“I would rather see a level six qualified restricted adviser than a level four IFA.” That was what one tweep said to me recently in a Twitter exchange about the good and bad among financial advisers.
In other words, qualifications were more important than the label. An IFA with only the basic QCF level four everyone needs to be a regulated adviser was not as good as someone two steps above with QCF six but who is restricted.
The point Paul Rogers (a freelance trainer in financial advice) made on Twitter is an interesting one. I have banged on before about always choosing independent over restricted and then being fussier still and picking only those IFAs with chartered or certified financial planning status. And I often get objections from perfectly good, honest, client-focused advisers who are screened out by my tirade. Any system of filters will always throw out good with bad. But by the time you have filtered out the best, maybe 10 per cent, of all advisers you will have cast out just about all of the bad ones among the 90 per cent that has gone.
Of course there are good IFAs without the top financial planning qualifications. And there are perfectly good financial advisers who are restricted. But when I give general advice to readers in 800 words (max), listeners or viewers in three minutes (if I am lucky), or tweeps in 140 characters (love that discipline) I always tell the truth and nothing but the truth – but cannot ever tell the whole truth. The truth, and nothing but, is that my filters will give people the best chance of getting good financial advice, which is worth the money they will pay for it. So, here they are again…
Only ever use an independent financial adviser. This filter has been weakened and confused by the changes the FCA and, before it, the FSA have made. Under the simple polarisation regime introduced in 1988 there were two sorts of financial advice. Independent and Tied. Or Good and Bad. Tied advisers in banks were not advisers in any true sense of the word as they could not by law recommend the best product from another bank even if they knew about it. The evidence of misselling has borne that out.
That clarity lasted 17 years until, in June 2005, the FSA added a middle ground of “multi-tied” advisers. Some claimed they were as good as independent. After all, how could independents really know all there was to know about thousands of products? In reality, they said, IFAs also had a panel of those they knew and trusted. It was all nonsense of course. Multi-tied were compromised by their status which allowed collusion with product providers on commission and special deals, distorting the market in favour of anyone except the consumer.
Then, after years of discussion, the RDR reintroduced polarisation from 31 December 2012 into independent and restricted. It also blessedly, following my advice over many years, ended the conflict of interest between advisers and their customers by scrapping commission. But “restricted” was itself polarised. A firm that specialised in annuities, knew everything about annuities from the whole of the annuity market, but did not advise on investments or pensions could not call itself independent. The label was also used for firms that did cover all financial needs but did not look across the whole market for anything: they remained tied or multi-tied, some of whom did deals to get provider money that looked, smelt and sounded very like sales driven commission.
But it is impossible with a simple rule to filter out the tied and multi-tied without also taking out the whole-of-market specialists as well. Don’t blame me. Tell the FCA.
Only ever use an IFA who is a chartered or certified financial planner. This brings you down to the best-qualified 4500 – one in six or so – of independent advisers who are beyond QCF level six. They have put a lot of effort into being the good guys and the chances of a bad guy (or gal) remaining in there are tiny.
Again, lots of good advisers will fall by the wayside. Sorry. Get the qualifications.
Pay in pounds. Do not pay a percentage of your money. You earned, made or inherited it and only HMRC is entitled to a percentage of it. Percentage fees are a hangover from the days of commission. If you cannot afford the fee in pounds you probably do not need financial advice. You should also pay upfront from your non-invested resources. And yes I do know that a fee taken out of your pension fund avoids income tax. But until that and other subsidies for the financial services industry (relief from Vat costs £4.5bn a year) are ended, I still say pay in pounds out of your non-invested resources so you see the money and can ask yourself whether it is worth it. If you must, pay in subsidised pounds from your pension fund. But never pay a percentage of it.
These three filters take customers a long way to finding good, safe but often expensive financial advice. And I apologise to the good, safe, and perhaps cheaper advisers it filters out. The answer is in your own hands.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s Money Box programme. Follow him on Twitter @paullewismoney