Independent Financial Adviser
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Independent Financial Advisers or IFAs are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products from the whole of the market. The term was developed to reflect a UK regulatory position and has a specific UK meaning, although it has been adopted in other parts of the world, such as Hong Kong.
The term "Independent Financial Adviser" was coined to describe the advisers working independently for their clients rather than representing an insurance company, bank or bancassurer. At the time (1988) the UK government was introducing the polarisation regime which forced advisers to either be tied to a single insurer or product provider or to be an independent practitioner. The term is commonly used in the United Kingdom where IFAs are regulated by the Financial Conduct Authority (FCA) and must meet strict qualification and competence requirements.
Typically an Independent Financial Adviser will conduct a detailed survey of their client’s financial position, preferences and objectives; this is sometimes known as a ‘factfind’. They will then advise appropriate action to meet the client's objectives; and if necessary recommend a suitable financial product to match the client’s needs.
Individuals and businesses consult IFAs on many matters including investment, retirement planning, insurance, protection and mortgages (or other loans). IFAs also advise on some tax and legal matters.
New rules for Financial Advisers in the UK from 2013
From the end of 2012 there will be two types of Financial Advisor: independent or restricted. and IFAs will no longer be allowed to receive commissions from financial services companies on new sales of investments. Instead they will have to set their own fees, based on the services they offer, and agree fees with their client before providing any services. Any advice that doesn’t meet this standard must should be labelled as restricted. IFAs should also be able to demonstrate to the FCA that they review all the suitable products in a market and give fair, unbiased and unrestricted advice. These changes are intended to make their charges more transparent and advice more genuinely independent.
However, some banks, building societies and insurance advisers could switch to offering an ‘information only’ (non-advised) service instead, where fees won’t be apparent. Advisers will also be allowed to keep earning it on products they have sold before the end of 2012, and still charge a regular fee if they are providing an ongoing service such as reviewing and advising on a clients investments. Neither do these new rules apply to the sale of cash savings products, general insurance, protection products (term life insurance, critical illness cover, income protection insurance etc.) or mortgages, unless they are sold at the same time as a regulated investment product.
Qualifications for IFAs in the UK
To offer financial advice an individual must represent or be an appointed representative of a firm registered with the Financial Conduct Authority (FCA). The FCA require that firms ensure that individuals acting for them have appropriate qualifications. The list of appropriate qualifications is determined by the Financial Services Skills Council at the behest of the FCA.
Up to the end of 2012 all financial advisers only required a qualification at Level 3 or above of the Qualifications and Credit Framework. From the end of 2012, financial advisers will need to be qualified at Level 4 or above. (This is about the same as completing the first year of a university degree.)
From the end of 2012 financial advisers will need to obtain an annual Statement of Professional Standing. This confirms that they are suitably qualified, that they subscribe to a code of ethics and that they have kept their knowledge up-to-date through continuing professional development.
IFA Network is an association of IFAs. All financial advisers in the UK must either be authorised or exempt under the Financial Services and Markets Act 2000. Membership of an IFA Network qualifies an IFA as being exempt from regulation. The IFA Network is then responsible for the advice and regulatory compliance of its members.
Source: Financial Conduct Authority What is an appointed representative? An appointed representative is a firm that conducts regulated business on behalf of a directly FCA-authorised firm, who is its ‘principal’. The principal firm takes regulatory responsibility for the appointed representative, and must ensure it meets FCA requirements.
If things go wrong
Financial services are heavily regulated in the United Kingdom. While this may in some cases restrict the market and places a heavy burden on financial services professionals, it also makes for one of the safest consumer markets in the world.
If a client buys a financial product on the advice of an IFA which turns out to be unsuitable, they have the right to complain and, if the complaint is upheld, may receive compensation. All regulated financial services companies, including IFAs must have effective internal complaint handling procedures. If a complaint is not dealt with satisfactorily internally, the client has the option of going to the Financial Ombudsman Service, which will conduct an independent investigation and has the power to award compensation if warranted. In a large majority of cases referred to the Ombudsman, it finds that the firm had treated the customer’s complaint fairly.
This does not mean that a client can claim compensation simply because an investment loses money. With all investments, there is an element of risk, the basis for complaint would only be whether or not that level of risk was unsuitable for a particular client based on the information given to the adviser. This is particularly important (and not well-understood in the public consciousness), and especially in relation to the sale of with profits endowments intended to be used to repay an interest only mortgage. A great many people saw strongly reduced investment returns from their endowments due to lower interest rates (and hence investment returns) and subsequently claimed that they had been mis-sold. While the poor performance is regrettable, it in no way constitutes mis-selling in the legal sense unless it can be shown that the endowment was unsuitable for the client's needs at the time it was advised. It is not possible to use retrospective judgements to assess decisions made in good faith in the past either.
Finding an Independent Financial Adviser
Which?, the UK consumer campaigning charity, suggest several sources for individuals seeking an Independent Financial Adviser. The Financial Services Register allows users to confirm an IFA is properly authorised. Unbiased.co.uk, the Institute for Financial Planning, Personal Finance Society and Adviser Index all allow users to search for local IFAs among their member base. Which? Local and VouchedFor.co.uk both allow users to search for local IFAs and read reviews from past users.
Notes and references
- Financial advice
- Financial advisers
- Financial Planner and Financial Planning
- UK Pension Provision
- Self-invested personal pensions
- Collective investment schemes
- "Getting financial advice". MONEYmadeclear. Financial Services Authority (FSA).
- AIFA - Association of Independent Financial Advisers - UK Trade body
- IFAAA - Independent Financial Advisers Association of Australia
- IFADU - IFA Defence Union International IFA defence group
- "Getting financial advice". The Association of Investment Companies.
- "Financial resolutions". The Guardian. 2007-01-15. A guide to choosing an IFA