Getting financial advice you can trust

9th April 2009

It’s not just the ‘credit crunch’ and global financial crisis that have been shaking the world of retail financial services over the past eighteen months.

A number of high profile fraud cases have left wealthy investors reeling and all of us quite understandably nervous about seeking financial advice.  Finding a good financial adviser comes down to asking a series of important questions and completing some basic due diligence before taking their advice. 

A golden rule when it comes to financial advice is to always use an independent financial adviser (IFA).  This is the only type of financial adviser who acts on your behalf rather than acting for one or more providers of financial products.  By using the services of an IFA you can be sure they are acting in your best interests rather than aiming to sell products for their employer.

To ensure not just independence but also impartiality, you should consider paying a fee for advice.  There is no such thing as a free-lunch, but some financial advisers charge by taking a commission for selling a financial product.  Without the incentive to recommend a commission paying product you can be confident of total impartiality.

In the UK, it is a legal requirement for a financial adviser to be authorised and regulated by the Financial Services Authority (FSA) before giving financial advice to members of the public.  Always check their regulated status using the FSA register at www.fsa.gov.uk.  If you take financial advice from a non-regulated individual, not only are they breaking the law but you are left with zero protection in the event of bad advice.

Qualifications are another important area to consider.  Financial advisers are required to hold a very basic qualification which used to be called the Financial Planning Certificate and was recently renamed as the Certificate in Financial Planning.  New proposals from the FSA are set to introduce a higher minimum standard for advisers by the end of 2012 and this will be equivalent to the Diploma in Financial Planning. 

In practice, if your financial advice or planning needs are anything other than at the most basic level, you should look for a financial adviser with a higher professional qualification.  The two most rigorous qualification standards are Chartered Financial Planner and Certified Financial Planner (CFP).  Both of these standards reflect a commitment from a financial adviser to demonstrate their technical and practical competence in different areas of financial planning.

Most importantly, you should work with a financial adviser or planner who is responsive to your needs.  Meet with more than one adviser initially and ask them lots of questions about their proposition, process and experience.  You need to feel comfortable with the adviser you choose as you will be sharing a great amount of detail with them and hopefully working with them for a very long time. 

Follow these tips and you are unlikely to ever end up with a Bernie Madoff-type character as your financial adviser.

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