If you are interested in taking expert advice before investing your money, you will need to understand that two different types of financial advisor exist.
These include independent financial advisors, sometimes referred to by the acronym IFAs, and restricted financial advisors, typically known simply as financial advisors within the industry.
To describe the key difference between these two types of advisors, we must look at the financial products, services and vehicles that they offer. Put simply, an IFA can offer their client access to the full range of available financial providers and products, because they work independently from any organisation that may have its own priorities.
A financial advisor, on the other hand, delivers restricted advice that covers only a limited range of products and/or providers.
However, both types of financial advisors also share some practices in common. For example, all advisors must be authorised or approved by the UK’s financial regulator, the Financial Conduct Authority (FCA). Additionally, both IFAs and financial advisors must also pass identical qualifications and achieve the same requirements to make sure that they are supplying appropriate advice.
Finally, whichever type of financial advisor you select for assistance must also inform you in writing of whether they provide restricted or independent financial advice. However, if you are unsure which service they provide, you should always ask for further details and confirmation that you are receiving the type of advice you seek.
In this article, we’ll delve into the in-depth differences between IFAs and financial advisors to help you make an informed decision on the type of advice that best suits your needs. We’ll also look at how to choose an advisor, and provide an idea of what’s involved in the process after you make your selection. Read on to get more informed.
What is an independent financial advisor (IFA)
A firm or advisor that supplies independent advice can consider and recommend every type of retail investment product available on the market that can meet your personal needs and financial objectives.
Independent advisors will always consider products offered by all firms across the financial products and services market, and are obligated to supply unrestricted and unbiased financial advice. As mentioned, independent financial advisors are also known as IFAs, but also as independent advisors.
As a rule, if you are seeking general advice regarding your financial situation and goals, an independent advisor is an ideal option, as they will access the full spectrum of products available across the market, increasing your chances of finding ideal solutions that suit your specific needs and aims.
What is a financial advisor?
A financial advisor or restricted financial advisor only recommends certain product providers and/or products.
This type of advisor or the financial services firm they work through must clearly explain the precise nature of this restriction. If you find that you are unsure what the limitations are on the services provided, you should always request further details. However, below we discuss some common examples of restricted financial advice:
A restricted financial advisor might work solely with one product provider, and when suggesting products, will only consider the products that this company supplies. However, this type of advisor might also consider products from multiple companies, but not every product provider on the market. A financial advisor might only be able to recommend one or a few types of financial products, but not every retail investment product available.
Finally, a restricted financial advisor can select to focus on a specific market – pensions, for example – and will consider products from every provider within the pensions market.
As they do not consider products and product providers from the entire market, financial advisors and financial advisory firms are not eligible to refer to the advice they provide as independent.
Which is better, a restricted or independent financial advisor?
Under the rules of practice established by the UK’s financial watchdog (the FCA), all advisors, whether they are restricted or independent, must ask their clients detailed questions to understand their personal financial circumstances and their attitude towards risk (sometimes referred to as “risk tolerance”).
Advisors must use the information discovered in the process known as “The Fact Find” to understand which type of product or products would be most appropriate for them, before providing a recommendation.
As a result, the quality of the financial advice clients receive will often be the same, regardless of the type of financial advisor they select. However, a major difference is that financial advisors offer a restricted service that looks at products and providers from a far narrower range. Consumers must weigh this limitation up alongside other factors, like convenience and cost.
Regardless of the type of financial advisor you choose, you have rights, should a recommended product turn out to be an unsuitable solution for you. If you buy a financial product without taking advice, this is a level of protection that you will not benefit from.
What should you look for when selecting a financial advisor?
When choosing a financial advisor, the first step is to work out what you need. If you require retirement planning advice, for example, make sure that the advisor you select is a specialist in this area. If you require a comprehensive financial plan, opt for an adviser who can provide the whole package instead of just focusing on one area, like a wealth management firm.
Checking the qualifications of advisors is also important. While UK legislation requires that all advisors must be qualified to a specific level, it is always worth checking that they, indeed, are. Be alert for extra qualifications as well, as this can be an indication that advisors have educated themselves fully to provide a higher level of service.
Always request a written copy of your financial advisor’s recommendation if an issue arises, and if you are not clear on any area, always as for further explanation. Choose a financial advisor that uses jargon-free explanations to make sure you understand the products and product providers involved fully.
Make sure you will receive a bespoke service. As an individual, your financial circumstances and goals are unique, so it is vital that you are not being given generic advice that could apply to anyone. To make sure advice is personalised, ask questions regarding the suitability of products recommended to your unique situation.
Select an advisor you can build a relationship with. You will be trusting your advisors with your financial wellbeing, so it is crucial that they are right for your needs.
Understanding the importance of FCA regulations
Before you select a financial advisor, it is important to remember to check that they are regulated by the FCA. This regulation is designed specifically to protect consumers from potential harm that can be caused due to bad conduct within the financial services industry. To find out if your selected financial advisor is regulated, look them up using the search function in the Financial Services Register online.
After you select a financial advisor, what happens next?
After you decide on the best financial advisors for your needs, you’ll usually begin with an introductory meeting.
At the appointment, your chosen advisor will ask you questions to gain a better understanding of what type of advice you are looking for. They will also explain their services to you during the meeting. Often, the financial advisor will provide a “key facts document” at this point, which outlines their fees and what to expect from their services and your relationship. Fees can vary depending on certain factors, including what you’re seeking advice for, and how much money is involved.
If, after the meeting, you decide you are happy to employ the services of the financial advisor, they will next carry out the next stage, often referred to as the “fact find”. This in-depth process will provide the advisor with all the information they require about your personal finances, financial goals and attitude towards risk, so they can effectively recommend appropriate financial products for you.
After the fact find, the advisor will draw up a full financial plan. This will usually include specific product recommendations, as well as any available tax benefits you can access.
If you agree to the financial advisor’s recommendations and the costs associated with their services, the financial plan put forward will then be implemented. In many cases, you will be offered the option of selecting an ongoing review of the plan, to make sure it remains aligned with your needs and objectives.
Do you need Independent Financial Advice in Chester or Shropshire?
At Hartey Wealth Management, we have earned a reputation for providing expert and unbiased financial advice. As independent financial advisors (IFAs), we can provide an impartial and specialist eye over your current financial plans, or help you find products and providers from the entire financial services market.
Offering a comprehensive service, you can rely on our team for expert advice in all areas, including investments and portfolio management, estate and retirement planning, financial protection and planning, and inheritance tax.
Reach out to us today for first-class independent financial advice.
