Question
Your mission statement advises us that ‘having worked in financial services for over 12 years, mostly as an Independent Financial Adviser (IFA), it never ceased to amaze me the extent that some providers and advisers would try to hoodwink their customers in pursuit of a fat profit’. So what are the most common scams we all should be aware of?Answer
I think using the word 'scam' might be a bit harsh, as it's quite rare for financial advisers to run off with their clients' money. But do some financial advisers give advice that's more in their best interests than their clients'? - almost certainly yes.
The catalyst for dishonest financial advice is invariably greed. Commission-based financial advisers can usually make more money shorter term from giving dishonest advice than they can good advice. Why? sales commissions tend to be higher on unappealing products for the simple reason they wouldn't otherwise get sold.
So the number one thing to watch out for is how much commission the financial adviser will be pocketing. And whether it's paid in full upfront or a combination of upfront and ongoing.
If the adviser recommends products that pay above average commissions (3% initial and 0.5% annual is about average for investments) there's a high chance commission is influencing their advice - examples include investment bonds and some pensions. And the more commission that's paid upfront the less likely the adviser will bother looking after you in future.
You should also be wary if your adviser:
Of course, if an adviser does one of the above it doesn't necessarily mean they're dishonest or bad, but it is reason to be extra vigilant that their advice is appropriate and cost effective.
Finally, remember that investments which look too good to be true almost always are!
Your mission statement advises us that ‘having worked in financial services for over 12 years, mostly as an Independent Financial Adviser (IFA), it never ceased to amaze me the extent that some providers and advisers would try to hoodwink their customers in pursuit of a fat profit’. So what are the most common scams we all should be aware of?Answer
I think using the word 'scam' might be a bit harsh, as it's quite rare for financial advisers to run off with their clients' money. But do some financial advisers give advice that's more in their best interests than their clients'? - almost certainly yes.
The catalyst for dishonest financial advice is invariably greed. Commission-based financial advisers can usually make more money shorter term from giving dishonest advice than they can good advice. Why? sales commissions tend to be higher on unappealing products for the simple reason they wouldn't otherwise get sold.
So the number one thing to watch out for is how much commission the financial adviser will be pocketing. And whether it's paid in full upfront or a combination of upfront and ongoing.
If the adviser recommends products that pay above average commissions (3% initial and 0.5% annual is about average for investments) there's a high chance commission is influencing their advice - examples include investment bonds and some pensions. And the more commission that's paid upfront the less likely the adviser will bother looking after you in future.
You should also be wary if your adviser:
- Receives a commission or fee when recommending you switch your existing investments or pension - will the switch leave you better off or is the adviser 'churning' your investments to make themselves a quick buck?
- Recommends investing money in their own investment funds - probably means a bigger margin for the adviser and will their funds really be the best in the market?
- Charges 'fees' that are little more than commissions in disguise - for example, are their fees similar to the commission they would otherwise have received?
- Recommends products that tie you into long term regular payments, e.g. endowments and whole of life insurance. They'll probably make most, or all, of their money upfront while you're shackled to a poor product for maybe 10 years or more.
- Recommends a product that isn't regulated by the Financial Services Authority (FSA), you'll have less protection if something goes wrong.
Of course, if an adviser does one of the above it doesn't necessarily mean they're dishonest or bad, but it is reason to be extra vigilant that their advice is appropriate and cost effective.
Finally, remember that investments which look too good to be true almost always are!
Read this Q and A at http://www.candidmoney.com/questions/question345.aspx
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