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Paul Lewis: A consumer guide to finding good advice

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“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… 

Filter one

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.

Filter two

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.

Filter three

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 

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Comments

There are 30 comments at the moment, we would love to hear your opinion too.

  1. Christopher Petrie 5th March 2015 at 8:25 am

    Good article. But how does one pay ‘in pounds” the fees of fund managers, Probate lawyers, estate agents, rental agents, certain architects, HMRC, the FSCS, the FOS and the FCA?

  2. Good article, but Paul has left out two important one and once you have the list of all the thinsg youd like in your adviser, you need to prioritise them as you may not be able to get all of them.
    1. Deal with an adviser you like as you may be dealing with them for decades (we’ve had the same clients for ver 20 years)
    2. Only use n adviser whose judgement you trust. If you don’t trust the adviser, don’t use them.

    I only have level 4, but have pretty much all the level 4 exams that the CII do as I am a generalist, but based on the CII points system for exams I actually have more points than are needed for a level 6, just they are all at level 3 and 4. If I do my level 6, I will automatically become a fellow of the PFS, not just Chartered, but to do your level 6 whilst advising clients takes a good 2 years due to the limnited exam sittings the CII allow as it is four exams and only one per 6 months is advised. I don’t want to advise on Final Salary pensions, but will sit the AF3 exam in due course just to placate Paul Lewis :-), but first I have got to resit AF2 which I failed by 2 marks, but you have to wait 6 months to resit and with exams in April (when all pension rules change plus end of tax year). existing clients come before an exam sitting.

  3. Well said, I will only go to a fully qualified journalist who is able to write independently and who is qualified on all topics.
    Rules out Mr Lewis then.

  4. Quote – ” If you cannot afford the fee in pounds you probably do not need financial advice.”

    Filter four: … for the peasants amongst us.

  5. A good article, who wrote it?

  6. To Paul Lewis – Not a bad article Paul however, if your advice is to ALWAYS pay in pounds from non-invested funds then perhaps you should steer clear from writing financial articles. By all means ALWAYS consider it but if a higher rate/additional tax payer pays a fee from net income (be that savings account in bank or what ever) for advice around pension plan or switch is lunacy unless they can definitely claim the fee back on self assessment. You cannot shoehorn people into a one size fits all approach, stating if they cannot afford the fee in pounds then they don’t need financial advice is just plain wrong.

    Perhaps you would do well to consider how the client would like to pay us as being the most appropriate way for them to do business with us.

    It may be a statement from the 80’s but it holds true as much now as ever, possibly more so. People will do business with people they like, trust and can relate to.

  7. This is a good set of filters for wealthy people, and for those who have a lot to advise on and who want the best these will almost certainly ensure you get a very good adviser at worst. But don’t pay for a chartered accountant when you only need a bookkeeper Paul. Even if you can afford “the best” by your filters rather than by fact, it is not always sensible to pay for the best when the very good will suffice. Why pay for a sit on lawn mower when a set of nail clippers will cut the grass in the window box on the balcony of your bedsit? Unless you have an expansive estate you would otherwise just pay for something you don’t need. Just as you need the right tools for the job, don’t overspend on the adviser you don’t need Mr Lewis.

  8. Phil Billingham 5th March 2015 at 12:23 pm

    I agree with this. Whilst as a Level 6 Independent Planner, I am, of course, biased.

    There is a thread through this article that’s worth looking at. In summary, if you have very simple affairs, then you may not need advice, just a simple product.

    If you have more complex affairs, you will need advice, and trying to get restricted, cheap advice will very probably not be value for money in the long term

    This won’t be a popular comment. Sorry. But that’s what we have based our business on, and that’s what our clients tell us they value

  9. So the advice gap just got worse, only use the top few % of advisers who are IFAs, fee based, Level 6 or above etc etc …. the problem is these guys just got busier (thanks to Mr Lewis) so the waiting time to see them just got longer that it will to have a face-to-face PensionWise “chat” (so much you that year end ISA payment or pension top up) and because they are so busy they will increase their fees, because they can !

    Remember though when the rest of us bad advisers leave the industry, the good guy get to pick up the FCA/FOS and FSCS.

  10. Guidance Guarantee 5th March 2015 at 12:36 pm

    In the real world it is usually the adviser who finds the client and not the other way round. By that I mean that most clients do not wake up in the morning and think to themselves, I really must find a financial adviser today.

    Most people have a vague idea that they need financial advice. But in most cases they do nothing about it. It is usually only when they are contacted by a financial adviser as a result of a referral or some other marketing initiative that they actually do anything about that need.

