I always advise people never to give advice.
PG WODEHOUSE
Last year might not have been a great year for investment returns – but it was a great year for investors. Why? Because of the Retail Distribution Review (RDR). This new set of regulations came into effect on 1 January 2013 and, among other things, it stopped independent financial advisers (IFAs) from taking (and financial companies from paying) commissions when you invest in financial products. The result being that every time you buy a product, open an individual savings account or set up a pension, you will know exactly what you have paid your IFA to help you do so. So is there such a big difference? Yes: it’s all about transparency – instead of the money to be paid to your IFA being taken from your investment by the fund manager, it is now paid by you to your IFA directly.
Top tips: Why RDR is important
(Source: www.theweek.co.uk)
Another change over the last couple of years is face-to-face financial advisory services. A number of companies have reduced or completely withdrawn this service, abandoning their clients at a time when they most need assistance. It’s all an indirect result of the new regulations regarding the FSA and the RDR. Many leading high street banks only offer online service and with other companies there is only limited advice available. So if you wish to continue obtaining face-to-face advice, you will need to research where this can be found. One source where you can find information is the Telegraph Investment and Savings Service: www.telegraph.co.uk/invest.
When choosing an adviser, there are usually four main considerations: respectability, suitability, price and convenience. Establishing that an individual is a member of a recognized institution is a basic safeguard. If you are thinking of using a particular adviser, do you already know him or her in a professional capacity? If not, you should certainly check on the adviser’s reputation, ideally talking to some of his or her existing clients. Do not be afraid to ask for references. Most reputable professionals will be delighted to assist, as it means that the relationship will be founded on a basis of greater trust and confidence.
In April 2013 the UK’s banking regulator, the Financial Services Authority (FSA) was abolished and replaced with two successor organizations. The Prudential Regulation Authority (PRA) ensures the stability of financial services firms and is part of the Bank of England (see www.bankofengland.co.uk). The Financial Conduct Authority (FCA) is now the City’s behavioural watchdog (see www.fca.org.uk). It will police firms’ conduct to ensure consumers are protected. It ensures that your financial adviser meets certain standards regarding how they give you advice on types of insurance, mortgages and investments (such as personal pensions, life insurance and annuities).
A simple definition of financial advice is that which takes into account your particular circumstances. If you buy a financial product without professional advice, you will have fewer grounds for complaint if the product turns out to be unsuitable. But if you do take advice and then find that the product wasn’t suitable, you may have grounds to make a complaint and receive compensation for any loss. You can help prepare yourself for a meeting with a financial adviser by thinking carefully about your needs and priorities.
For your protection
The Financial Services Compensation Scheme (FSCS) is the body that can pay you compensation if your financial services provider goes bust. FSCS is independent. It was set up by the government under the Financial Services and Markets Act 2000. The financial services industry funds FSCS and the compensation it pays. It does not charge anyone for using its services. There are limits to how much compensation it pays, and these are different for different types of financial products. To be eligible for compensation, the financial service firm must have been authorized by the Financial Services Authority (FSA). See website: www.fscs.org.uk.
Despite the safeguards of the Financial Services Act, when it comes to investment – or to financial advisers – there are no cast-iron guarantees. Under the investor protection legislation, all practitioners and/or the businesses they represent offering investment or similar services must be authorized by the FCA or, in certain cases, by a small number of designated professional bodies that themselves are answerable to the FCA. A basic question, therefore, to ask anyone offering investment advice or products is: are you registered and by whom? Information is easily checked via the Financial Conduct Authority website: www.fca.org.uk.
Accountants are specialists in matters concerning taxation. Many accountants can also help with raising finance and offer support with the preparation of business plans. Additionally, they may be able to advise in a general way about pensions and your proposed investment strategy. Most accountants, however, do not claim to be experts in these fields. They may refer their clients to stockbrokers or other financial advisers for such specialized services. If you need help in locating a suitable accountant, any of the following should be able to advise:
Association of Chartered Certified Accountants (ACCA): website: www.accaglobal.com.
Institute of Chartered Accountants in England and Wales (ICAEW): website: www.icaew.com.
Institute of Chartered Accountants of Scotland (ICAS): website: www.icaew.com.
