The Telegraph today published 'Ten tips to spot rip-off financial advice'. Helpful, we think you'll agree. But do you find yourself, or see any of your peers or colleagues, committing any of the following?
"Rip-off financial advice, intended to generate commission for the intermediary rather than gains for the investor, is becoming more - not less - widespread," the Telegraph writes, citing 'some experts'.
Here are its ten tips for consumers to identify warning signs and avoid rip-off financial advice:
If you are contacted by a financial adviser you dealt with in the past but who has not been in touch for more than a year, you might ask why he or she is so keen to do business now. Steve Wilson at Alan Steel Asset Management explained: "The chief executive of a major life company confirms that much of their old book of business is being moved to other providers. Much of it will be for good reasons but investors should think about why they suddenly hear from any adviser out of the blue and why haven't they heard from them for many years?"
What's in it for me? Or You?
Prospective investors should ask advisers how much commission they will receive if any action recommended is taken. They might be shocked by the answer.
Don't be lazy
Apparently simple solutions can prove very expensive. Andy Cowan of IFA Towry said: "Beware ‘nicely wrapped packages' which purport to solve all problems; for example, an investment bond may look like a convenient one-stop product which offers easy, simple administration, access to managed funds and can even solve your inheritance tax (IHT) problems and income requirements. The truth is, an investment bond is mostly a poor product proffered by an insurance company with little investment expertise, which is not tax efficient and pays the salesman 7% commission."
Refuse to be rushed
If your adviser says he or she needs an answer now, then perhaps the answer should be "no, thank you". Nic Round of Murray Round Associates said: "My main tip is that investors should take due diligence. They should take time before buying products. There often is not a need for a rush. If you are rushed, someone wants to earn commission. Have a long term strategy and then think how buying products will meet those long term needs."
Require regular advice - and full disclosure
Mr Wilson said: "It's not unreasonable to expect a financial adviser to review your investments and pensions on an ongoing basis and, if so, tell you what incentives he or she is receiving from product providers. For example, a typical trail commission would equal 0.5% of the value of your investments but many intermediaries are now charging 1%. What are they providing to justify this?"
What about tax?
One way to identify advice that might not be in the client's best interests is to beware changes to portfolios that would incur capital gains tax (CGT) or other liabilities unnecessarily. Why would you want to do anything that transfers more of your wealth to HM Revenue & Customs (HMRC)?
How are your professional studies coming on?
Exams are no guarantee against bad financial advice but investors may ask advisers whether they have obtained the qualifications which will be required by the FSA after 2012 - or are on track to have obtained them by then.
If you don't understand what your adviser is saying, tell him or her to try again in plain English. Jargon can obscure some nasty surprises.
If it looks too good to be true, it probably isn't true
Mr Wilson said: "Beware high allocation products which look too good to be true and ultimately try to hide the initial commission. All that happens is the charge is ultimately taken out of the contract over a number of years and back end penalties will apply. Investors should look for a transparent charging structure."
Remember that ‘free' financial advice can prove very expensive; you generally get what you pay for
Mr Cowan said: "Commission-driven advice is by definition not independent. So, if an individual is looking for independent advice, they should be prepared to pay a fee for it. Avoid commission altogether and opt for time charged advice from a highly qualified fee-only adviser."
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