Alan Kendrick: Don't be 'tied' into a financial adviser
What are the differences between an independent financial adviser (IFA) and a tied financial adviser, and why you should use an IFA?
What are the differences between an independent financial adviser (IFA) and a tied financial adviser, and why you should use an IFA?I have an interest to declare. I am an IFA so of course, I am going to promote the case for the IFA, but nevertheless there are good reasons why you should use an IFA.
A tied adviser is usually employed by the big financial institutions such as banks, building societies and insurance companies. He can only advise on the products his employers provide.
An Independent Financial Adviser is often self-employed and can recommend across the whole range of financial products and providers. He not only has to justify the product, but also the provider.
There is a hybrid known as a multi-tied adviser who is restricted to a limited range of providers.
An IFA has to offer a choice between fees and/or commissions.
You usually receive continuity of service from an IFA in that you are more likely to deal with the same person every time. This often means that a long-term relationship and mutual trust is developed, and it is quite common for an IFA to deal with different generations of the same family. It is difficult how such a relationship can be developed with an impersonal bank when you are likely to see a different person virtually every time.
All financial advisers are subject to the rules and guidelines laid down by the Financial Services Authority, but IFAs do not have a extra layer of rules as laid down by the banks. This means that IFAs can be more flexible and customer- friendly as there is no conflict between the aims of the bank and the aims of the client.
In theory, both IFAs and tied advisers are subject to the same levels of regulation. In practice, tied advisers are usually regulated by internal controls but IFAs are often members of a network with independent controls or are directly authorised by the FSA. External controls are usually better – see next point.
IFAs give better service than the banks. Of course, I would say this but this is not an idle comment. The Financial Ombudsman recently published figures, which showed that 59 per cent of complaints received were about the major banks, but only three per cent were about IFAs.
Naturally, tied advisers will disagree with the above comments. There are many highly qualified and experienced tied advisers who provide a quality service for their clients.
However, no single large organisation is best for all financial products. Ask yourself the question, "Do you want the best mortgage, pension, investment and insurance from a single provider?" Alternatively, "Do you want the best mortgage, pension, investment or insurance from the whole of the financial market?"
I know my answer and only an IFA can deliver on the second question.
Oakwood Insurance consultants and Financial Services. Tel: 01778 341658
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