Complaints
Anyone with a complaint against an accountancy firm should contact the company’s relevant professional body for advice and assistance – see ACCA, ICAEW or ICAS, above.
Banks provide comprehensive services, in addition to the normal account facilities. These include investment, insurance and tax-planning services, as well as how to draw up a will. Other more specialized banks such as Hoare’s, Coutts and overseas banks are all part of the UK clearing system and can offer a very good service.
The main banks are listed below with their websites. If you prefer to call into your local branch, a specialist adviser should be able to assist you.
Barclays Bank plc: www.barclays.co.uk.
Co-operative Bank: www.co-operativebank.co.uk.
HSBC: www.hsbc.co.uk.
Lloyds TSB: www.lloydstsb.com.
NatWest (part of the RBS Group): www.natwest.com.
RBS (Royal Bank of Scotland): www.rbs.co.uk.
Santander Group (formerly Abbey and now including Alliance & Leicester): www.santander.co.uk.
Complaints
The FSA regulates the way banks and building societies do business with you. If you have a complaint about a banking matter, you must first try to resolve the issue with the bank or building society concerned. If you remain dissatisfied, you can contact the Financial Ombudsman Service; see website: www.financial-ombudsman.org.uk.
Independent Financial Advisers (IFAs)
The role of IFAs has become more important since the number of investment, mortgage, pension protection and insurance products has multiplied and financial decision making has become increasingly complicated. An IFA is the only type of adviser who is able to select from all the investment policies and products on offer in the marketplace. It is his or her responsibility to make sure you get the right product for your individual needs.
IFAs must assess whether customers are at risk of over-committing themselves or taking some other risk that might jeopardize their security. This means they have to gain a full understanding of your circumstances and requirements before helping to choose any financial products. You should ask your adviser a number of questions including – most important – by whom they are regulated. All IFAs must be authorized and regulated by the Financial Conduct Authority and are obliged to offer what is termed ‘suitable advice’. To check whether your IFA is registered, see the FCA’s Central Register website: www.fca.org.uk.
Or to find an IFA, see the following websites:
Ethical Investment Research Service (EIRIS): www.yourethicalmoney.org.
Institute of Financial Planning: www.financialplanning.org.uk.
MyLocalAdviser: www.mylocaladviser.co.uk.
The Personal Finance Society (PFS): www.thepfs.org.
Unbiased.co.uk: www.unbiased.co.uk.
The insurance business covers a very wide area, from straightforward policies – such as motor or household insurance – to rather more complex areas, including life assurance and pensions. Whereas IFAs specialize in advising on products and policies with some investment content, brokers primarily deal with the more straightforward type of insurance, such as motor, medical, household and holiday insurance. Some brokers are also authorized to give investment advice. A broker will help you choose the policies best suited to you, assist with any claims, remind you when renewals are due and advise you on keeping your cover up to date. An essential point to check before proceeding is that the firm the broker represents is regulated by the FCA. A condition of registration is that a broker must deal with a multiplicity of insurers and therefore be in a position to offer a comprehensive choice of policies. Generally speaking, you are safer using a larger brokerage with an established reputation. Also, before you take out a policy, it is advisable to consult several brokers in order to get a better feel for the market.
The British Insurance Brokers’ Association represents nearly 2,200 insurance broking businesses and will help you find an insurance broker: see website: www.biba.org.uk.
Complaints
The Association of British Insurers (ABI) represents some 400 companies providing all types of insurance from life assurance and pensions to household, motor and other forms of general insurance. About 90 per cent of the worldwide business done by British insurance companies is handled by members of the ABI. For information on insurance products see website: www.abi.org.uk.
If you are (or have been) in salaried employment and are a member of an occupational pension scheme, the normal person to ask is your company’s personnel manager or pensions adviser or, via him or her, the pension fund trustees. Alternatively, if you have a problem with your pension you could approach your trade union, since this is an area where most unions are particularly active and well informed. If you are in need of specific help, a source to try could be The Pensions Advisory Service. For information on state, company, personal and stakeholder pensions, and for help with problems or complaints about pensions, see website: www.pensionsadvisoryservice.org.uk.
