So what is the importance of being independent? To begin with, let’s look at types of Financial Planning:
Types of Financial Planning
In the financial services sector there are three main types of 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 companys products.
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. Our Financial Advisers, based in Rutland and London, are all independent.
How are Each Paid?
Tied advisers and multi-tied advisers will generally work on a commission basis where possible, and on a fee basis for investment work. 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 clients fee, if that is what the client wants, but there is generally more honesty and transparency in fee based Independent advice, as the fees remain the same regardless of the provider or solution recommended.
How are they Regulated?
All financial advisers whether independent tied or multi-tied are regulated by the Financial Conduct Authority FCA under the provisions of the Financial Services and Markets Act 2000. For more information about the FCA visit their website –http://www.fca.org.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 and fee options available to the client that a tied or multi-tied adviser has, but he also has other options to meet the clients 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 the bank for a financial product can seem best, but if you can seek independent financial advice first, it might save you just being sold the banks latest product of the month.