fee. You may find it more comfortable to seek out one of these companies.

Citizen’s Advice Bureau

The Citizen’s Advice Bureau (Website: is an independent charitable organisation that focuses on giving advice on a whole range of subjects.

They are able to offer help in regards to issues such as debt, your rights, and general consumer issues. However, certain bureaux can offer specialist advice, often in conjunction with professional partners such as solicitors.

If things go awry, the CAB can help you to determine a way forward. They will help identify what your rights are, how to move forward with the issues, what kind of back up you can expect from various bodies etc.

The Financial Services Authority

The FSA is an independent non-governmental body that has statutory powers to regulate the financial services industry. Their funding comes from the industry itself, but the Treasury appoints the board. The FSA is guided by the Financial Service And Markets Act (Website:, which came into force in June 2000.

One of their primary purposes is to secure the appropriate degree of protection for consumers. With this in mind they provide an excellent consumers guide that provides information on such things as consumer alerts, what to do if you have a complaint, a suite of comparative tables of similar financial services and even a firm check tool to find out if a company you are considering using are reputable and accredited.

Independant Financial Services

An independent advisor can nominally give you advice without you having to worry that they are pushing you towards a product that isn’t right for you. If they are not tied to using products from a particular company, they are free to look at the various products on offer, and make suggestions based on what is best for your particular circumstances.

They can give advice on a variety of products. If they give advice on investments such as pensions, life insurance, unit trusts and shares, then they and the company they work for must be authorised by the Financial Services Authority, and must abide by their code of conduct. Those advising on loans, most mortgages, non-investment (‘general’) insurance, term insurance or bank and building society accounts need not currently be authorised, though from 31st October 2004 all mortgage advisors will have to register and be authorised by the FSA. From early 2005, general and term insurance advisors will also have to be authorised.

If you want to check to see whether a person or firm is authorised by the FSA, you can use their Firm Check Service.

Some care has to be taken when taking such advice. While an advisor may not work directly for a particular company, they do often have relationships with companies (sometimes with a suite of companies). Often companies will offer bigger commissions or other such inducements to advisors in the hope that that will encourage them to promote their product.

The only truly independent financial advice you can get is when the advisor has no stake in your final choice of product. This can only come about if you get advice from one source, and buy your product or service from another with no connection between the two.

However, financial services often will prefer one product over another because those products genuinely are better than their competitors – the advisor’s reputations is founded on giving the right advice and achieving good results over time. In a sense, the advisor acts as a filter, discarding poorly performing or sub-standard products and focusing on the products that do perform.

When considering what advice to take, always establish what the point-of-view of your advisor is, and how that will affect the kind of advice they give.

You pay advisors in one of three ways: a one-off fee, a commission on any products bought, or a combination of the two. Always establish from the start what the deal is. The Financial Services Authority has decreed that from late 2003 all independent financial services must let you pay them with a flat fee if you wish to. This removes the temptation to recommend a product that pays them better commission.

Finally, it is always worth asking whether the advisor will be prepared to take a cut in their commission in order to give you a better deal (called a ‘commission sacrifice’). They won’t always agree, but if you don’t ask you certainly won’t get. Sometimes they will consider it worthwhile in order to get your custom.

Avoid Common Pitfalls Of Taking Financial Advice

The short answer is to use an Independent Financial Advisor, investigate them thoroughly and make sure you understand any product you buy.

However many people are unsure exactly what is a Independent Financial Advisor or IFA so I will explain the types of Financial Advisor, how an Independent Financial Advisor is different from the other types of advisor and their obligations to a client.

What is a Independent Financial Advisor?

An Independent Financial Advisor (IFA) provides financial planning, offers unbiased advice and recommends suitable financial products from the entire UK market.

All IFAs are regulated by The Financial Service Authority (FSA) which requires them to hold strict qualifications and show a high level of competence.

The term Independent Financial Advisordates from 1988 when the UK government introduced a polarisation regime where an Advisor was either tied to a single insurer or was an independent practitioner.

