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Financial advice: how much are you paying?

A new guide from the City regulator explains the huge changes it is making to the way financial advisers work.


by Michelle McGagh on Aug 30, 2012 at 12:08

Financial advice: how much are you paying?

The City regulator has urged consumers to ask their financial adviser just how much they charging for their services, ahead of sweeping changes to the way advisers are paid.

The Financial Services Authority (FSA) is changing the way financial advisers work, and is insisting they are better qualified and provide a more transparent service. These changes are set out in the retail distribution review (RDR), and have been in development for six years.

In a new guide the FSA sets out the three main changes to how consumers will receive advice in the future.

No more commissions

The first change is that the FSA is banning commission and making all advisers tell their consumers just how much they are paying for their services.

‘Advice has never been free. You may not have realised, but if you have receive financial advice you have probably been paying "commission" to you adviser,’ the FSA said.

‘The company providing the investment product would have paid your adviser a percentage of the sum you invested. From 31 December 2012, instead of paying commission on new investments, your financial adviser will have to be clear about the cost of advice and together you will agree how you will pay for it.’

Consumers will still be able to pay their adviser’s fee from the sum invested, but they will also be given the choice to pay an upfront fee. The FSA said consumers should ask their adviser just what they will be charged in future.

‘Before 31 December 2012, ask your adviser how much they are currently charging you for their advice and how much that same advice will cost in the future,’ said the guide. ‘They should be able to explain how these changes will affect you and your finances.’

Independent or restricted?

Advisers will also have to explain whether they will offer independent or restricted advice. An independent adviser will be able to offer you products from all companies, whereas a restricted adviser can only offer you certain products from a limited range.

‘There are many ways to invest your money and financial advisers can either advise you on all products that may be right for you or only focus on certain areas, such as pensions,’ the FSA said.

‘Your adviser will have to make clear which products they can advise you on and whether they can consider any firm across the market or only some product providers.’


The final change being introduced is a requirement for more qualifications. All advisers will have to hold a minimum of level four qualifications, the equivalent of completing the first year of a degree.

Not only will advisers have to learn more, but they will also have sign an agreement to treat consumers fairly.

5 comments so far. Why not have your say?

David Rowse

Aug 30, 2012 at 21:27

It's not simply what they advise, but perhaps why?

In this respect I believe that the dichotomy has always been that between a good investment and what is best for the adviser.

I may well be jaundiced, but I have never yet found an adviser who would beggar him/herself if the recommendation was quite obviously in the customer's best interest whilst detrimental to them.

But perhaps others have had a different experience?

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Aug 31, 2012 at 07:52

Nope. All "advice" is tainted, deliberately or not, and needs to be treated as such. The problem with investment advice is that it is "risk free" on the part of the IFA.

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Aug 31, 2012 at 08:18

Surely all that is going to happen is we move from he current imperfect system to yet another. If I was an IFA (I'm not) then wouldn't it make sense if I'm being paid via a set fee simply to push clients to the least work lowest risk products, by low risk I'm not talking in the investment sense but in terms of the potential for it to be open to a charge of future miss selling. So I advise taking some form of risk profiled model portfolio based around cheap simple index trackers and NSandI index linked savings - job done, 1% up front, 0.25% for ongoing monitoring of old rope and everyone is happy. Alternatively I could just sell each client a copy of Tim Hales book on simple investing at the biggest markup I can get away with - unfortunately I'm still trying to work out how to incoporate an ongoing % of investment cost into this scheme

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Aug 31, 2012 at 10:28

The FSA seems to have missed a trick here, probably deliberately after some heavy lobbying from some, allegedly "independent" financial advisors, namely they have left it to the ordinary joe to ask the question of the IFA as to what his kickback is from the investment he is recommending!

So, as I understand it, for example, Hargreaves & Lansdowne, will not declare what their kickback from each fund they recommend or place in their Wealth 150 is! They`ll leave it to the individual, none-the-wiser punter, to ask the question! Majority wont! HL will get away with it again, enriching their directors & owners and screwing the public. My own personal experience of investing in funds they have recommended has been pretty awful - and I rarely listen to anything they now say, and am desperately trying to manage my losses to get out of the balance of the funds the "bearded one" recommends. And this way before the current crisis got a proper hold - for example, lost money in a fund RAB European Dynamic Fund - which was in their Wealth 150 and which then went bust. Luckily I sold-out with half my initial investment. Currently have the Fidelity China fund run by Bolton, invested when HL heavily heavily touted it - I stll have all their bumpf, by email & post - my biggest percentage loss yet! Losing or lost money on everything they have recommended!

Prefer making my own mistakes! And have now gone through a huge educational process & largely managing my own money - a very good thing!

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Nov 26, 2012 at 19:02

@ Beamtree, I am not the only one to notice the decline in value of investments when choosing from the not-so-wealth 150 funds?

As you say the beardy one makes all these predictions and they are crap to say the least.

I for one will not even look at the gumph any more and just bin the stuff as it comes through the door.

Not good advice any more from Mr HL

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