As Independent Financial Advisers (IFAs) we work for our clients and whilst this may be a strange way to start a post, cast your mind back before 2012 when advisers were typically paid for their advice by the providers (through commission) and were therefore seen as agents of that firm, rather than the client.
The term Independent Financial Adviser is a regulated term and therefore the Financial Conduct Authority (FCA) restrict its use to firms who are indeed independent and who are also regulated. Regulated advisers need to achieve specific qualifications and are subject to ongoing FCA scrutiny. Advice firms are liable for the advice they give and where issues arise, the client has the protection of the Financial Ombudsman Service (FOS). Furthermore,where products are used, they will typically fall under the Financial Services Compensation Scheme (FSCS).
The multitude of abbreviations above mean that if a client receives bad advice, they can take it up with the firm and if still unsatisfied, the Ombudsman. If a provider ‘fails’ and losses are incurred, the client may take the same route of recourse whilst also benefiting from the protection offered by the FSCS.
Why does this matter? Well, these are things investors perhaps take for granted but don’t consider whether, when speaking to an ‘adviser’ whether that adviser is indeed authorised to give advice (the FCA keeps a register of all regulated advisers), whether the investment is regulated and whether it benefits from FSCS.
Someone purporting to be an adviser may be anything but and a client could hand over their hard earned savings / pensions or investments to someone who has no qualifications, no regulatory footprint and who is due to earn a significant amount of commission from the proposed deal.
When someone offers an investment with seemingly good investment returns – perhaps guaranteed – the key thing to do is stop and ask whether it sounds too good to be true and also whether the person is a qualified and regulated. The more ‘niche’ it appears, the more questions should be asked.
Paul Stocks at our firm was recently interviewed for a recent article in Professional Adviser (see here) concerning Car Parking Spaces as an investment and it is interesting to note that the views of Dobson and Hodge align to those of other professional financial advisers – typically that the lack of transparency, likely risk and the question of whether such an approach is even necessary for investors ring alarm bells.
Unfortunately, however, not everyone seeks the opinion of an adviser – instead being happy to rely on glossy brochures and promises of 8% per annum guaranteed returns. In our view, investing is such an area should come with a significant (w)health warning and we would encourage investors to seek the opinion of a suitably qualified independent individual before parting with their ‘cash’!