Most Independent Financial Advisers are not independent........

IFAs are....
The great majority of IFAs are skilled, intelligent and honest. We all certainly need financial advice. And the amount of money involved is large, so it's certainly worth paying for it. So what's the problem?

The problem is.....
IFAs depend for their livlihood on selling product. They are salesmen first and advisers second.

So, they will be helpful, honest and wish you no harm. But they operate within an incentive system that inevitably drives them to sell you stuff that rewards them. For you, that means higher costs and lower returns.

The regulators have attempted to counter this by insisting that IFAs offer a menu of alternative charging methods, ranging from all-fee to all-commission, from which the client can chose. But this misses the point. Unless the whole firm operates on a fee basis (and so makes no income from product sales), the employees of that firm are still incentivised to sell product. All the menu system has done is to introduce an extra level of complication for the client, and maybe create the illusion that by chosing to remunerate on a fee basis the client is avoiding biased advice.

...and there are other pitfalls....

• Your IFA may be receiving introductory fees from product providers as incentive to mention their products. An investigation by the FSA, reported in a letter to product providers in June 2004, noted "..... the contemplation of fees of up to £1m [payable to an IFA] as condition for providers' products being placed on the [IFA's] recommended list"
• He may have other undeclared financial relationships. The same letter warned "similar introductory deals may be structured around the provision of finance for [IFAs] for the development of software or computer facilities"
• Like all professionals, he likes to make things more complicated than they are.

It is a stupid regulatory failure that commission-based advisers are allowed to call themselves 'independent', or even 'advisers'. If they were called 'Financial Product Distributors', which is what they are (and as suggested by the 2002 Sandler Report on retail savings), we would all know where we stand.

Real advice
If you want to buy product, by all means go to an IFA. But it will pay you sometimes to get real advice, for which you should expect to pay for the expensive time of the skilled and experienced person who will provide it. If you buy product you are paying anyway, but for the product provider's sales and marketing effort, not for advice.