    In most peoples minds, the question of whether the adviser is level four or six qualified or restricted or independent does not enter the thought process. They will base their decision on whether they like and trust the adviser and if they think that the adviser knows what they are talking about.

    If people followed the process outlined in this article the likes of St James’s Place Partnership would not be doing as well as they are.

  11. A good article on the face of it – but even better comments explaining how Mr Lewis’s thoughts need re-thinking !

  12. I still don’t understand how anyone can ever be labelled ” independent” in the full sense of the word..To demean discredit and recommend against using those who are not level 6 and above or fully independent is a complete disservice.
    Once again I refer to my life’s situation. I felt unwell so i visited my GP for advice. He in turn referred me to a consultant who in due course referred me to a cardiologist who in turn referred me to a professor of cardiology who in turn referred me to a cardiac thoracic surgeon.Yet strangely enough he knew nothing about my hearing and back problems which were other issues.
    Is there truly an adviser out there who knows everything financial.. as much as the cardiac surgeon knowing everything medical. Can anyone therefore genuinely and truly give wholly independent advice on any financial issue? And would anyone dare write an article politely demeaning all those medical individuals in the referral chain just because they are not a senior cardio-thoracic surgeon.

  13. I think Paul Lewis would do well to look at the syllabus for the Diploma compared to the Advanced to see that they are pretty much the same, just they assess the subject matter differently and with the Advanced, i.e. Level 6, one of the main problems is the limited number of sittings a year.

    The CII manual for AF2 is the same as J03, just the testing is different
    AF3 manuals are actually the R04 manual and the JO manual
    AF1 manual is actually R03 and JO
    AF4 is R02 and J10 manual (I have passed R02, J10 and J12)

    If you go down the CFP route, you can have a level 6, without having specifics in anything else and the CII only count the CFP as equivalent to 1/4 of their level 6 as it only exempts you from the AF5 paper.

    On that basis, is a CII part advanced qualified, lets say with AF5, AF2 and AF3 who doesn’t’ have a full lvl 6 better for a client than someone who just has their CFP and no CII advanced papers?

    Qualifications and knowledge should be relevant to the job you are doing for the client and as Brian G said, if you only need a legal executive, you don’t pay a barrister to challenge your parking fine, you probably do it yourself!

  14. It seems to me that Mr Lewis is (conveniently or ignorantly) forgetting the requirement for any business to view a transaction commercially.
    As the value of the clients’ assets increase, so does the risk to the adviser of being sued or making an expensive mistake which has to be rectified. It would therefore seem logical that the ‘rate for the job’ should be based on the size of the risk,i.e. by using a percentage charge. Perhaps other ways would be as effective but not as simple and readily understandable.

  15. Client Comes First 5th March 2015 at 2:37 pm

    I love the article Paul and you are analysing the search process in a logical way… but in the real world most clients will not do this. What search engine, application can you use to do this? First you need feed into you “adviser finder machine thingy”
    1. Geographical position – local
    2. IFA only
    3. Chartered only
    4. Fee only – not linked to investment value
    Of course all this is readily available to clients who are savvy enough to make the effort but clients in general don’t. They will ask a good friend or colleague if they can recommend somebody. Paul obviously cannot recommend any particular adviser. He recommends his 3 filter plan and I cannot disagree with this.
    Well done Paul.

  16. I agree good advice from Paul. I can imagine the only complaints will be from those who have not realized where the change in culture is taking us. Adviser charging through products without delivery of invoices is effect lay a way of robbing those suffering from inertia.

  17. Hard to disagree. However I have been independent for over 25 years, charged fees in pounds for about 20 when the client agreed. They had the choice and many preferred to pay by percentages even after seeing the comparison in black and white. I have also been at Level 6 since 1990, but no client has ever asked me about my qualifications.

  18. @John Bloor.

    Apart from Advisers knowing how to spell, a pension review costing say £500 through product payment before the income is taken, will be the equivalent of £833.33, earned at 40% income tax for a HRT payer, via a cheque from the Client’s bank account to pay an invoice.

    What all of his forgets, is that some of us actually have clients that are knowledgeable, intelligent and comfortable in paying planning fees through their products. Those that are not all three of these have no need to worry if their IFA is knowledgeable, transparent with the fees in % and £’s and treats their service as a vocation. If Level 6 is deemed necessary by the FCA to be called ‘Independent’ then they should make the same rule as they did with level 4 but give advisers 5/7 years to qualify.

