Know your Financial Adviser

 

There are many websites and advice companies promising to make you the most money, save you tax or give you the best advice. But few explain in any detail where they sit in the financial services industry. Why their advice is best and what you will get for your fee.

In a world of scams, unregulated advisers and copy cat websites, I think it is of paramount importance to know who you are speaking to, so you can be fully informed.

First, and foremost you need to confirm if the financial adviser is a Financial Conduct Authority (FCA) regulated financial adviser. It may come as a shock but anyone can call themselves a financial adviser or financial planner.

The quickest ways to check this out are: –

  1. All regulated advisers must show their status at the bottom of their business cards and headed paper. And whilst not compulsory to show on a website we do.
  2. The FCA register should have the adviser name on it or the company they represent. All regulated advisers have an individual FCA number and you can check the FCA register at https://register.fca.org.uk/
  3. Advisers who provide advice only on mortgages and protection products don’t appear on the FCA register but there status can be confirmed with the company they represent. You can call us on 0800 644 6402 to verify any adviser that contactsyou from Blueprint South West Ltd.

The quickest ways to check this out are: –

Only regulated advisers can give advice on UK pensions and Investments. However, some types of pensions and investments maybe outside the regulation of the FCA, you should always check if the pension/investment you are being advised on is within the regulation of the FCA.

Final Salary transfer advice on funds over £30,000 must be carried out by a FCA regulated pension transfer specialist. However, it is possible the investment being recommended for the transfer proceeds is not FCA regulated.

We only deal with FCA regulated pension and investment funds.

Once you are happy the adviser is regulated there are 3 key elements to any adviser.

 

1. Qualifications

An entry level adviser is called a Diploma level 4 adviser. There are about 30,000 of these in the UK.

The next level up is a Diploma level 6 adviser. They have double the professional qualification credits of diploma 4. This is generally called the advanced qualification.

If this adviser also has a good level of industry experience, 5 years or more and sticks to a code of ethics they can become Chartered. There are about 6,300 Chartered Financial Planners in the UK.

Beyond this an adviser can be offered a Fellowship. A Fellow of the Personal Finance Society (PFS) requires about 20% more professional qualification credits then Chartered.

There are about 2,500 fellows of the PFS. There are other professional societies within the financial services industry that hold similar qualification levels to chartered and fellowship, these figures only relate to the Chartered Insurance Institute and the Personal Finance Society.

An entry level adviser is called a Diploma level 4 adviser. There are about 30,000 of these in the UK.
The next level up is a Diploma level 6 adviser. They have double the professional qualification credits of diploma 4. This is generally called the advanced qualification.

If this adviser also has a good level of industry experience, 5 years or more and sticks to a code of ethics they can become Chartered. There are about 6,300 Chartered Financial Planners in the UK.

Beyond this an adviser can be offered a Fellowship. A Fellow of the Personal Finance Society (PFS) requires about 20% more professional qualification credits then Chartered. There are about 2,500 fellows of the PFS.

There are other professional societies within the financial services industry that hold similar qualification levels to chartered and fellowship, these figures only relate to the Chartered Insurance Institute and the Personal Finance Society.

2. Market Position

Financial Advisers are split into two market positions.

  1. Whole of Market. This is a what is known as an independent financial adviser. A whole of market adviser can use any provider and must consider all providers to implement their advice and must have no other relationship with that provider. This can make detailed knowledge of every providers product more difficult, and with clients spread around many providers business relationships with individual providers may be limited for smaller advice firms, generally telephone only support.
  2. Restricted. The majority of advisers sit in this section. Restricted advisers offer a selection of providers generally as a panel for each market sector. They create best of bred offerings for clients. Panels are split between providers administering an investment or pension and the investment managers used to invest the money. The selection of investment managers may be panel based, however once selected their power to invest in funds, commodities, equities etc. may be whole of market or restricted. Panel providers can offer clients of a restricted adviser better then market terms. As an adviser only deals with a selection of providers they may be more knowledgeable on the products and hold better relationships with their providers.

