The importance of selecting the right advisor
Long before the credit crunch firmly started to bite, the Financial Services Authority had already taken steps to increase the professionalism and integrity of the financial advice sector – which had frequently suffered from a dubious reputation. The image of the slick ex-second hand car sales man, or double glazing chap moving into the industry to earn high commissions was all to common in many peoples’ minds.
The Retail Distribution Review (the cleansing of financial advice) which will become effective at the end of 2012 is seeking to dispel these stereotypical views and move the industry towards the levels of professionalism as identified with accountants and solicitors. Although most Independent Financial Advisers have a wealth of knowledge and act with the utmost of integrity, until now, there has been little opportunity to clearly demonstrate this, or indeed distinguish themselves from other advisers.
The RDR comes predominantly in a two pronged focus – increased knowledge, and demonstration of independence and integrity.
From 31st December 2012, it will be a requirement for all financial advisers to have attained a Level 4 qualification as recognised as suitable by the FSA. Commonly, this will be a Diploma in Financial Services (DipPFS) or higher. This is typically awarded by the Personal Finance Society which is part of the Chartered Insurance Institute. There are other governing bodies who offer similar qualifications, however the DipPFS will be the most commonly seen qualification as the Personal Finance Society is the largest professional body in the UK with over 27,000 members. This qualification, when accompanied with the correct CPD (Continuing Personal Development) studies, demonstrates that the adviser has sufficient knowledge as deemed by the FSA, and is able to offer comprehensive financial advice to consumers. Presently, around 30% of all financial advisers have attained the level 4 qualification.
The second major part of the RDR is to remove the payment of commissions for investment and pension advice. Historically, advisers were paid commissions by the product provider, with apparently little or no cost to the customer. Obviously these costs were included somewhere within the plan, however the information was far from transparent. This naturally led to the questions to be asked – who is the adviser actually working for – the provider or the customer, and how much is the advice actually costing.
From 31st December 2012, it will be a requirement for all charges and costs to be clearly and explicitly shown and charged. Obscure commissions will no longer be paid to advisers, and this in turn should remove the ‘smoke and mirrors’ mystique which has for so long blighted the industry. All customers will be fully aware of all charges and costs payable, and who receives what – enabling them to make measured decisions on the value of the advice they receive. Moreover, this should demonstrate true independence in financial advice, as the advisers’ fees should remain consistent, irrespective of the plan or product used.
With the advent of such sweeping changes across the industry, never before has it been so important to ensure that you choose the right financial professionals to work with, not just now, but into the future.
The Financial Services department within Kelsall Steele is well placed for these changes in 2012. Since 2009, we have adopted the explicit charging route for investment and pension advice, a process which has been analysed and assessed to ensure it is compliant with the new regulations. Jeremy Squibb, our dedicated IFA for Chiropractors, has already attained the Diploma in Financial Services (DipPFS) and in addition to holding the office of Chairman for Plymouth and Cornwall for the Personal Finance Society, is now studying towards the Chartered Financial Planner designation.
Independent Financial Advisor, Kelsall Steele Investment Services