Financial Advisers are not all Equal!
There are various different types of financial advisers in the UK and, if you are currently seeking the best financial advice, it is vital that you understand the main differences between them. Just as not all medical professionals are the same – there are paramedics, auxiliary nurses, nurses, GPs, registrars and consultants, for example – neither are all financial advisers the same!
Photograph by Duchessa
Categories of Financial Advisers
There are three main categories of financial advisers:
- Tied advisers, who usually work for a bank or an insurance company. They are only authorised to advise you on their own company's products;
- Multi-tied advisers, who are able to offer advice from a limited set panel of companies;
- Independent financial advisers (IFAs) who will offer you unbiased advice from the whole of the market.
The Importance of Independent Financial Advice
IFAs differ from tied and multi-tied advisers, not only because they offer whole of market advice, but also because they do not represent a company – they act as the representative of their client, and it is their primary responsibility to act in the best interest of their client at all times. IFAs must also offer clients the option to pay by fee, rather than commission from the product provider.
If you think that all financial advisers are equally qualified, think again. That is very far from the truth. Of course all financial advisers, who advise on pensions and investments, must hold a relevant qualification, that is approved at level 3 in the National Qualifications Framework (NQF) - roughly equivalent to A Level standard.
Under the new rules (RDR - Retail Distribution Review) that will come into effect in 2012 financial advisers will now be required to build on these exisiting qualifications and evidence a higher standard of skills and knowledge through the completion of a diploma level qualification approved at Level 4. Only about 30 per cent of financial advisers currently hold these qualifications with most of the others studying hard to achieve them in order to continue in their profession.
The Chartered Financial Planners and Certified Financial Planners you will find here at Financial Planners Elite are qualified to a significantly higher standard than even that which will be required under the new rules.
Are the terms "financial planners" and "financial advisers" synonymous? Certainly they are often used as though they meant the same thing. However, in our opinion, they are not the same. In the medical profession all paediatricians are doctors, but most doctors are not paediatricians. In the financial services profession, all financial planners are financial advisers but most financial advisers are not true financial planners. In fact there is a view that only financial advisers who have achieved the qualifications of either Certified Financial Planner or Chartered Financial Planner have earned the right to call themselves financial planners. So what is the difference? Well a qualified financial planner will not only give you sound financial advice but will also, after in-depth discussion with you, construct a detailed financial plan for you - a strategy to enable you to achieve your goals. The focus is on you, the client, rather than on specific financial products, such as pensions, investments or life insurance, which are no more than useful tools in the financial planning process.