If you are looking for pension advice or Investment Advice and have never used the services of an IFA you will probably be asking yourself a few questions about what to expect..... like.....

  • How will an IFA be able to help me with what I want to do?
  • How much will it cost and is it worth it?
  • Can I trust someone else with all my sensitive, personal and financial information?

These are all sensible questions and all IFAs will be sensitive to these issues. However, it is sometimes complicated for people to understand the important differences between financial adviser firms and what they offer.  The following is our unbiased overview of what we believe everyone should understand when looking for advice, broken down into the 4 main areas you should understand but if you would like to discuss this with us in more detail, we would welcome you to contact us for a chat.

  • The Authority & Regulation of Investment and Pension advisers.
  • The different types of charging structures of IFA's 
  • The different types and approaches of advisers.
  •  The varying types of propositions from IFA’s.

Authority of Adviser

All authorised IFA's are regulated by the FCA (The Financial Conduct Authority) which monitors and regulates the way a firm conducts its business, also the firm will hold a 'data protection licence' which controls how your personal information is used.  Anyone who purports to be an adviser but is not on the FCA list of authorised advisers (The financial services register) is not regulated and therefore will not have the protections put in place by the government to protect a client from inappropriate advice.

Firstly all authorised advisers must have the relevant qualification to be regulated by the FCA.  The minimum qualification is Diploma and the higher qualification is Chartered.   This purely means that a Chartered adviser has done more study and taken more exams than a diploma adviser, it does not necessarily mean that he/she has more experience that others may have.

Secondly, the authorised market is split into 3 different types of adviser.  

  • An IFA is an adviser that considers every financial product on the relevant market.
  • A Restricted Whole of Market Adviser is restricted to the type of products they can advise on but will offer advice that considers all providers of those products.
  • A Restricted Adviser is restricted by the range of providers they can recommend.

Thirdly there are many different kinds of Independent Financial Adviser Firms in the UK – somewhere around 25,000 individuals in total, who work either as an individual or in small firms from between 2 advisers to 50 advisers and some larger firms of 50+ advisers.

Each of these firms may be either directly authorised by the FCA, where the firm is directly responsible for its compliance and protocols to the FCA or they may work for a larger national network, which may hold 1,000's of firms, where the network sets its compliance and protocols and deals directly with the FCA on behalf of the firms.

Charging Structures of an IFA

All firms set their own charging structure depending on what type of advice is required and what they believe is a fair price. As there are many different areas of advice such as pensions, investments, mortgages, life and health insurances, equity release and long-term care, there will be different types of charging structures for each area of advice.

This may be a percentage of what is being invested, a set fee, an hourly rate or pure commission for non-investment/pension areas, depending on how the firm prefers to work.  Neither way is right or wrong but the total cost, in cash terms, should be clearly stated and agreed in writing before any further action is taken. Some firms, sometimes, cannot give a specific cost because some aspects of work may be considered complex and if a specific cost is not set, then you, as the client, should be able to negotiate the cost.

We believe that in the interest of clarity and transparency all firms should show their fees on their websites as it should be possible to do so but we have found that most firms do not and we would certainly question why this is. (Our fees are shown in detail on our website)

In the past, many people have received financial advice for pensions and investments and may have been told that the advice was free, this was unfortunately very common but certainly not true. This gave rise to a misperception that financial advice was free, however, financial advice has never been free. Those advisers who did not appear to charge their clients, simply received payment via commission from the product providers which was indeed paid by the clients, through increased ongoing charges or cancellation of units from the clients' unit trusts - initial fees being paid out in advance by the investment provider and guaranteed by early exit penalties (generally a very complicated format specifically designed to confuse the investor in order to win business, in our opinion!).

The Retail Distribution Review in 2012 banned Independent advisers from receiving a commission on investment related products and required them to disclose their charges up front. Under the new rules, charges for the initial advice you receive can still be taken from your investment products if you choose, but ongoing charges taken out of your investment will only be allowed if your adviser provides an ongoing service.

Although there are many ways of charging, common practices for setting up pensions and investments are to charge an initial fee for arranging and setting up the plan and, because these are generally long-term products, which require ongoing administration and advice, most firms will also charge an administration and ongoing advice fee in order to look after the client’s ongoing interests over the longer term.

There are two very common practices for charging fees on pensions and investments; either an initial fee of 3% of the investment amount and an ongoing advice fee of 0.5% of the fund value, or an initial fee of 1% of the investment amount and an ongoing fee of 1% of the fund value.

Most of the 11% of the top 100 largest Financial Advice firms who do publish their rates charge at least a 2% initial advice fee and a 1% ongoing advice fee.

These are only two examples of common practice and there will be many variations to these.

For example, you may find purely percentage fees with no limits on investment amounts, percentage fees with caps that limit the advice costs, or a fixed fee or hourly rates only and depending on what you are trying to do, each method of charging may be more or less advantageous to you.

(our charge is 1% of the initial investment (capped at investments over £250,000) and 0.5% of the fund value.

