When it comes to planning your financial future, the importance of getting sound advice should not be understated. However, one thing many people may not consider when choosing an independent financial adviser (IFA) is just how stable their chosen company’s own finances are.
It may sound like a triviality, but a number of leading IFA firms have reported losses in recent months and recent research from Plimsoll Analysis shows that 159 of the top 1,000 IFA companies in the UK are currently “in danger” of collapse, so it is worth considering the liquidity of your adviser before giving them your business.
One high profile example of what can go wrong was seen recently in the case of Park Row Associates. The firm was censured in February by the Financial Services Authority (FSA) for giving poor and unsuitable advice to customers, and has now closed down. As a result, many are stuck in limbo as they await the results of an independent review by KPMG to see whether they will be compensated.
Choosing an IFA
If you don’t want to find yourself with a financial headache should anything go wrong, it’s important to do your research before entering any agreement. Martin Bamford, chartered financial planner and managing director of Surrey-based IFA Informed Choice, says that “investors should be incredibly cautious about doing business with loss-making IFA firms”.
“Although these companies tend to have a good story about their plans to turn a profit in the future, history tells us that business losses cannot be sustained for a prolonged period of time. There is a real danger that continuity of service falls apart when the loss making business goes bust.”
As a result, he recommends carrying out your own due diligence before becoming a client or customer of any business. For just £1, you’ll be able to get a set of published accounts from Companies House – if it stops you from doing business with a habitually loss-making IFA, that could well be the best £1 you’ve ever spent.
Of course, profitability and financial robustness is not the only criteria you should consider, but it should form an important part of your comparisons. If an IFA firm is continually loss-making - often due to the cost of overambitious expansion plans - then think twice before taking their advice about your own financial planning. Some other things to consider are:
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Registration and qualification – The very first thing you should do when selecting an IFA is check they’re properly authorised by the FSA. Taking a look at the qualifications attained by each firm and individual adviser can be a good way of judging what you can expect from them.
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Talk to friends – Probably the best way to judge the suitability of a firm is by speaking about them with someone you trust. Ask around people you know, or, if that doesn’t work, try searching a website like unbiased.co.uk to view advisers in your area.
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Ask plenty of questions – As with any transaction, it’s vital to know exactly what you’re getting from your IFA before you take the plunge. In particular, it’s worth researching and asking questions about a firm’s claims to be independent and whole of market – not all of them truly are. Also make sure you’re clear on any charges, the nature of the advice given and think about the relationship between you and your adviser – it could be an incredibly important one, so make sure it feels right.