Since 2005 the UK market has been depolarised. There are now four type of Advisor.

  • Independent financial Advisors who work with products from the whole of the financial market and allow their customers the option of paying by fee or commission.
  • Whole of market Advisors, who work with one company but only on a commission basis.
  • Multi tied – work for more then one financial organisation.
  • Tied – work for one organisation, typically a high street bank.

When Choosing a Financial Advisor ask whether he or she is independent, multi-tied or tied.

What qualifications does a Independent Financial Advisor need?

There are no set entry requirements for becoming a financial Advisor. Many employers consider a strong background in sales, financial services or customer service to be more important than formal qualifications. However for a person to be allowed to practise as an Independent Financial Advisor the Financial Services Authority (FSA), requires the following qualifications.

The entry level qualifications are the

  • Financial Planning Certificate
  • Certificate in Financial Planning (CertPFS

Both are issued by Chartered Insurance Institute (CII) and are about equivalent to a challenging GCSE. Treat them accordingly.

The most common advanced qualifications are

  • Advanced Financial Planning Certificate (AFPC)
  • Certified Financial Planner licence.

IFAs with higher level professional qualifications may have the letters APFS or FPFS after their names.

What about high level professional qualifications?

The highest professional status for a IFA is a Chartered Financial Planner which was recently introduced.

In addition to these qualifications the FSA requires all IFA to undergo Continuous Professional Development (CPD) to keep upto date with developments in the profession.

Throughout their career an IFA may take many advanced and more specialised qualifications to develop specific areas of expertise. You should ask your IFA about them because he or she will gain the more advanced qualifications as their career progresses making qualifications a useful benchmark of an Advisor’s specific expertise and experience.

How are Independent Financial Advisors paid?

The vast majority of IFAs are paid by commission either in full or in part. The obvious problem with this is that the product offering the best commission may not be the best product for your interests.

The FSA recognised that this might be a problem and since depolorisation of the market in 2005 has required a financial advisor to provide clients the choice of either paying commission or a fee for advice. Despite the conflict of interest, consumers have been reluctant to pay for something they see that they already get for free.

Today there are three main ways an IFA receives payment.

  • Commission: Typically the advice of the IFA is paid for by a commission from the product provider. The size of the payment must be made known to the client. It is possible to obtain a rebate of part of an IFAs commission in some circumstances, most commonly in Execution-Only cases. The size of commission and whether it is included in the price of the investment or deducted from the amount you invest depends on the product. This is not free advice. The client pays for the commission in the cost of the product.
  • Fees: Offered by all IFAs, this can be cheaper than paying commission if the product is large, complex or specialist. Paying a fee for advice removes any incentive for an IFA to recommend a wrong product. This makes it a good way to ensure that the advice is impartial.
  • Combination: It is possible use a combination commission and fees. The IFA will refund part of the advice fee when a product is bought..

It is usually easy to find the cheapest option for each investment because the FSA require that the size and type of any payment to an IFA are made known to a client.

What are an Independent Financial Advisors obligations to a client?

FA are obliged by the FSA to provide the most suitable advice for your particular personal objectives, situation, requirements and appetite for risk.

To do this they usually conduct a “factfind” of a your financial position , preferences and objectives. It is important to be frank and open about your financial situation during this process. This is much easier if you have a personal rapport with your IFA. Using a well planned system for Choosing a Suitable Financial Advisor help make this more likely. Once the fact-find is done they are able to advise the most appropriate action need to meet the objectives and possibly recommend a financial product.

The FSA requires every IFA to tell you about the service they’re offering and provide you a “Keyfacts- about our services” document. Insurance brokers may give you this information in another format. The document describes

  • the service on offer;
  • whose products they choose from; and
  • whether you’ll have to pay a fee for the service or if they’ll get paid by commission on what they sell you.

“This document is important – it can help you shop around and compare services, product ranges and costs, so make sure you are given one and if you’re not, ask for one.”

How to go about Finding a Financial Advisor

You can ask family of friends for a recomendation of someone they trust. Alternatively you can ask another professional you have experience of dealing with for a refferal. Professionals tend to know other profesionals and a have an opinon about them.

