The way we go about getting financial advice is changing to make sure consumers get a fair deal. Linda Woodall, head of investments at the Financial Services Authority, explains what this will mean for you.
Making decisions about our pensions or investments can have long-term implications. So it’s vital that we can trust the people giving us advice to do the best job possible.
This is already the case for many of us but unfortunately the system hasn’t always worked. It hasn’t always been clear how you paid for financial advice. And there was always the chance you’d be sold a product that earned your adviser the most money, but wasn’t necessarily right for you.
We’re bringing in changes on 31 December 2012 that mean you’ll see clearer charging structures, clearer services and better professional standards when dealing with your adviser. We’re making the following improvements, which mean you will:
1. Agree with your adviser how much you pay
As we’ve been reminding customers, financial advice has never been free. This has come as a surprise to some people who weren’t fully aware of the commission they were paying on their investments.
Advisers will no longer be paid by commission but will instead have to agree with you upfront how much their advice will cost. Crucially, this change shouldn’t affect how much advice costs. And rather than paying the fee upfront, you may be able to agree with your adviser to have their fee taken from your investment.
Advisers are free to set their own rates. If you currently have an adviser or are thinking about using one, ask them about the way they intend to charge for their services and consider shopping around.
Advisers can continue to receive commission’ for advice they’ve previously given. This is known as ‘trail commission’ and means the adviser will continue to be paid commission on products sold before 31 December 2012. To understand more, ask your adviser or product provider what commission arrangements are currently in place.
2. Know what service you’re paying for
Our second change means you’ll know what type of investments your adviser can help with, as they’ll have to explain to you whether they’re offering ‘independent’ or ‘restricted’ advice.
Advisers offering independent advice will be able to consider all possible investment options that may suit your needs. They can also look at financial products from all firms across the market. However, an adviser offering restricted advice will consider specific types of products, product providers or both.
3. Get improved professional standards
There are many places for us all to invest our money. For some it can, understandably, be confusing to keep up with all the latest developments. Therefore, when seeking help from a financial adviser, you want to know they have the expertise to advise you.
Our final change means advisers will have to meet the higher qualification standards we set, keep their market knowledge up to date and sign an agreement that requires them to treat you fairly. We’ll be checking firms to make sure they stick to these new standards.
All in all, we’re modernising how advisers work, raising standards and ensuring that they treat their customers fairly. Will our changes increase your trust in financial advisers?
Which? Conversation provides guest spots to external contributors. This is from Linda Woodall, head of investments at the Financial Services Authority. All opinions expressed here are Linda’s own, not necessarily those of Which?.