As with most other financial sectors, there is also a Pensions Ombudsman. You would normally approach the Ombudsman if neither the pension scheme trustees nor the Pensions Advisory Service are able to solve your problem. Also, as with all Ombudsmen, the Pensions Ombudsman can only investigate matters that come within his orbit. These are: complaints of maladministration by the trustees, managers or administrators of a pension scheme or by an employer; and disputes of fact or law with the trustees, managers or an employer. The Pension Ombudsman is also the Pension Protection Fund Ombudsman. See website: www.pensions-ombudsman.org.uk.
Another source of help is the Pension Tracing Service, which can provide individuals with contact details for a pension scheme with which they have lost touch. There is no charge for the service. See website: www.direct.gov.uk/pensions.
Two other organizations that are interested in matters of principle and broader issues affecting pensions, are the National Association of Pension Funds, which is committed to ensuring that there is a sustainable environment for workplace pensions, website: www.napf.co.uk; and The Pensions Regulator, for information about work-based pensions, website: www.thepensionsregulator.gov.uk.
Solicitors are professional advisers on subjects to do with the law or on matters that could have legal implications. Their advice can be invaluable in vetting any important document before you sign it. Often the best way of finding a suitable lawyer (if you do not already have one) is through the recommendation of a friend or other professional adviser, such as an accountant. If you need a solicitor specifically for a business or professional matter, organizations such as local Chambers of Commerce, small business associations, your professional institute or trade union may be able to put you in touch with someone in your area who has relevant experience.
Two organizations to contact for help are The Law Society, website: www.lawsociety.org.uk; and Solicitors for Independent Financial Advice (SIFA), which is the trade body for solicitor financial advisers: www.sifa.co.uk.
Complaints
If you are unhappy about the service you have received from your solicitor, you should first try to resolve the matter with the firm through its complaints-handling partner. If you still feel aggrieved you can approach the Solicitors Regulation Authority (www.sra.org.uk).
For practical assistance if you are having problems with your solicitor, you can approach the Legal Services Ombudsman. This must be done within three months or your complaint will risk being out of time and the Ombudsman will not be able to help you. See the Legal Services Ombudsman website: www.legalombudsman.org.uk.
General queries
For queries of a more general nature, you should approach the Law Society: see website: www.lawsociety.org.uk. For those living in Scotland or Northern Ireland, see The Law Society of Scotland: website: www.lawscot.org.uk or The Law Society of Northern Ireland: website: www.lawsoc-ni.org, respectively.
A stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or agency-only firms on behalf of investors. A broker may be employed by a brokerage firm. A transaction on the stock exchange must be made between two members of the exchange.
There are three types of stockbroking service:
Roles similar to that of stockbroker include investment adviser and financial adviser. A stockbroker may or may not be an investment adviser.
While some stockbrokers now charge fees in the same way as a solicitor, generally stockbrokers make their living by charging commission on every transaction. You will need to establish what the terms and conditions are before committing yourself, as these can vary quite considerably between one firm and another. Nearly all major stockbrokers now run unit trusts.
To find a stockbroker: you can approach an individual through recommendation or visit the London Stock Exchange website: www.londonstockexchange.com, or the Association of Private Client Investment Managers and Stockbrokers (APCIMS) website: www.apcims.co.uk.
Complaints
If you need to make a complaint about a financial product or service, these tips are worth noting:
Financial Ombudsman Service (FOS)
This is a free service, set up by law with the power to sort out problems between consumers and financial businesses. Follow the steps outlined above, then contact the FOS, which will investigate your complaint. If the Ombudsman considers the complaint justified, it can award compensation. See Financial Ombudsman Service website: www.financial-ombudsman.org.uk.
The FOS is the single contact point for dissatisfied customers, as it covers complaints across almost the entire range of financial services, including consumer credit activities (such as store cards, credit cards and hire purchase transactions). The service is free; however, before contacting the FOS you must first try to resolve your complaint with the organization concerned (see above). Also, the Ombudsman is powerless to act if legal proceedings have been started. See the Financial Ombudsman Service website: www.financial-ombudsman.org.uk.
Other useful websites are: