IFAs and financial advisors – what’s the difference?

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yellow umbrellaAs momentum builds up for independent financial advisers to change their status to giving restricted advice, how many investors know the difference between the different levels of help they will receive when seeking advice.

Industry trade paper FT Adviser reckons a quarter of financial advisers on their database of 10,000 subscribers call themselves restricted.

But this number is growing – it’s already 3% up on last year and moves within the industry are for independent firms to switch their status because the time and money tied up with regulatory compliance is less.

But although the firm is saving money on compliance, is the customer still getting a good deal from financial advisers?

The advice status between independent and restricted is at the heart of the issue for the investor:

Booking.com

Blurred definitions

Since January 2012, an independent financial adviser should:

  • Provide a wide range of retail investment products
  • give unbiased and unrestricted advice based on a comprehensive and fair analysis of the relevant market

A restricted adviser is one who gives financial advice to a client that does not fit the independent definition – so this would apply to someone directly employed by a bank or financial provider.

However the definition is blurred on the high street. If an investor walks into a financial adviser’s office they should say whether they are independent or not.

The main difference between independent and restricted advice is an independent financial adviser should list solutions that are best for client from the whole of the market, while a restricted adviser can only give basic general advice or specific advice on products they are authorised to sell.

So a bank investment adviser will only discuss that bank’s products, while an independent can discuss any investment product on the market.

Checking advisor status

Only last week, Tavistock Investments, an IFA with 26 advisers and £400 million in assets announced the likelihood of switching from independence to restricted status.

Investors must be careful where they tread in the market, because they need to know they are getting the best advice to match their personal financial circumstances.

The questions to ask an advisor include:

  • What is your status – independent or restricted?
  • If restricted, what advice can you give me and will this include information about better products from other providers?

Expats have to go even further by asking if their advisor is regulated and if so, in which jurisdiction and what level of advice is he or she authorised to give.

Always ask for the advisors licence details and check them personally with the appropriate regulator to make sure any misselling complaints are covered by a financial ombudsman/compensation scheme.