Monday, February 27, 2012

Finding the Safest and Best Financial Advice

Financial advice is available from a whole range of sources, but not all of them are working for your best interests to recommend financial products that suit your circumstances.

A professional advisor should review your financial affairs by taking details of your current situation, objectives and attitude to risk and then return a written report recommending products that meet your needs and explaining why they are recommended.

Who can give financial advice?

Different advisors are qualified to give different levels of advice.

Independent financial advisors can select the right product for you from across the whole market and should have no loyalty to any particular provider, although they may specialise in certain areas, like mortgages, pensions or investments.

Banks, building societies and insurance companies have staff or agents who can give information about the products their companies sell. Some of them are financial advisors, but they are restricted to giving advice about their company's products.

How can you tell advice from information?

The advisor should tell you their status and the type of advice they are allowed to give at the beginning of your interview.

Some firms may ask you questions to guide you towards the sort of product you need, but don't confuse this with a financial review.

Why you should deal with a regulated financial advisor

Financial advisors must have FSA authorisation before they can trade in the UK by law.

Regulation is important because it means the firm will have professional indemnity insurance, a complaints procedure and a compensation scheme.

If you make a complaint but fail to reach as satisfactory agreement with the firm, then the complaint can go to the Financial Ombudsman Service for adjudication.

If you are awarded compensation against a regulated firm, you may be able to get compensation from the Financial Services Compensation Scheme (FSCS). This depends on the type of complaint and whether compensation limits are capped.

Firms based in Europe operating in the UK may be regulated by the FSA if they have a UK office. If not, they should be regulated in the country where they are based. These firms may have different rules about handling complaints and compensation.

Ask for details of their complaints and compensation procedures and how to contact their regulator to check them out.

Watch out for scams

Don't sign any contracts or hand over any money before you are completely satisfied you are dealing with a regulated financial advisor offering you a bona fide product.

Even some unscrupulous regulated advisors cannot resist the temptations of fraud, but if they are regulated, the FSCS should protect most if not all your money.

You can check whether an advisor is regulated on the FSA web site.

If the company is based elsewhere in Europe, ask for details of their regulator and check them out before doing business.

If you receive offers on the internet, by telephone or in the post, always check out the firm before parting with any cash or personal information.

Which advisor is best for me?

This depends on your financial knowledge and the complexity of the financial services product you are dealing with.

Regardless of your personal financial knowledge, always deal with a regulated advisor to protect your own interests.

Shop around for advice - some advisors charge a fee and some earn their money as commission on sales.

Overall, it's generally best to deal with an independent financial advisor as they have a broader base of financial products to recommend and are more likely to recommend a policy or product that closer meets your needs than anyone else.

What financial products are regulated?

Most mortgages except commercial mortgages, buy-to-lets and second-charge loans
Investments like endowments policies, pensions, collective investments like unit trusts, shares and some high-income products
Most life insurances like critical illness, term or whole of life cover.


Questions to ask your financial advisor

Why does this product meet your needs?
What are the potential gains and risks?
What are the charges and how are they paid?
How do the charges compare with those for similar products?
Is this the best available deal?
Are there tie-ins and penalties involved from ending the contract early?
What happens if you can't keep up any regular contributions?
If you take out an investment, what happens if you need your money back?
What is the tax position?
How often are your financial affairs reviewed to make sure any product is still the best solution for your financial needs?

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