How to Choose a Financial Advisor

September 11, 2012

Whilst many investment products can be accessed online, and for some very well versed and experienced investors it may be reasonable to source investments this way, many people will require the services of a financial advisor. Ready-made wills can be accessed online, but most people will prefer to sit with a will writer or solicitor to ensure the job is done correctly. Self-assessment tax returns can also be completed online, but if there are any complicated issues then the services of an accountant will be sought. For a large financial transaction, then it’s perfectly acceptable to seek the advice of an expert. But how do you know you are talking to the right person?

Different types of financial advisors

At the beginning of 2013, the Retail Distribution Review was affected, which changed how advisors can give advice. There are now two three different types of advisor:

Where an advisor is limited in the product range or providers, they are now deemed to be giving restricted advice. It may be, for example, that a firm of financial advisors selects to only provide a certain range of financial products. In such a case, its advisors will be considered to be supplying clients with restricted advice.

Where the firm does not limit its product range or provider choice, it and its advisors will be deemed to be giving independent advice. However, even in this case, advisors are allowed to use a panel of providers.

How a financial advisor gets paid

Along with the change to the type of advice given, the way in which financial advisors are paid also changed. Previously, the majority of financial advisors were paid on a commission basis, with the commission paid by the product provider (though ultimately, of course, this came from the client). However, this was thought by many to create a possible conflict of interest and so the rules on payment have been changed to remove potential product or provider bias.

Clients now pay fees directly to advisors, and can pay in one of four ways:

These fees can be paid ahead of advice given, or deducted from the amount invested. Where regular contribution products have been recommended, the client can pay the advisor by instalments.

Charges that the advisor is allowed to factor in to his charge include time to research products and providers, arranging and administering the recommended transaction and supporting applications, and any ongoing advice necessary.

Locality

It will be likely that you will need to meet with a financial advisor at least twice before making any final decision and investment choice. Then you will need to meet with him at least annually to remain up-to-date with performance and monitor your personal situation. Some of these meetings may be at the advisor’s office; some may be at your home or place of work.

Selecting an advisor based near to your home will make the process easier, less time consuming, and less expensive.

Experience

An advisor that has been in the business for a long while will have a better understanding of the investments he makes, the companies he uses, and the type of person you are. And don’t stop at the individual: what about the company that he works for? What is its track record like? Has it been censured by the regulatory authorities?

Take time to learn about the history of a financial advisor before agreeing to meet and discuss your situation and requirements.

Authorisation and qualifications

A financial advisor/ company must be authorised by the Financial Services Authority (FSA)  to conduct financial advice business. A search on its website will tell you if the company and individual you are considering using are registered to conduct business, and also if there is any history of impropriety.

Individuals should be qualified with at least FPC (Financial Planning Certificate) or CFP (Certified Financial Planning) exams, and an advisor with an AFPC (Advanced Financial Planning Certificate) exam will be in the top league of financial advisors. There are also other qualifications that advisors can achieve for use with specific products and advice (for example, Long Term Care advice).

Always talk to a suitably qualified and registered financial advisor.

Get an advisor recommended to you

Perhaps the best way to find a good financial advisor is to talk to family and friends. Find out who they have used, what their experiences were, if they are contacted regularly to review investments and advice. Then, once you have heard that recommendation, do your own independent checks for all the above.

Spending a little time before meeting with an advisor, getting the answers to all the key questions that need to be asked, and knowing what type of advisor you want to use and how you want to pay for his services will make the process of financial advice more pleasurable and a whole lot more productive.