Everyone needs financial advice but can you trust it?
Wednesday 23 May 2007
Whilst it is accepted advice is needed to help both protect and accumulate wealth, why doesn't everyone have an adviser?
Everyone has the desire to build wealth. Property, investing into pension schemes, accumulating savings in banks or unit trusts, insurance funds and perhaps even owning shares via stockbrokers, all provide a home for your money. Doing it on your own is difficult and sometimes ineffective.
In my experience the reason many people do not seek out financial advice is due to a lack of trust and the big question, does the adviser add value to justify the cost.
The reality is most advice is not advice, it's a sales process. It will always be a sales process whilst commission is involved.
The good news is there are a growing number of advisers which provide independent financial advice on a Fee Only basis. Fee Only breaks the bond between product and advice.
This is excellent news in principle, but unfortunately in practice the edges have become blurred. Under new regulatory rules introduced in 2005, anyone who offers 'independent financial advice' must be authorised and regulated by the Financial Services Authority (FSA) and offer clients the opportunity to pay for advice in the form of fees.
Independent financial advice is a common term to describe the type of advice but how can you determine if it is truly independent and if the advice adds value?
It is useful to analyse the term independent financial advice. In the dictionary the word independent means... "not determined or influenced by someone or something else; not contingent". However, most financial advisers are remunerated by product providers in the form of commission payments which questions whether the spirit of independence is reasonable.
In fact, it is no wonder why investors are often skeptical of the advise they receive when commission is payable. Product providers' objectives are simply focused on selling their funds to accumulate assets under management. They use eye catching marketing material, past performance statistics (although these should not be relied upon), invitations to social events, incentives and commissions to encourage advisers to promote their funds. As the advisor is getting paid by the fund manager, in essence they are obliged morally in principle to sell their products to you the clients, as in reality they are a quasi employee of the product provider.
Whilst many advisers discuss fees, in practice, commission payments are still used to offset the charges. This is often called Fee Based Advice.
Is there an alternative? In order to remove any possibility of commission bias, investors need to seek Fee Only Advice. Whilst there appears to be a similarity in the words 'Fee Based' rather than 'Fee Only', there is actually as chasm in the principles between these processes.
The role of a Fee Only adviser means that commission does not form part of the advice process. Payment for service is made by the client. In such a way, the investor has complete knowledge that the adviser is working exclusively for them in the provision of financial advice. Any possibility of commission bias is removed. Fee Only advice creates a better foundation for building trust between client and adviser.
Investors need only take a common sense conclusion that is accepted in all work situations. You work for the person who pays you and you would not expect it to be any other way.
Categories: Fees, Articles
posted by Murray Round Wealth Management @ 15:53,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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