Types of Financial Adviser

Selecting the right type of financial adviser is very important as you will see.

It is important to distinguish between someone who is the paid salesperson of a company and one who has, by law, to act on your behalf.

For relatively simple transactions this might not be so important, but for more complex planning, for example, Inheritance Tax Planning, some of the arrangements will be irrevocable so here, as in most cases, quality impartial advice is absolutely vital. 

All that follows is as a result of “de-polarisation” introduced by the Financial Services Authority from the 1st June 2006. Whilst this was intended to simplify the process for consumers, there is still confusion amongst the public as to the status of financial advisers.        

The Tied Agent 

Let’s start here. Typically an employee of one of the major banks or building societies who have “tied” to one particular company. In simple English, they can only sell you the products of that one company, without regard to whether it is the cheapest or most suited to your needs, as they do not have to compare it across the whole marketplace. In return for selling only the products of one company, their employer may well receive preferential rates of commission and support services. The salesperson acts on behalf of the employer, not you, the consumer. They do not have to offer you the option to pay be fees.

If you are looking for a simple protection plan to repay your mortgage in the event of death or critical illness, then this may be OK. But it will only ever be OK, never perfect, because you won’t know what the competition could have done! 

The Multi-Tied Adviser 

Here we have used the term Adviser for the first time. At least some level of research and analysis is required in sourcing the products that could match your needs. Instead of being limited to one company only, the adviser can select from a panel of, say 5 or 6 companies. So, if the tied adviser couldn’t recommend Permanent Health Insurance because their provider doesn’t offer it, the multi-tied adviser can select another company that does.  So, you should end up with the full range of protection policies that you need, but again, you can’t ever say that they will be THE most competitive or suitable from the whole marketplace, but will probably be better than buying from the tied adviser. 

When it comes to investments, many products will have “external fund links” to more specialist fund managers, but not all providers will link to all funds. 

The multi tied adviser does not have to offer the option of being paid by fees. Again, they will receive preferential rates of commission and support services depending on which companies with whom they have allied themselves. 

The Independent Financial Adviser (IFA)

An IFA such as ourselves must research the whole marketplace before recommending a particular product to satisfy your needs; a popular misconception is that, every time, they will look at each and every company and its products, whereas in practice this isn’t the case.  

The companies that an IFA such as Asset Investment Management will use will depend on the criteria that you have identified as important to you. We use very sophisticated research and analysis systems to reach a shortlist. From this, our experience will also be able to identify factors such as the company’s after sales and back up service, factors which are also crucial. 

As an IFA we must offer the option of paying a fee for the advice we provide, or alternatively you can elect for us to be paid by commission paid from the product providers. This doesn’t mean that this costs you nothing, as the commission is paid from the charges levied on your plans. 

It is possible to combine the two, with a fee payable for a preliminary report and a rebate on commission to your plans should you proceed. If you have paid a fee for the initial report, you may feel that the perceived pressure to purchase products is lessened because the adviser has been remunerated for their time thus far. 

Additionally, an IFA may also have to charge a fee on top of the commission payable if the work would otherwise be financially not viable.

Bear in mind however, that sometimes, opting to pay fees could be more expensive that the commission that would have been paid!

You should always be advised of the scale of fees and charges before you obligate yourself to any work; this is certainly the practice here at Asset Investment Management Ltd.