    DEFINITION: A vocation (Latin: vocatio “a call, summons”) is an occupation to which a person is specially drawn or for which she/he is suited, trained, or qualified.

  19. Mostly very good points, however, would you pay for a Barrister to complete your conveyancing?
    Surely the level of qualifications required and therefore the cost should be based on other factors such as complexity and risk.

    You cannot make the same shoe fit everyone’s foot Paul. I have no doubt within ten years Chartered will be the qualification required to be independent and I do hope this happens.

    A twenty six year old Chartered adviser may have all the qualifications but very little experience of advising, the industry or life. We already have a twenty four year old degree graduate at level four in less then eighteen months, he will be Chartered within five years, but as he is learning the exams do not make him a good adviser.

    There are other important factors besides the qualified such as , how long have they been an adviser, how long has their company traded, do they have complaints registered against them and are they competitively priced. These are all very easy to find out via the FCA register and a little shopping around.

    I am working towards level 6 and will be taking the advanced pensions exams later this year. However with 35 years experience I would suggest I am more qualified than a 30 year old, less then six years into the business Chartered adviser. I have lived through the worst of it, come through it all with no complaints, which to me provides a much better judgement and reference.

    So close to retirement, I have no wish to become Chartered I will leave that to the youngsters in my business.

    Honestly and ethics are the most important and they can only be judged by time and results.

  20. Mr Lewis shouldn’t be giving anyone general financial advice without the appropriate qualification. As a 60 year old IFA with just short of 20 years experience without a single complaint I have chosen not to take Level 6 exams unless the regulations change. Does that make me a bad IFA. Most of my clients have been with me for over 10 years so I must be doing something right. I wish Mr Lewis would stick to consumer affairs instead of periodically winding us up by commenting on something he has no coal face experience of.

  21. Sitting in my ivory tower, double Chartered, Fellow, level 6 and 510 CII credits, I welcome anything that sends the best clients in my direction. The problem is that I cannot deal with volume, so filtering out every other adviser in my area does not help, I would have to turn people away.

    There is room for everyone who provides a professional service, whether independent or restricted, fee based or percentage based, let the client decide who they want to deal with. Even a good SJP adviser will be of benefit to a client as opposed to a poor quality IFA. As other commentators have said not everyone needs a top of the range adviser, I myself have directed people to open an online pension with Hargreaves Lansdown because I would be too expensive and their needs were simple.

  22. There is a third filter you are overlooking, Paul, for those of your Readers at or beyond retirement, they should go to the “Find an Adviser” section of the website of the Society of Later Life Advisers. There they will find Chartered or Certified Independent Financial Advisers who have gone an additional mile to obtain accreditation by SOLLA – the “gold standard” for later life advice.

  23. I am 32, been in the industry since I was 18. I have completed an industry specific degree, level 6 diploma, pension specialist, three Chartered titles and I am currently on route to level 7 via an MSC. I would take ethics and honesty above everything else.

    Qualifications do not make a rotten apple change his/her ways!

    Oh, I am also independent and work on a fee basis if that matters.

  24. The problem is you can be level 6 by having only passed one AF exam. Shouldn’t be so but it is possible and has been attained. Just need to have level 6 in an associated CII qualification. Relevance to financial planning? Zilch but still qualifies for the relevant points.

    Whereas you can pass all the non AF exams take one AF paper and still not have the right points. Relevance to financial planning? Comprehensive and complete. But not relevant for qualification at the higher level.

    So which adviser is the best to advise?

  25. Neil F Liversidge 6th March 2015 at 11:51 am

    Those who can, do. Those who can’t, pontificate. I could do your job Paul. I’ve been writing and broadcasting since my late teens. You couldn’t do mine though.

  26. Well said, Neil

  27. Is Paul suggesting everyone should only use a Chartered Accountant or a Barrister?

  28. The problem is you can be level 6 by having only passed one AF exam. Shouldn’t be so but it is possible and has been attained. Just need to have level 6 in an associated CII qualification. Relevance to financial planning? Zilch but still qualifies for the relevant points.

    Whereas you can pass all the non AF exams take one AF paper and still not have the right points. Relevance to financial planning? Comprehensive and complete. But not relevant for qualification at the higher level.

    So which adviser is the best to advise?

  29. seems a bit silly to criticise Paul’s journalistic skills when he is clearly an excellent journalist, surely it is his views we disagree with not the way he explains them?

  30. @Neil
    That’s a rather unworthy post. Paul Lewis is respected journalist with considerable experience in financial matters. A little politeness wouldn’t hurt either.

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