A term that gets thrown around very often in networking meeting or business talk. But, what does it actually mean? What are independent financial advisers? What do independent financial advisers do? and How do independent financial advisers make their money?
Well we put these questions to Alistair, one of our members, he is an IFA and he knows what he is talking about. Who best to offer us the answers we are looking for? The professionals.
Beacon IFA Ltd
Proper IFAs are authorised and regulated by the Financial Conduct Authority to advise clients on regulated areas of financial services. The most common ones are pensions, investments, mortgages and protection. We are the intermediary between the client/consumer and the providers. Many of the people I speak to feel intimidated as they don’t understand how the industry works. I try my best to make them feel more at ease and informed.
IFAs provide advice (obviously) about which products and solutions best fit their clients’ circumstances, needs and objectives, then we implement the strategy if it has been agreed with the client.
There are other types of financial adviser, that may be employed by a certain company or group that only offer their products and solutions. These are not independent advisers since they can only advise on their employer’s products. There’s nothing particularly wrong with this, it’s just that the clients should be aware of this at the outset and the adviser in question should always point out that they are not independent.
I can’t speak for all of them, just me, but there will be certain things that we all do. Perhaps the best way to answer that question is explain the process I go through with a new client.
I will meet the client and spend lots of time getting to know them; this includes ‘hard facts’ such as where they live, what they do for a living, and their date of birth etc but the really important parts are the ‘soft facts’. These include what their goals are in life, particularly with regards to their financial situation. Then I will develop a strategy for the client that will, hopefully, enable them to achieve their goals. Often, a large part of the process is helping the client understand what they already have! It never ceases to amaze me how many people are paying into a policy and have no idea what it is or what it was designed to do!
The advice process is not just about finding a suitable investment, it is also be about knowing which tax wrappers to use to maximise tax efficiency. A wide knowledge of tax liabilities and allowances is very important for a good IFA.
We have a varied fee structure and different advisers will charge in different ways but the most common method is some variation of the following:
We will charge an initial fee which will cover all the time and work that goes into the research and implementation process with a new client. It will also help to cover the overheads such as insurance premiums and compliance. If the client wants ongoing advice, we also charge an ongoing fee. Often, these fees come from within the investment so the client might not have to pay any fees from their existing savings. There is always the option to pay directly though and a good adviser will continue to make these fees clear to the client so they know exactly what they are paying and what they are paying for.
Sometimes clients are concerned that these fees could adversely affect the potential growth of their investment but a good adviser should always add value. If we can’t get your money working harder than you can, why would you pay us!
For mortgages, the adviser will charge for the advice and completing the application process on behalf of the client. This is paid by the client directly and advisers also receive a fee from the mortgage provider for placing the business with them.
Protection providers pay a commission payment to the adviser as a type of referral fee for placing the business and therefore a lot of advisers won’t charge clients for protection advice if it leads to a new policy.
The financial advice sector is very heavily regulated and as a consequence, there are large overheads such as FCA levies, large insurance premiums and many expensive software licenses. At the heart of it all though is trust. If you can find an adviser that you trust, then you can release a huge burden, knowing that your investment/pension/mortgage is in the hands of someone you trust. Building long lasting relationships is key to that trust.
If you would like a chat about it, give me a bell. Happy to chat to see if I can help you.
Tel: 07500 930652 or Email: [email protected]
