Once you have identified your goals, it is time to find out how to best go about achieving those goals. The financial services industry is a complex business, and there are few of us who could be expected to navigate its murky waters without help.
Perhaps the most important decision you can make when considering buying any financial product or service is the decision on the kind of advice you will seek out.
This is an area where some care is required. As complex as the financial services industry is, so too are the relationships of those who work within it, and you must be sure you understand the relationship between the person giving you advice and the product they are advising you on.
Always remember that the primary purpose of such advice is to help identify what your needs are, not to encourage you to purchase specific products. It may be that the best advice is to do nothing. Sometimes, an adviser will appear to go to a great deal of trouble on your behalf, in the hopes of encouraging you to feel obliged to stick with them – always remember you can say NO.
The rights you are entitled to in receiving advice vary according to the type of product. Check with the appropriate independent authority (as defined in various places in this guide, and in the Useful Information section) as to what your rights are with regard to a given product.
If you choose to buy a product without seeking advice, your rights are often less than they might be otherwise. In some cases, the attitude is ‘you didn’t seek advice, so it’s your own fault’. While it may be appropriate in some cases to go it alone, getting good advice is always worth the investment.
What may seem like advice may not be – do not mistake information for advice! If you buy from a direct mail shot, through a website or from a ‘direct’ company, you may be considered to have not taken advice, as far as your rights go. Marketing material is not objective and impartial – an obvious point, but worth restating.
Broadly, the kind of advice you can get falls into two categories: independent and tied. Both have their advantages and potential pitfalls.
Tied advisers generally sell and advise on the products of just one company. They may or may not work directly for that company – sometimes they simply have strong ties and a good working knowledge of that company’s products. They may be able to get access to a good deal because of their exclusive relationship with the provider.
They can tell you which of the company’s products suits your needs. They have a responsibility to advise you honestly, and if none of the company’s products suit your needs they should tell you so. But always be aware that they are not necessarily trying to advise you on the best over-all product for you, but rather the best product that the company itself has to offer you. They should not tell you a product is appropriate for you if it is not, but sometimes what is ‘appropriate’ can be a slippery concept.
Tied agents almost always work on commission, though there is some movement towards having advisers tied to specific companies working for a flat fee. You may find it more comfortable to seek out one of these companies.
Citizen’s Advice Bureau
The Citizen’s Advice Bureau (Website: http://www.citizensadvice.org.uk) is an independent charitable organisation that focuses on giving advice on a whole range of subjects.
They are able to offer help in regards to issues such as debt, your rights, and general consumer issues. However, certain bureaux can offer specialist advice, often in conjunction with professional partners such as solicitors.
If things go awry, the CAB can help you to determine a way forward. They will help identify what your rights are, how to move forward with the issues, what kind of back up you can expect from various bodies etc.
The Financial Services Authority
The FSA is an independent non-governmental body that has statutory powers to regulate the financial services industry. Their funding comes from the industry itself, but the Treasury appoints the board. The FSA is guided by the Financial Service And Markets Act (Website: http://www.fsa.gov.uk), which came into force in June 2000.
One of their primary purposes is to secure the appropriate degree of protection for consumers. With this in mind they provide an excellent consumers guide that provides information on such things as consumer alerts, what to do if you have a complaint, a suite of comparative tables of similar financial services and even a firm check tool to find out if a company you are considering using are reputable and accredited.
Independant Financial Services
An independent advisor can nominally give you advice without you having to worry that they are pushing you towards a product that isn’t right for you. If they are not tied to using products from a particular company, they are free to look at the various products on offer, and make suggestions based on what is best for your particular circumstances.
They can give advice on a variety of products. If they give advice on investments such as pensions, life insurance, unit trusts and shares, then they and the company they work for must be authorised by the Financial Services Authority, and must abide by their code of conduct. Those advising on loans, most mortgages, non-investment (‘general’) insurance, term insurance or bank and building society accounts need not currently be authorised, though from 31st October 2004 all mortgage advisors will have to register and be authorised by the FSA. From early 2005, general and term insurance advisors will also have to be authorised.
If you want to check to see whether a person or firm is authorised by the FSA, you can use their Firm Check Service.
Some care has to be taken when taking such advice. While an advisor may not work directly for a particular company, they do often have relationships with companies (sometimes with a suite of companies). Often companies will offer bigger commissions or other such inducements to advisors in the hope that that will encourage them to promote their product.
The only truly independent financial advice you can get is when the advisor has no stake in your final choice of product. This can only come about if you get advice from one source, and buy your product or service from another with no connection between the two.
However, financial services often will prefer one product over another because those products genuinely are better than their competitors – the advisor’s reputations is founded on giving the right advice and achieving good results over time. In a sense, the advisor acts as a filter, discarding poorly performing or sub-standard products and focusing on the products that do perform.
When considering what advice to take, always establish what the point-of-view of your advisor is, and how that will affect the kind of advice they give.
You pay advisors in one of three ways: a one-off fee, a commission on any products bought, or a combination of the two. Always establish from the start what the deal is. The Financial Services Authority has decreed that from late 2003 all independent financial services must let you pay them with a flat fee if you wish to. This removes the temptation to recommend a product that pays them better commission.
Finally, it is always worth asking whether the advisor will be prepared to take a cut in their commission in order to give you a better deal (called a ‘commission sacrifice’). They won’t always agree, but if you don’t ask you certainly won’t get. Sometimes they will consider it worthwhile in order to get your custom.