Engaging an IFA - any risks to be aware of?

kangoora

Hi,

I've picked up lot of advice on these forums recently but these questions are more concerned with how 'risky' is it to put my pension fund in the hands of someone, quite frankly, I won't know from Adam. I'm currently talking about £200k but intend to ramp up my investments by a lot over the next 6-8 years.

I expect 99% of IFAs are honest, hard-working people - what happens if you end up with a 1%er? If I choose an adviser and ask them to provide a full fund management on a percentage basis, could they draw out all the money and run? Is this even possible? Or could they put it into 'dodgy' investments without my knowledge for fraudulent purposes?

Are there some basic checks I can do for peace of mind?

• Can I check their registration status somewhere? (FCA website?)
• If they are registered does that mean I am insured against fraud via the FCA?
• Is it possible to see if they have had any complaints registered against them?
• Any way of checking testimonials (like references)
• Is there any benefit/disadvantages going with, say a firm with 8 advisers on the books, or going with a one man band firm?

My requirement will be for detailed advice on planning for retirement, what investments are recommended and an honest opinion on what date/age I should be able to retire given my target income. I've done a lot of spreadsheets currently so I've got my own idea's, now I need to validate them with a professional person.

A few advisers in unbiased offer a first meeting free - what should I expect as an output from that given the above requirement. I'm not expecting them to hand over a detailed investment plan but not sure what to expect?

I see the recommendation is to speak to a few advisers, is two considered enough or maybe 3 (or 4)?. Apart from fee's, what other criteria would you use to determine if they would be a 'good' adviser.

Apologies if this has offended any responsible IFAs out there, my (un)natural paranoia is setting in.

dunstonh

I expect 99% of IFAs are honest, hard-working people - what happens if you end up with a 1%er?

You are right. We do the majority of regulated transactions but only account for 0.5% of complaints at the FOS (most of which dont get upheld).

As for spotting it, it is actually quite easy. Here is a couple of pointers....
If you are not a knowledgeable investor then is what you are being recommended sound too advanced?
Are you being recommended a mainstream product using mainstream investments or are things like hotels, overseas property, bio fuels, carbon credits etc being mentioned (if the latter, run a mile)
Has a proper cost comparison been done and you have been shown it? if not, then that is wrong -it is a requirement to benchmark pensions against stakeholder and the existing plan and point out cost differences. Most typical way of doing this is comparing projections using the same growth rates to the same age.

Can I check their registration status somewhere? (FCA website?)
FSA register. - https://www.fsa.gov.uk/register/indivSearchForm.do

If they are registered does that mean I am insured against fraud via the FCA?

The FCA does not insure against fraud. However, an adviser with CF30 permissions is required to have PI insurance or suitable funds put aside to cover redress payments. That also gives you access to the FOS and if the adviser ceases trading with no assets then the FSCS can kick in.

Is it possible to see if they have had any complaints registered against them?

no

Any way of checking testimonials (like references)

no

Is there any benefit/disadvantages going with, say a firm with 8 advisers on the books, or going with a one man band firm?

Pros and cons of each. If a one man band retires then you have to find a new relationship. However, apart from that, you know you will be dealing with the same person.

Also, a sole trader or partnership carries the adviser liability for life (a limited company can drop their liability on closure). Knowing you have a lifetime of liability could make the adviser more sensitive to making sure things are done right.

Employee advisers tend to move around more. Especially on the larger firms. They can often have higher fees as you are not just paying for that adviser but their employer. Employee advisers may not have the same buy in for quality of advice or service that an owner/partner/director would have.

A few advisers in unbiased offer a first meeting free - what should I expect as an output from that given the above requirement. I'm not expecting them to hand over a detailed investment plan but not sure what to expect?

I would have thought all advisers on unbiased should offer first meeting free. It used to be a requirement. Although they may have dropped that. You cant be charged until you have been told the fees and you sign a fee agreement anyway. So, that realistically happens after finding out what you want/need from the advice. i.e. you need a free first meeting (typically 45-60 minutes) to find that out. It will be little more than a meeting to find out what you want/need and if the adviser is likely to be able to provide a service to you to meet that. A little bit of concept and ideas may slide in but you will not get advice.

Apart from fee's, what other criteria would you use to determine if they would be a 'good' adviser.

Find out about history. I remember when I became qualified and it was around 2 years later that much of the stuff actually started to sink in. A bit like the saying that you only start to learn to drive when you pass your test. An adviser going through their first stockmarket crash will be nervous and may react incorrectly. An adviser that has gone through a couple will have been there and done that. Although a newer adviser may argue that a more experienced adviser could be complacent.

You need to be able to communicate well with each other and have trust in each other. That free meeting can give you that first impressions view to see if that is likely.

Honest advisers do not hide from their charges or the negatives about investing. So, if you have one going on about positives all the time and never mentions negatives, then be on guard.

jackyann

I like reading dunstonh's advice, and have taken note of it for about 5 years now.
I had 1 bad and 1 not-very-good experience with financial advisors (and I paid for it) and here is my advice:
1. Does it sound reasonable? I needed less than 5 minutes with a calculator, a pencil & the back of an envelope to realise that a piece of advice was rubbish
2. Have they listened to you? When one advised that I invest in something I had specifically said I didn't want to, I knew he was just sending "boiler plate" replies

So, if you have accumulated that much money, you probably have a job that involves at least some dealing with people and having good instincts, so employ those to decide if the IFA is in the 99%.

Your_Hero

kangoora wrote: »

Hi,

I expect 99% of IFAs are honest, hard-working people - what happens if you end up with a 1%er? If I choose an adviser and ask them to provide a full fund management on a percentage basis, could they draw out all the money and run? Is this even possible? Or could they put it into 'dodgy' investments without my knowledge for fraudulent purposes?

They can't withdraw your money, only you can.

Depends what you mean by "full fund management". If you mean Discretionary management, meaning the individual can make investment decisions at his/her 'discretion' and without your consent then that is what you are paying them for. The advantage of this is to quickly seize opportunities in the market by reducing delays in meeting or responding to each other. You agree the relationship with them and what the boundaries are for their discretion. This is typically not associated with the work of an IFA but rather a DFM (discretionary fund manager - think of them as your personal fund manager).

An IFA usually recommends and advises what investments or changes ought to be made, and cannot act without your permission.

kangoora

Thanks all - a little more knowledge accumulated....


I'm definitely not looking for a DFM so sounds like an IFA is what I am looking for.


Currently about 60% of my money is with various funds within Standard Life as my companies pension provider, most of the remainder is in various ISAs and a bunch of shares I've recently got from a works shares scheme.


I can invest in a variety of investments within SL and having read Hale's book recently I think that sounds like a good approach. Hopefully I'll get some decent advice to kick me off.

jem16

kangoora wrote: »

Currently about 60% of my money is with various funds within Standard Life as my companies pension provider

So presumably you are looking for advice on what funds to choose within this pension as opposed to the IFA choosing the best pension provider for you? Make sure you communicate this to the IFA from the start.