Most mortgage work today has a fee attached to it, in the region of £250 to £500, however, some advisers may make no charge and some may charge more, this will often depend on the level of ‘independence’ ie the number of providers that your adviser has access to or if an individual case is deemed more complicated (mortgage fees in London can be considerably higher than £500 and can often run into £1000's of pounds and we often wonder why Londoners don't use provincial mortgage brokers which would save them a lot of money in fees).

Similarly, with life/health insurance most advisers are paid a commission and there is generally no fee for arranging this, but many advisers do not have access to all the different providers and therefore to the different and varying 'post underwriting' outcomes.

If there are any health issues, Initial quotations may change considerably after underwriting, an important issue therefore, is whether the adviser will make comprehensive research on your behalf, by contacting the underwriters prior to making an application and therefore understanding how each insurer will likely underwrite a specific condition and which insurer will actually offer the best likely outcome.

As with all areas of business, sometimes paying higher fees means that you get a better service but this is not always so.

Type and Approach of Adviser

Some firms will specialise in certain areas of advice and some will advise across all areas. So it is important, first of all, to check that what you require is covered by that firm. Certain specific areas of advice such as Final salary pension transfers, Equity release or Long term care require specialist exams and not all IFA's have the appropriate qualifications and may have to refer you to another IFA.

Each firm will then have set in place its own protocols as to how they want to deal with their clients. Most firms will have an initial discussion with you by phone or email in order to ascertain whether what you want is within their firm’s ability or expertise.  Having established whether there is a willingness on both sides to discuss the issues in more detail, a firm will usually want to meet face to face, so that they can explain how they work and to understand in more detail what the client’s personal and financial position is, in order to be able to give the appropriate advice. Up to this point, there is usually no cost to the client and neither should the client feel in any way pressured to go ahead with any financial plan – this should purely be a discussion as to what is required and how the firm feels it can deliver the required outcome. The firm should also by now have clearly stated how it proposes to charge for the required advice and what level of ongoing service you should expect.

Only when you feel comfortable that you have all the information that you need to go forward should you discuss appointing the adviser of your choice to work on your behalf.

The relationship between an adviser and the client should always be on an equal footing, where you understand what to expect from your adviser and what the costs involved are and the adviser understands what he or she is expected to do for the agreed fee.

The line between advising and selling is a fine line, because all advisers need to make a living like anyone else, however above all else, you should feel comfortable that you are primarily being advised in an impartial manner at all times and wary at any time that you believe that the selling of a product comes before this impartiality.  Recognise that some firms will set targets that advisers need to meet and their job may depend on producing high levels of business and that some individuals have certain pressures that require them to make sales. In the main, regulated individuals are regulated for that reason, to ensure that they act in a fair way and the FCA has set certain standards which they call TCF (Treating customers fairly) and that these are generally very effective and in place to protect the client.
Any type of business conducted on behalf of a client by an IFA usually has a long-term objective, which means its effectiveness may not be able to be judged for many years to come, whether it is arranging a pension or investment or arranging a mortgage or life/health insurance.

It is therefore essential that the appropriate procedure is always undertaken by the IFA.

  • That a pension or investment is appropriate to the objective of the client.
  • That a mortgage is affordable and the objective is appropriate to the needs of the client.
  • That a life or health insurance meets the objective of the client and is appropriately underwritten at the outset.  
Proposition of an IFA

You should understand how an adviser approaches setting up and running pensions and investments on your behalf.  There are two main forms of investing ‘passive’ or ‘active’.

  • Passive means investing in products which simply follow an index such as the FTSE 100. This reduces ongoing charges and is, therefore, a cheaper way of investing, as there is no manager involved, and can often result in higher returns, as many managed funds often underperform indexes and consequently many investors believe in this approach. 
  • Many advisers, however, believe in an active approach to investing, either because they believe that many managers can outperform the indexes or maybe they believe that it builds in some extra security, for the client.  

The important thing to understand here is whether the adviser really believes in the investment approach or whether the use of lower cost products is to disguise higher ongoing advice fees in order to bring down overall costs.  

You should also understand what level of service the adviser offers for an ongoing service charge. It is no good an adviser simply duplicating the annual report that the pension or investment provider would give you anyway. If you are paying for an ongoing advice service you should expect the administration of your product(s) to be dealt with correctly and in a timely fashion and that your investment is updated according to prevailing market conditions. You should also expect some additional level of information and advice by way of an annual or more frequent report that enhances any (usually confusing) provider generated report.

Usually the most important aspect of selecting a financial adviser is whether you each have a similar approach to what is required and whether you feel that you can build a rapport to enable you to work together in making decisions about financial planning over a long period of time, as much of what an IFA does, is based on long-term relationships and making decisions, the benefit of which, will often, only become apparent in years to come.

If you have managed to read all of this article we, at Veracity Financial Planning, trust that you have found it interesting. We have tried to give you as much unbiased information as we can throughout our website and you should be able to find out what aspects of advice we can give advice on, what levels of service we offer and the fees that we charge across all the different aspects of advice that we give. We have tried in all areas to offer a fair fee for a high level of service and we strive to be very proud of the quality of work we do for our clients.

Our Independent Financial Advisers are always happy to meet at our clients' preferred location and time and to have detailed initial discussions with no obligation.

Please contact us by calling 01949 836173 or email us on This email address is being protected from spambots. You need JavaScript enabled to view it.