There is so much confusion surrounding financial advice that we feel it would be good for people to know a little more about it, including the inherent conflicts of interest and exploitation by some of the more unscrupulous operators in the profession. Essentially, we think you have a right to know the truth about financial advice.
Therefore, we have compiled a list of questions and answers which we hope you will find interesting and informative:
How important is it to know which type of Financial Adviser or Planner I am dealing with?
You need to know the status of your Financial Adviser or Planner because it is likely to dictate the depth of advice you receive. Choosing a good one is an important decision to get right, because they can make a real difference to your ability to achieve your life goals, by assisting you in understanding and prioritising your financial needs and objectives and constructing strategies for helping you to achieve them.
We know that the fact there are different types of Financial Adviser confuses people and leads to misunderstanding and furthermore, the profession's regulatory body, the Financial Services Authority, recognises this as well, which is why there will be moves during the coming few years to make much clearer the differences between professional practitioners.
In our opinion, greater public awareness in this area will improve understanding and build confidence in high quality advisers and planners and as such, the process of clarification can't start soon enough.
I have heard that independent financial advice or planning is best. Is this true?
Yes - in theory.
It is supposedly the case that Independent Financial Advisers or Planners are the only ones who are able to tailor solutions to a client's individual financial needs and objectives, based on an all-encompassing approach, impartial research and an ongoing working relationship.
Unfortunately, however, many 'independent advisers' or 'planners' - along with their 'tied' or 'multi-tied' counterparts, as they are known - are often little more than salespeople, who view their 'independence' as simply meaning they are able to sell financial products from a larger range of providers.
Hopefully you will have seen from our website that Chamberlyns most certainly does not believe that this is what financial planning should be about - in fact, we think this view is absolutely absurd and completely misses the point of proper financial planning.
What other differences between professional practitioners I should be aware of?
The majority of 'Financial Advisers' are paid by commission generated by selling financial products.
We think it right to point out that when people see an 'adviser' who plies their trade in a bank, building society, or all too often, an advisory practice, they are almost always seeing someone who is both unable to provide truly independent advice and who is paid by commission.
These environments are highly competitive and there are powerful bosses or shareholders to keep satisfied. As a result, there is a constant pressure to achieve sales and profitability targets. Ultimately, in these institutions, the quality of an 'adviser' is often measured by the number of sales they make, which we consider to be a baffling state of affairs.
Those responsible for selling products to people know that unless they reach their targets, they will either not earn their bonuses, keep their jobs, or be able to pay their mortgage.
Surely this way of working has a negative impact on the quality of advice given?
We think so, yes and this is something which really confuses and frustrates us, because, what we are unable to understand is what sales has to do with financial 'ADVICE'?
The clue to the work professional Financial Advisers and Planners should do for their clients' is in their job titles: 'ADVISER' / 'PLANNER'. They should offer advice, construct and implement plans based on the client's needs and objectives and the adviser's advanced technical knowledge.
In this context, financial products are often completely irrelevant to the financial planning process and are simply not required but unfortunately, of course, for someone who is paid by commission for selling financial products to people, there is a total emphasis on sales, because if they don't sell something, they don't earn any money or may lose their job.
It therefore isn't difficult to surmise that there is something potentially corrupting about the commission system, which the majority of 'advisers' work within.
Are all commission-based Financial Advisers or Planners to be avoided, then?
It wouldn't be fair to say that there are no good commission-based advisers or planners out there. Of course there are, but it is also sadly true that there are many less scrupulous advisers who give the good one's a bad name.
We think the best way to root out the lower quality Financial Advisers and Planners and to drive up standards across the profession is for consumers to insist on working with only the very best - those who are truly independent, who charge fees for their work and who work exclusively on behalf of their clients.
So how can I benefit from choosing an independent Adviser or Planner who charges fees for their work?
These advisers and planners get paid for their preparation of proper financial plans, their impartial advice, their time and the service they provide, just like a Solicitor or Accountant does and they don't focus their work around selling you financial products.
In our view, any adviser or planner who is serious about working at the top of the profession and providing a high quality service to their clients will be truly independent, highly qualified and fee-based.
Therefore, we feel that perhaps the ultimate question you may want to ask yourself in this respect is: 'If the adviser or planner I currently work with or am considering working with does not operate to these standards, are they really right for me?'
Please feel free to contact us if you feel you would benefit from working with Chamberlyns.