The Biggest Ever Change to Financial Services in the UK

It’s all change for your adviser who is regulated by the Financial Services community as of 31 December 2012, because the Financial Services Authority (FSA) is making changes to the way you get or rather pay for your financial advice. First of all each adviser will have to be higher qualified than previously and must have attained at least to Diploma Level in Financial Services before advising and in addition sign an agreement to treat you the client fairly. Annually a Statement of Professional Standing must be provided by an external body to confirm the fitness and propriety of the adviser. All of these will be closely monitored by the new Regulator, the Financial Conduct Authority (FCA). It may not have been clear, but if you have received financial advice in the past you have probably been paying either by means of commission to your adviser or a fee or even a combination of the two. If your relationship has not been on a fee only basis the company providing the investment product would have paid your adviser a percentage of the sum you invested be it regular or lump sum investments. Even some fee only based advisory firms may well have still received a ‘commission’ from providers in addition to your fee and would either have rebated this to you the client or offset some of it against annual service costs. As of 31 December 2012 all of this will change. Let’s be clear here, advice has never been free, some way or another you have paid for the advice you have received but from this date, how much the advice will cost will be much clearer. From 31 December 2012, instead of your adviser receiving commission on new investments he or she will have to be clear about the cost of advice and together you will agree how you will pay for it. This way you will know exactly what you are paying and the advice you receive is not influenced by how much your adviser could earn from the investment. There are many ways to invest your money and financial advisers can either advise you on all products that may be right for you or only focus on certain areas, such as pensions. They will have to make it clear to you, which products they can advise you on and whether they can consider any firm across the market or only some product providers. The differences between these types of advice are known as ‘independent’ and ‘restricted’ advice. An Independent adviser will be able to consider all types of investment products that might be suitable for you and can also consider products from all firms across the market. An adviser who has chosen to offer ‘Restricted’ advice can only consider certain products, product providers or both. Your adviser will have to clearly explain what they can advise you on. For example if the adviser is offering Restricted Advice he or she will not be able to make misleading comments such as “we are a group of Independent Adviser that have joined together under a restricted advice banner/company” or the like. If the adviser is offering Independent Advice, not considering all types of investment products that may be suitable for you is not acceptable. The penalties for misleading clients are quite clear and severe. So make sure you are clear what service is being offered, it has to be either Independent or Restricted and clearly stated so. Don’t be misled by anything that does not clearly state one or the other. It is for you to decide which service, Independent or Restricted is best way forward for you and your particular circumstances. As to how much you will pay - your adviser will have to clearly explain how much advice will cost and together you will agree how you will pay for it. This could be a set fee paid upfront or you may be able to agree with your adviser that they can take the fee from the sum you invest. This must be agreed for each product selected. In view of the changes many adviser firms are ‘segregating’ clients to ‘weed out’ those less profitable, which cannot be good for the level of advice that is needed here in the UK but the Regulator has decided that that this is the best way forward. So look for the firms that are committed to advice for all.