Independent Financial Advisers (IFAs)

Many Independent Financial Advisers are not independent........

IFAs are....

The term IFA is legally defined. It applies to a person or firm who has submitted to a regulatory system governing the giving of advice to consumers. 'Advice ' is also defined in this context, meaning advice that includes recommendations to buy specific financial products. Think of it as a legal framework authorising sales pitches to consumers but designed to protect them.

Advice that does not fall within the legal definition is called 'guidance'. In all material from the regulator or in law you will find very careful usage of the words 'guidance' and 'advice'.

The great majority of IFAs are skilled, intelligent and honest. We all certainly need financial advice. And the amount of money involved is large, so it's certainly worth paying for it. So what's the problem?

The problem is.....

Until 2014 IFAs were allowed to earn commission from providers on products they persuaded their clients to buy. It was to the credit of the regulator that they finally outlawed this practice, except under certain conditions, following an extensive investigation called the Retail Distribution (RDR for short). It was perhaps less creditable that it took them 15 years to do it.

The system that replaced it is inevitably more complicated and opaque. Other conflicts might include:

Your IFA may be receiving incentive from product providers to mention their products.
He may have other undeclared financial relationships.
Like all professionals, he likes to make things more complicated than they are.

So, IFAs will be helpful, honest and wish you no harm. But they operate within an incentive system that inevitably drives them to sell you stuff that rewards them. For you, that means higher costs and lower returns.

If you want to buy product, by all means go to an IFA. But it will pay you sometimes to get other sources of advice, for which you should expect to pay for the expensive time of the skilled and experienced person who will provide it. If you buy product you are paying anyway, but for the product provider's sales and marketing effort, not for advice.