Independent Financial Adviser (IFA)

Independent Financial Advisers can offer you a full range of products from all the financial services companies on the market as they are not tied to any one specific company.

On the other hand, a financial adviser may be 'tied' to one company and only authorised to recommend that company's products. Therefore he is not truly independent and can only offer partial as opposed to impartial advice.

A financial adviser is required to inform the customer whether he is offering impartial or partial advice ie whether he is truly independent or not.

IFAs may be 'one man bands' small firms or large firms. Among the very large in the high street, most banks and building societies are not independent in this sense - they simply use their time to promote the products of one other company. In some cases, it will be a life insurance company which is a subsidiary.

IFAs must observe some key principles in carrying out their business. They must 'get to know their client' by asking for sufficient information so as to be in a position to form a comprehensive overview of the client's needs.

This 'fact find' as it's sometimes called seeks to put the adviser in a position of knowledge so that he will be able to offer 'best advice'.

There is some cynicism among professionals, journalists and some of the general public about which products are offered as the adviser may be remunerated by commission from the insurance or other investment company whose products he is selling.

An independent financial adviser has to make clear to clients how he is being remunerated - is he receiving commission, or is he charging you by the hour in much the same way as accountants and solicitors have cosily done for years !

If the IFA is charging a fee , he must give you full details of the charges at the outset and state clearly at what stage they will begin charging or 'start the meter'.

Since the beginning of 1995, the introduction of 'hard disclosure' obliges IFA's to give customers full details of any commission they receive on the policies/investments they recommend as well as the level of charges.

All independent financial advisers must contribute to the industry wide compensation scheme.

IFAs as well as tied agents are regulated by the Financial Services Authority. If an adviser is not, they are trading illegally.If you have doubts about an IFA's authorisation, go to the FSA's Firm Check Service and you will be able to see whether the adviser is registered.

See also: Looking for a financial adviser - where do you start?

Last Updated: July 2007 © Moneyextra.com

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