More choice in financial advice

From today, anybody looking for financial advice to help with their investments, pensions and insurance should get more choice, more transparency over price and a better understanding of what type of advice they are getting now.

Why? Simple, the depolarisation rules have now come into effect. Simple? Depolarization? This uncomfortable word describes a major shake-up in the way financial advice is offered. That's the theory anyway.

There is definitely more choice because under the old regime you could pick from an independent financial adviser (IFA) that could, in theory, advise you any product on the market, or a tied agent offering one companys product only. Depolarisation gives us an additional option - the multi-tied agent. This new breed of adviser offers financial advice from a limited range of preferred suppliers.

The aim of depolarisation is to give us more choice. This should mean more competition and more competitive rates.

For the first time, those advisers who continue to operate as IFAs are required to offer you the option of paying for advice either through a fee or commission. While they have always been able to offer both, from 1 June 2004 they must offer fee-based financial advice as an option.

Make sure you get the 'Key facts'

The transition period has been going on for the past six months but from 1 June, the rules have finally come into force and all types of adviser are now required to give you two documents, both known as 'Key Facts'.

The first document, entitled 'about our services' has to tell you what status is held, i.e. whether the financial adviser is independent, multi-tied or tied, and what sort of service is offered.

The second document, 'about the cost of our services' must spell out charges, which is where the transparency comes in. This document will give you average commission, with figures provided by the Financial Services Authority (FSA), and the highest commission the company is likely to charge you. You may then use the FSA's figures as a benchmark to compare prices from your adviser.

A majority of around 80% of the 9,000-plus IFAs in the country have chosen to remain independent, although some such as Bradford & Bingley have become multi-tied. While many of the high street banks, such as NatWest/Royal Bank of Scotland and Halifax, will continue as tied agents others may change.

Chief executive of trade body IFA Promotion David Elms said "Depolarisation is good news for consumers. It will offer more transparency on price and the rules covering IFA fees will help put a value on advice, doing away with the idea that it is free." But he said that it is important that individuals know what type of adviser they need in the first place. With the service and pricing displayed in the key documents, many may be tempted to go for the cheapest option but, as Mr Elms said, it is not about cheapest but what you are getting and value for money.

All companies offering financial advice will have to declare their status, but you will need to ask questions to make sure you select the right adviser. Currently, paying for advice is something of a novelty because previously charges were hidden in the commission fees. On the other hand, some IFAs may be prepared to discount the commission in order to keep/win your business.

03 June 2005 © Moneyextra.com

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