WHEN it comes to your finances, it’s wise to make sure you know who you are dealing with, what they actually do, and whether it is right for what you want.
Big changes in financial services are afoot in 2013. Hence, whether you have an IFA now or are thinking of engaging one, you may want to ask these five questions:
1. Do you plan to offer independent or restricted advice after December 31st 2012?
Financial advisers will be either “independent” or “restricted”. As well as checking whether or not your adviser will be in business post-2012. You should check on their commitment to remain independent — only independent advisers can offer access to the whole market and range of solutions.
2. Which qualifications do you hold?
The Financial Services Authority has realised that financial advisers need to be better qualified. From 2013, the minimum qualification requirement for all financial advisers is the Diploma in Financial Planning, or equivalent.
Many advisers have already moved beyond this to become a Chartered Financial Planner and/or Certified Financial Planner (CFP) professional. These are the “gold standard” of financial planning professional qualifications, so it’s worth asking if your adviser has these.
Of the 28,835 regulated advisers (June 2011), there are less than 1,000 Certified Financial PlannerCM Professionals and just under 2,400 Chartered Financial Planners.
Qualifications are only part of what makes a professional adviser. Experience, applied skills and the ability to listen count too.
3. Could you explain to me how I’ll pay you from 2013? How will this differ from the way I pay now?
Commission is being abolished on investments, your adviser should be clear and transparent when it comes to the cost of their services. From outset, you should be provided with a description of the typical cost of initial and any ongoing services.
You should also be told how these charges can be paid. In some cases, fees can still be paid from the product.
4. How do you assess my risk profile and my capacity for loss?
Make sure the adviser takes a record of your financial background and what you want from life.
There is a lot more to risk and investing than completing a risk questionnaire. A real financial planner will ask more questions and tailor a personal cash flow forecast just for you.
If you don’t understand why a particular course of action or product is being recommended, ask your IFA for an explanation. You can also seek a second opinion from another IFA.
5. What is your investment and financial planning philosophy?
What does the adviser believe in? Do they have a set of beliefs about the way that investment portfolios should be created and managed? Why do they believe this and can they back it up?
What are their thoughts on lifetime cash flow forecasting and how do they create planning strategies?
A good adviser will have a set of core beliefs and principles. The answers to these questions should give you a good indication of the mindset of who you are dealing with. They’ll help you explore the services an IFA offers, understand more about the processes and help you get hold of the best advice.
Real financial planning makes a big difference to your financial situation and takes much of the guesswork out of your future.
• Iain Wishart is an IFA with Wishart Wealth Managment