Independent Financial Advice – Consumer Guide

How do the types of advice differ?

INDEPENDENT FINANCIAL ADVISERS (IFAs) offer unbiased financial advice to their clients and recommend the most suitable products, if any, after researching the whole market. The key differentiator is that they act on your behalf and will offer you the option of paying by a fee, as well as the option of paying by commission.

TIED AGENTS can only advise on the products of one provider.

MULTI-TIED AGENTS are financial advisers allowed to recommend the products of a limited selection of providers, rather than just one.

Independent financial advice: the big advantage of independent financial advice is that you have access to all the products on the market through a qualified practitioner (more about qualifications later). An IFA‘s job is to research and recommend the most appropriate financial solutions after asking their clients a whole range of detailed questions about their circumstances, their financial goals and their attitudes to risk. IFAs are answerable to the FSA to ensure that they keep to the rules. As they act on your behalf they provide personalised written reasons why they have recommended particular products or a course of action.

Tied advice: many people buy financial products through tied agents, such as the sales staff who work at their bank or building society. When they want a pension or investment product they often find it easier just to nip into their bank and accept what is sold through that organisation’s relationship with a single life insurer or investment house. The person providing the product information or advice is acting on behalf of the product provider. Many people buy products this way, usually because they feel more comfortable buying from a big name organisation and assuming, sometimes incorrectly, that they are bound to get a good deal. What they are actually getting is limited information from a small selection of products. Confusingly, some banks also have an IFA available upon request!

Multi-tied advice: multi-tie arrangements were introduced because the FSA believed the 16 year-old regime of ‘polarisation’ (the official term used for the system of either tied or independent advice) wasn’t working efficiently for consumers. By giving organisations the opportunity to link up with several providers instead of just one, the regulator hopes to create more choice for those consumers who are not inclined to research the market or to use an IFA themselves.

Banks and building societies that previously had a single tie to a financial product provider are likely to include in their range one or two products from other providers. This will avoid the time and costs of having to look across the whole market for the ‘best’ products. Customers need to check out the breadth of products and providers on offer and decide if the choice of products available is a suitable enough range for them.

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