Our advice is supported by a panel of pension administration company’s providing online pension management such as AEGON, LV and Old Mutual. Our Investment managers include Invesco, Cirilium, Vanguard, Premier, Blackrock and Jupiter. In total we use over 25 different investment managers selected for our clients based their requirements for cost, risk level, active or passive investment management. And either a whole of market, restricted or sector based investment approach. All investment managers are reviewed quarterly to ensure they remain best of bred for our clients.

For sophisticated and specialised investments such as EIS and VCT we use a whole of market approach.

How this impacts you.

First, advice is not a product. The product is what is used to implement the advice. For example, advice to start a pension for a certain contribution to a certain age at a certain investment risk level, has little bearing on the provider being used.

The decision on product provider and investment manager should be the last decision in the advice process. A restricted adviser may have a choice of say 4 pension companies to administer the pension and half a dozen investment managers, per risk level. This creates price and service competition. If providers price themselves well, give great service and in the case of investment managers proven outperformance they can expect a good level of business. Whereas, a small adviser firm in the whole of market arena will rarely use a particularly provider to a level that they will be able to forecast business levels high enough to give an enhance service or an improved deal. Providers are obviously very keen to get and stay on a panel supported by a large network of advisers and will cut their margins and improve their client offerings accordingly.

3. Client protection

Advisers are split into two methods of compliance with the FCA regulations, how an adviser is regulated has a major impact on client protection in the event of bad advice.

Directly regulated.

Most of the small advice firms and whole of market advisers are directly regulated by the FCA.

The first port of call for a complaint would be to the adviser firm themselves, if they will not agree to settle a claim for bad advice it is referred to the Financial Ombudsman Service (FOS). Should a claim be successful the adviser will need to pay the compensation laid down by FOS. This can be paid either by the adviser or via the adviser’s Professional Indemnity (PI) company.

PI cover can be limited, have high excesses and maximum compensation amounts. Most importantly it is only valid if the adviser has a valid PI contract in the year of claim, not the year of advice. With medium and long-term investments, most claims are in the years after the advice was given. Therefore, there is no guarantee the adviser company will still have PI cover. In many cases bad advice is not limited to a single case but endemic across an advice company, where this happens firms have been known to go out of business as they can’t afford the claim payments.

Where this happens, clients are referred to the financial services compensation scheme (FSCS). Which covers clients in the event the adviser is in default. The limit of compensation for investments is £50,000. For more information see https://www.fscs.org.uk/

Over 100 small advice firms went bust in 2017 in default of compensation claims mostly due to SIPP pension transfer advice claims. In addition 3 SIPP operators went into default on 19th Jan 2018.

Advice networks.

Networks are generally owned by large financial institutions. These large organisations provide financial backing to the advice given by their advisers. Due to their financial capacity advisers under a network have significantly more financial protection in the event of bad advice then clients of directly authorised advisers. A network is only as strong as its
parent company.

In practice this additional responsibility means networks can be more stringent on compliance with the FCA regulations then small directly authorised adviser firms. As a larger institution will not go out of business to avoid bad advice claims. This was demonstrated at the network Sesame which was owned by Friends life/Aviva. When endemic bad advice was uncovered Aviva paid out £100’s of millions in compensation to clients to put the matter right, so clients were not out of pocket.

The industry wide Financial Ombudsman and Financial Services compensation scheme are still available to clients of networks. We are not aware of any FOS decision that was not complied with by a network.

Blueprint South West Ltd.

We believe that by having the highest level of professional qualifications, working in a provider competitive restricted market place and with the option to go to the whole market for sophisticated or specialised products and the backing of the largest most financially secure network in the UK ensures our clients get the best possible outcome. The value of pensions and investments can fall as well as rise, you may get back less then you invested.