Don’t get tied in knots by ‘independent’ advice

A FINANCIAL adviser should be a professional who you totally trust: someone with integrity and good judgment. The individual should understand your financial position, personal situation and aspirations.

With so many banks closing down their advisory arm, and a number of independent financial advisers choosing this time to retire, there is a gap in the market.

Check if your adviser and their firm, which was always “independent”, have now become tied to a well-known organisation. The letter setting out this change may not have been fully read or the implications understood.

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Clients will be encouraged to stay and switch across into the products of the new umbrella provider. The underlying reason for this may be more closely related to a firm’s retirement agenda than to what is best, objectively, for its clients.

It is vital that everyone really understands the difference between “independent” and “restricted” advice – and to know the right questions to pose. If your adviser was independent and respected as such but is now saying he or she is tied, ask why jumping ship to the new organisation is in your best interests.

Michael Jackson, financial planner and director at Kelvin Financial Planning in Glasgow, says clients should “understand the total cost of using an independent adviser compared to a restricted adviser”. He feels they should gain a real understanding of what they are paying for.

A planning service which focuses on clients as individuals is quite separate from one offering a specific product. “Scrutinise carefully any recommendations and costs once there is a change of regulatory status,” advises Jackson.

Areas such as pensions, where formerly the whole market would be considered, have often worryingly now moved to restricted advice which may mean the person providing “advice” is just a salesperson.

To provide good advice and be independent involves more research and time to assess the investment and products which will be most suitable.

“The combination of initial advice but also ongoing monitoring and review of a portfolio and the client’s

position” form the key to an independent financial planning service, says Jeffrey Deans of Save & Invest.

If a change of direction is required, an IFA has the ability to recommend options to better meet client objectives.

Restricted advice leads to products suiting the adviser, not the client. “This is really just a throwback to the old tied agent route where, rather than being tied to one company, they are now multi-tied,” says Max Horne of Dunfermline-based Max Horne Group.

Horne says tied products are “expensive, especially on the protection side where there is no need to charge a fee but where commission is still payable”.

Horne asks: “Why pay a reduced fee for second-rate advice when you could be paying the same or a slightly higher fee for the best advice using the best contacts in the market?”

And Graeme Robertson of Chase de Vere predicts: “Genuine independent financial advice, delivered by highly qualified advisers, will be considered the gold standard for our industry in the future.”