11 January 2013

The New World of Financial Advice

Since 1st Jan the world of financial advice has changed. After 6 years in the planning, financial advisers have to work differently. There are 3 main changes:

1. No commission allowed on investment or pension advice

Hooray! So it should now be clear that it is up to the client and their adviser to agree how much the advice will cost, not for a product provider to decide. That will also remove the need for an adviser to recommend a product just in order to get paid. Real financial planning doesn't always require a product to implement a plan.

But it also means that the client will have to pay for the advice more directly - and that might put some people off.

2. Higher qualifications for advisers

Phew! That's a good thing - real financial advisers are knowledgeable professionals who keep themselves up to date, not product salesmen. But it was a lot of work to get there for many! Some estimates say that up to a third of advisers are no longer advising ... and that can't be good for consumers.

3. Independent or Restricted? >>>UPDATED<<<

Hmmm! Most people had got used to the idea that an Independent Financial Adviser wasn't linked to a product provider. Although it wasn't so clear that many advisers could only advise on a limited range of products (like bank advisers, and big firms like St James Place and Towry Law).

Now we have "Independent" and "Restricted", and I'm not sure that will make things clearer. Independent means two things: able to advise across the whole of the market (all providers) and also able to advise on all types of investment product. Restricted means "not independent" (yes, really that's how it's defined).

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That leaves us with two problems: Firstly why is a financial adviser "restricted" - it could be because they offer a limited range of products, or even represent one provider (which should be a big red flag for consumers), or because they have declined to advise on a less common type of investment (which is less of an issue).

Secondly it is still not clear enough if a financial adviser firm is restricted (basically aiming to sell you their product range). Vouchedfor.co.uk (quoted in Investor's Chronicle) have just found that 8 out of the largest 10 advice firms are now only offering restricted advice, although in many cases you wouldn't know it from their websites.

Come on FSA, the whole idea of this costly shake-up was to make things clearer for the consumer. Get it sorted!
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To be sure of the best result, make sure that you use an Independent adviser.

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