Managing my financial journey
Managing my financial journey

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Managing my financial journey

2.2.6 Advisers in the contemporary financial marketplace

In the following video David Harrison of True Potential LLP provides his thoughts on what to look for when choosing a financial adviser, and on the regulatory developments that are changing the way that advisers operate.

Chris Woolard, director of strategy and competition at the Financial Conduct Authority (FCA), talks about the review of the Financial Advice Market Review (FAMR) that was initiated in 2015 and on the changing expectations the regulator has about the provision of financial advice.

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When seeking financial advice what should you look for in an adviser?
There are a couple of things. One I think it's about trust. You have to trust them so you should really get to know a little bit about them beforehand. You should be recommended to one. I think the question that's missing in the market more than anything else is that people don't ask. If you went to buy say for example a Ford motor car or an Audi or a BMW you'd expect the man who is selling you that car to have that car. You - you believe more if he is driving that car. Not just the fact that he has provided that car as part of his job but he bought the car. I think that's the question really you should ask a financial adviser - whatever they're recommending do they have it themselves? How long have they had that product? How has the product done? Why do they believe in it because ultimately you get advice but what you are going to get, at the end of that, is a product.
There are different types of financial advisers aren't there? There are independent advisers and then restricted advisers. Why would I want to use a restricted adviser?
I'm going to show that there is a bias here Martin. I don't think there is anybody truly independent okay. What you want is somebody who is going to be on the same side of the table as you. They're going to look at the world like you. They're going to be objective - like you, rather than this pretence that they will know everything there is about everything. We - our business collects commissions and fees and valuations from 630 different agencies. Point me to the man or woman who understands everything there is to know, each time we go to 630 different places. I think this is everybody's restricted to a point of view, so we in our firm have many restricted advisers and many more independent financial advisers. In most situations factually the breadth of what they recommend the client, the restricted advisers have a wider breadth.
So the whole idea is financial advice is fairly easy. Where you're going is easy. It's a simple world. Where you're going, where your money is going to go to it's a simple world these days. Where it's been is hugely complicated and all of the qualifications and questions you will have as a private individual is about the past. Where you're going in the future - you're probably better with a restricted adviser. They will know more about the restricted thing that they're recommending to you, which might by the way in all probability be wider than the independent thing. So I think the distinction is if you just want advice, if you want a plan about what you should do, see an IFA. If you want to do something about it see a restricted adviser because they will know more about where it's going and it will be cheaper with them.
David, the Financial Conduct Authority are currently undertaking a review of financial advice. What are your hopes and expectations?
I think that they're reviewing basically financial advice and they're trying to establish is there an advice gap in the market. Well that's kind of - you don't need a review to do that. There's 64 million people living in the UK. There are 22,000 or so financial advisers. That's one adviser for every 1,000 people that's going to need advice. Let's just say that 20, 20 million people need some sort of financial product or help. So that's one for every 1,000. On average an adviser has maybe 100 clients. Of course there's an advice gap. It takes as long as I've just explained today if you think those 20 million people could benefit from advice there is only one adviser for 1,000 of them and they're not interested in talking to the other 900 frankly. The Retail Distribution Review the RDR that went on made several errors. It was some good points and some bad points. The bad points we are beginning to see emerge in the market right now - lack of advice, lack of clarity et cetera.
At a recent conference one of the delegates said "the problem with consumers in the financial market place is they want someone to say 'buy that product' but when it comes to regulated investments they don't get anything like that advice unless they pay up for it". Is there a case for making the regulation of investments and other financial products a bit more simple so that people can form their own views more effectively about which product to buy?
So that's one of the questions why we launched the Financial Advice Market Review with the Treasury is to begin to examine is there the scope for a simpler model around advice where people perhaps more cheaply, more easily can begin to get that kind of question answered. But we are also looking at is that really the need that consumers have or are there other things that consumers want as well from how they think about purchasing financial products. We are also trying to encourage and looking at the scope for how do you take maybe some of the costs out of traditional financial advice. So so-called robo advice, automated advice systems, where the legal responsibilities are still very much the same. So if you tell someone that's the product you ought to be buying then you have to take responsibility and stand behind that statement. But actually the costs of doing so can be dramatically reduced and simplified.
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