You can investigate any IFAs before doing business with them. Check that the firm is on the FSA Central Register and is allowed to give financial advice, .

  • The Central Register is available on the FSA website at
  • You can also make checks over the phone on 0845 606 1234.

In summary

Although the UK consumer financial market is among the most heavily regulated and thus the safest in the world, It is your responsibility to understand the terms on which you do business.

You can avoid many of the most common pitfalls by following these steps.

  1. Only use an independent financial advisor listed on the Central Register
  2. Choose an IFA you feel comfortable with.
  3. Ask them about their qualifications and specialist areas expertise and choose on suitable to meet your goals.
  4. Investigate whether you are better paying a fee rather then a commission.
  5. Before purchasing a product or signing anything you must make sure you understand what you are being told.
  6. Read the “key facts” documentation they will provide you. If they dont provide this, ask for it.
  7. If you are unsure about something clarify it.

RDR and the Death of Free Financial Advice in the UK

January 1, 2013 marked the death of free financial advice in the U.K. The Retail Distribution Review (“RDR” for short), went into full effect on that date. The RDR is a set of regulations put into place by the Financial Conduct Authority. The implementation of the RDR marked an excellent day in history for Britain as it created a better financial system for the country.

The RDR sets out three main objectives. Objective One states that the client is to be offered a transparent and fair charging system for financial advice. Objective Two states that the adviser must be clear about what services are being rendered and paid for by the client. Finally, Objective Three states the client must receive advice from highly respected professionals.

The first objective, a transparent and fair charging system from financial advisers, is a foundational shift in the intrinsic nature of financial advice in Britain. To set the record straight, there was never any such thing as free financial advice. Prior to January 1, 2013, most Britons thought there was free advice because the advisers, banks and stockbrokers have been paid by commissions taken from the product provider, not directly from the client. Britons have always paid for financial advice, now they must be told how much they pay for it, up front.

The second objective, establishing rules of clear reporting to the client, gives the client the details he or she needs to make informed financial decisions. The past has been riddled with less than reputable agents selling products that the client did not need and did not explain the product to the client. RDR puts an end to the financial product sellers pretending to be actual financial advisers. Now, when a client seeks financial advice from an Independent Financial Adviser in the UK, they can rest assured that they are paying for quality advice that they need and will understand instead of risking their wealth on a fly by night financial product with little or no benefit to them.

An integral part to the second objective is the newly required description of advice services. From 1 January 2013, all advisers must identify themselves as either independent or restricted. An independent adviser must consider all retail investment products, including unstructured products or no product, to provide their clients with the best advice from the entire range of investment options. A restricted adviser is one who restricts or limits their advice to a specific provider, provider set or product range. The independent or restricted nomenclature allows the client to better understand what type of advice they would be receiving from a specific adviser.

The third and final objective, which states the client must receive advice from highly respected professionals, sets up a certification system and clarifies who can give financial advice to clients. After January 1, 2013, any person giving financial advice to the British public must possess a Level 4 Diploma from a regulated and approved organisation such as the Chartered Insurance Institute or the Institute of Financial Services.

In conclusion, the RDR is an excellent step in restoring trust in the financial services industry. There was never any such thing as free financial advice. Potentially, the public could have been paying hidden costs and fees, in some cases without their knowledge. In most cases, the financial advice given was simply, “you need this specific investment product,” regardless of whether it was right advice or not in your best interests. With the introduction of RDR, those so-called advisers are gone.

Now, when you seek financial advice, you can only obtain it from highly trained financial advisers, whose only profession is to provide real financial advice. Real financial advice counsels you on whether you even need an investment product in the first place and if you do, instructs you fully on the risks and consequences of an investment product based upon your own attitude toward risk. The best financial advisers are independent lifestyle financial planners who determine your lifestyle financial goals before they develop a plan that includes lifelong strategies that may or may not include investment products to achieve those goals. All of this was possible through the introduction of the Retail Distribution Review.