There’s a good chance that you’ve paid for financial advice at some point, either through product commission or as an upfront fee. So how can you be sure that the advice you’re receiving is 100% impartial?
Until now, financial advisers have been able to make money by selling you financial products and earning commission from the product providers. After a great deal of scrutiny, this practice has raised the question, ‘what makes an Independent Financial Adviser (IFA) truly independent?’
The trouble is, the way advisers make their money has left them open to question over why they might recommend the products they do and whether or not they’ve got our best interests at heart.
As an IFA’s advice can mean the difference between your comfortable retirement and financial hardship, new regulations have been introduced to resolve the issue of impartiality.
New rules to tackle bad advice
The Retail Distribution Review (RDR) is causing quite a stir in the financial world as numerous advisers prepare themselves for the new standards.
According to the Financial Services Authority, the standards aim to:
- Increase consumer confidence in independent advice.
- Encourage advisers to explain complicated products in a way we can easily understand.
- Ensure all advisors are qualified to a minimum standard.
- Make sure commission or other forms of payment don’t influence the advisers’ advice.
It’s slightly worrying that advisers will only be obliged to offer you unbiased advice from this point onwards; why didn’t these rules exist before? According to these rules, advisers will now need to be clear with you about the way they’ll charge you and about the range of financial products you have to choose from.
Will they price us out of impartial advice?
However, industry experts are worried that people may be deterred from taking advice if more advisers move toward charging fees upfront. After all, for a service that I might consider to be worth £100, an adviser might charge £300.
Another concern is that some advisers may only work with wealthy clients, willing to pay higher fees and bring more regular business their way. Especially now they’re not allowed to charge ‘trail commission’, which previously allowed advisers to charge you a fee every year after selling you a product, even if they didn’t provide any further advice.
Financial advice has never been free; we were just sometimes charged for it in a roundabout way (either via commission or upfront fees). Many advisers have always put the interests of their clients first, but the new rules should help weed-out the ones that don’t.
Do you think the new regulations will increase your confidence in financial advice? Do you trust financial advisers?