Question
How can I check an IFA's track record, viz whether he's any good at his job. I had one before with loads of qualifications but he was worse than useless.
How can I find out the 'going rate' for their fees and can I negotiate them down,or would this encourage them to line their own pocket some other way at my expense?Answer
Checking an independent financial adviser's (IFA's) track record is easier said than done.
As you've found out, impressive sounding qualifications are no guarantee you'll get good advice or service. And a friendly, helpful attitude could soon turn to indifference once they've won your business.
I'd start by checking them against the Financial Services Authority (FSA) register.
First run a 'Financial Services Firm Search' to check some basic details such as how long the firm has been authorised by the FSA, whether they've ever been in trouble with the regulator (disciplinary history) and the activities they're allowed to carry out. You can then run an 'Individuals Search' to check similar details for the adviser. If he or she has worked for a number of different companies, that's usually a bad sign.
There's no guarantee a long established company with loyal advisers will be any good, but they're probably doing something right to still be in business and retaining staff.
Speaking to existing clients is the best way to find out what's really beneath an adviser's polished veneer. Ideally they'll have used the adviser for a few years so can give you useful feedback on the quality of advice and service they've received. So if you know any, ask them.
I'm hoping the user reviews centre on this site will start filling up with readers' reviews of their advisers, as I think this could be a really useful resource for people in your situation. In fact I'd encourage you to leave a review of the adviser you've been unhappy with.
When it comes to qualifications then take them with a pinch of salt, but do look out for Chartered Financial Planners (CFPs). While there's no guarantee a CFP is honest or will do a good job, the qualification is fairly rigorous which suggests they're serious about their career.
IFA investment track records are difficult to obtain and measure. I'd ask the adviser to show you some sample client portfolios including performance versus a relevant benchmark, then get them to explain how they select and monitor investments. For example, how will they decide your spread of investment across different asset types? And will they get in touch to advise you if there's a detrimental fund manager change? Unless they have a credible research and monitoring process I'd be wary. Also, if the adviser has to research investments themselves as well as look after clients they're probably stretched, which doesn't bode well for either the quality of research or ongoing service.
I also suggest avoiding any adviser who heavily pushes their own product - I find it incredulous that some advisers have the nerve to do this and still call themselves independent. There was an interesting article in The Times recently which suggested that a large IFA was paying its salesmen extra bonuses to sell its own investment funds over others. The FSA should really stamp down on such practices.
As for fees, I suggest calculating roughly how much a commission based adviser would earn if they invested all your money in unit trusts. As a rule of thumb assume 3% initial commission and 0.5% trail commission, e.g. £3,000 initially and £500 a year on a £100,000 portfolio. This gives you a good benchmark against which to compare fees.
If a 'fee-based' adviser wants to charge you as a percentage of your portfolio and it's similar to your commission estimate then be wary, it's probably little more than commission in disguise.
An hourly fee should, in theory, be the most transparent type of charge. Make sure that all commission is re-invested and get a firm quote for the initial advice along with a solid estimate for how much you can expect to pay for ongoing reviews and advice. If the fees are similar to, or higher, than your commission approximation then you're probably being charged over the odds unless you're investing a reasonably small sum.
Hourly fees vary widely depending on location, expertise and experience. I've seen them range from £75 to over £300 an hour. The best way to gauge average fees in your area is to phone several advisers and ask them – you can use www.unbiased.co.uk to get a list of fee based advisers in your locality. Although, the total you end up paying is more important - if the lower rate bills more hours to complete the job you may be no better off.
Don't be afraid to haggle if you like the adviser but feel their fee is excessive. Provided they rebate all commissions and give you a firm quote in writing for the work there's little scope for them to make up the money elsewhere. They can only say no, in which case be prepared to go elsewhere if need be.
Finally, please don't think I'm trying to paint a grim picture of all financial advice. In my experience financial advisers these days are really no better or worse than other professionals such as accountants and solicitors. There's a broad mix of good, bad and ugly.
Bear the above points in mind and there's every chance you'll find a good adviser who'll do an excellent job of looking after you.
You might also find our financial advice page helpful.
