Importance of being independent

What types of advisers are there?

In the financial services sector there are three main types of advisers.

Tied advisers

There are advisers that are tied to one company, and these are known as Tied advisers. These are sales people for that company, and an example of such an adviser is someone who works at a high street bank. They can only advise you on that company’s products.

Multi-Tied advisers

There are also advisers that are tied to limited ranges of products, and these are known as Multi-tied advisers. Some of these would give the impression that they can choose from the whole market, but in fact they can only ‘sell’ the products of the companies that they are tied to. In some instances this may only be one company in the area of financial planning you need help in. An example of a company like this would be St James’ Place.

Independent Financial Advisers (IFAs)

Finally, there are Independent Financial Advisers (IFAs), otherwise known as ‘whole of market’ advisers. These advisers offer advice on the whole market and therefore have the most options available when it comes to meeting your financial planning needs.  An example of an Independent Financial Advisory firm is Efficient Portfolio Wealth Management.

How are each paid?

Tied advisers and multi-tied advisers will generally work on a commission basis. This means you are still paying for the cost of their advice, but you are paying through that charges of a contract they recommend. Independent Financial Advisers offer the choice of fees or commission to their clients. Fee based advisers tend to be able to give advice on areas not paying commission and therefore often forgotten. This includes giving advice on savings products, Trusts and Wills. They can still use the commission to offset the client’s fee, if that is what the client wants, but there is generally more honesty and transparency in fee based Independent advice.

How are they regulated?

All financial advisers whether independent tied or multi-tied are regulated by the Financial Services Authority FSA under the provisions of the Financial Services and Markets Act 2000. For more information about the FSA visit their website – http://www.fsa.gov.uk/

Which is best for me?

There is a myth that Independent financial advice is the most expensive of the options. In actual fact the Independent adviser still has the same commissions available to the client that a tied or multi-tied adviser has, but he also has other options to meet the client’s specific needs. It is for this reason that Accountants and Solicitors are prohibited from referring their clients to anything other than an Independent Financial Adviser by their regulators. Sometimes going to be bank for a financial product can best, but if you can seek independent financial advice first, it might save you just being ‘sold’ the bank’s latest ‘product of the month’.