Financial Advisers are typically divided into two sections: Tied and Independent.
A tied adviser is ordinarily the person you sit down with at a bank or the person you speak to when you talk to your insurance company. They are all qualified advisers and generally give good advice. However, when it comes to recommending a product to meet a goal or solve a specific need, they’ll only have a limited range of options to choose from, and typically all from only one provider.
Having said this, they may have the best product for you. But you’ll never know, and the product they may recommend could be far down the list when all options are considered. In short, you’ll never know if you are receiving the best advice and products for you.
With an independent adviser, you’ll know that they have the freedom to select any product in existence, perfectly suited to your needs and financial goals.
Independent financial advisers are again divided into two groups: fee earning and commission earning. Fee earners usually charge an hourly fee much like a law firm. Commission earners make money based on the product you take up. It is a common misconception that commission earners tend to be more biased than fee earners. In reality, the competitiveness of the product market means that almost all commissions paid are about the same – they don’t vary much between products. Also, the products aren’t available more cheaply direct. Finally, assuming you’ve signed onto a service contract you like with your IFA, you’ll get consultations and advice on a regular basis forever – without having to pay anything at all. With a fee based IFA it’s pay-as-you-go and in any case they may recommend a product very similar to the commission based IFA anyway.
The most important point to note is that it’s just as easy for a fee earner to be dishonest as for a commission earner. There are more cases of inflated billing hours from fee based IFAs than foul play via commission earners. A dishonest person will be dishonest no matter what. Look for a service contract from your IFA, talk to them, and make sure you like them.
The worst case scenario if you have chosen a commission earner is that you switch to a different adviser. In that case you lose nothing. It’s clear then that commission based independent advice is preferable to either a tied adviser or a fee earning adviser. A good IFA will earn your trust with sound advice and hard work, not with empty gestures. If you like, we can help you find a good and trusted IFA.