How can I check an IFA's track record, viz whether he's any good at his job. I had one before with loads of qualifications but he was worse than useless.
How can I find out the 'going rate' for their fees and can I negotiate them down,or would this encourage them to line their own pocket some other way at my expense?Answer
Checking an independent financial adviser's (IFA's) track record is easier said than done.
As you've found out, impressive sounding qualifications are no guarantee you'll get good advice or service. And a friendly, helpful attitude could soon turn to indifference once they've won your business.
I'd start by checking them against the Financial Services Authority (FSA) register.
First run a 'Financial Services Firm Search' to check some basic details such as how long the firm has been authorised by the FSA, whether they've ever been in trouble with the regulator (disciplinary history) and the activities they're allowed to carry out. You can then run an 'Individuals Search' to check similar details for the adviser. If he or she has worked for a number of different companies, that's usually a bad sign.
There's no guarantee a long established company with loyal advisers will be any good, but they're probably doing something right to still be in business and retaining staff.
Speaking to existing clients is the best way to find out what's really beneath an adviser's polished veneer. Ideally they'll have used the adviser for a few years so can give you useful feedback on the quality of advice and service they've received. So if you know any, ask them.
I'm hoping the user reviews centre on this site will start filling up with readers' reviews of their advisers, as I think this could be a really useful resource for people in your situation. In fact I'd encourage you to leave a review of the adviser you've been unhappy with.
When it comes to qualifications then take them with a pinch of salt, but do look out for Chartered Financial Planners (CFPs). While there's no guarantee a CFP is honest or will do a good job, the qualification is fairly rigorous which suggests they're serious about their career.
IFA investment track records are difficult to obtain and measure. I'd ask the adviser to show you some sample client portfolios including performance versus a relevant benchmark, then get them to explain how they select and monitor investments. For example, how will they decide your spread of investment across different asset types? And will they get in touch to advise you if there's a detrimental fund manager change? Unless they have a credible research and monitoring process I'd be wary. Also, if the adviser has to research investments themselves as well as look after clients they're probably stretched, which doesn't bode well for either the quality of research or ongoing service.
I also suggest avoiding any adviser who heavily pushes their own product - I find it incredulous that some advisers have the nerve to do this and still call themselves independent. There was an interesting article in The Times recently which suggested that a large IFA was paying its salesmen extra bonuses to sell its own investment funds over others. The FSA should really stamp down on such practices.
As for fees, I suggest calculating roughly how much a commission based adviser would earn if they invested all your money in unit trusts. As a rule of thumb assume 3% initial commission and 0.5% trail commission, e.g. £3,000 initially and £500 a year on a £100,000 portfolio. This gives you a good benchmark against which to compare fees.
If a 'fee-based' adviser wants to charge you as a percentage of your portfolio and it's similar to your commission estimate then be wary, it's probably little more than commission in disguise.
An hourly fee should, in theory, be the most transparent type of charge. Make sure that all commission is re-invested and get a firm quote for the initial advice along with a solid estimate for how much you can expect to pay for ongoing reviews and advice. If the fees are similar to, or higher, than your commission approximation then you're probably being charged over the odds unless you're investing a reasonably small sum.
Hourly fees vary widely depending on location, expertise and experience. I've seen them range from £75 to over £300 an hour. The best way to gauge average fees in your area is to phone several advisers and ask them – you can use www.unbiased.co.uk to get a list of fee based advisers in your locality. Although, the total you end up paying is more important - if the lower rate bills more hours to complete the job you may be no better off.
Don't be afraid to haggle if you like the adviser but feel their fee is excessive. Provided they rebate all commissions and give you a firm quote in writing for the work there's little scope for them to make up the money elsewhere. They can only say no, in which case be prepared to go elsewhere if need be.
Finally, please don't think I'm trying to paint a grim picture of all financial advice. In my experience financial advisers these days are really no better or worse than other professionals such as accountants and solicitors. There's a broad mix of good, bad and ugly.
Bear the above points in mind and there's every chance you'll find a good adviser who'll do an excellent job of looking after you.
You might also find our financial advice page helpful.
Read this Q and A at http://www.candidmoney.com/questions/question128.aspx
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