Following last week’s column on the difference between receiving independent financial advice, or advice from a “restricted” adviser, I had a few queries to answer.
A restricted adviser works for just one company. An independent financial adviser chooses from all the companies and options available based on the needs of the person in front of them.
Twenty-five years ago, when I was working for a “restricted firm”, our marketing department went to great lengths to state that we were the very best at everything, and everyone else was indeed bad (politician style). Marketing budgets can be significant and make even a politician appear palatable. If I was comfortable in my salary, or needed it for my mortgage, this convenient bending of the facts would have been indeed convenient. Convenience can be very expensive.
With thousands of investment funds available, countless life insurance companies for products that vary significantly on price and conditions of cover, let alone the multiple Inheritance tax solutions, how could I offer such limited advice to my customers. And so, like many at the time, we left "restricted” advice in droves to offer independent financial advice.
Afterall, we all use brokers for car and house insurance, so why would we use just one? Money and finance is a minefield for sure and making sense of noise is impossible for most. Pretty marketing can often be a distraction.
I covered examples of it last week and was asked further questions. Let’s cover investments now. A recent report showed some interesting findings on one of the largest “restricted” adviser firms still operating.
They were ranked 70 th for their total fund offering in terms of performance, with nearly 94% of their funds ranked three star or less (out of five). The same organisation also showed that 50% of their funds ranked in the worst 25% of their sector.
It was reported in national newspapers that the firm was forced to admit that two thirds of their funds were failing to deliver value. All of these issues are exacerbated with pension and bond products anchored with large exit penalties of up to 6% if you transfer back out. This used to be the case with expensive products offered by IFAs in the past where there was “no up-front fee”, but instead there was an annual fee taken out over the first five years that you
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didn’t see. If you tried to take the money out before then there would be a penalty of (amazingly) that fee, so this was highly misleading marketing as a “no up-front fee”. Those opaque days are over for IFA’s, but still seem to exist elsewhere.
Research by the Personal Finance Society and Next wealth showed that clients with a restricted adviser paid more than 28 basis points in additional charges than a customer with an Independent financial adviser.
Added to this, is the issue with diversification of risk in your portfolio. In years gone by, a split between bonds and equities created this wellington boot/ice cream risk balance where your investments had a negative correlation - when something was battered (welly boots in
hot weather), the ice cream did well as an opposite correlation. Over the last few years there has been nowhere to hide, and as such, investors have been unable to have protection as bonds, equities and other fixed interests acting in tandem with each other.
Access to alternative assets to protect downside has been vital but these are often only available in unique fund groups and not via mainstream, let alone “restricted” advisers. The firm I refer to above can only advise on 0.7% of the entire 海角视频 investment market.
Add lack of access to the very best investment trust managers, and you have a recipe for a poor offering. Open ended investment companies property funds were being forced to sell property because of their structure. They were at a discount fire sale, yet investment trusts could just easily gear (borrow) and buy the property at a discount, to potentially sell it back to them later.
There are many other gains in having access to a top investment trust team such as stable income, much of which is not widely available to restricted advisers. So seek independent advice from your local IFA to maximise your own financial security.
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Peter McGahan is the . Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority. The FCA does not regulate credit cards, will writing and some forms of mortgage and inheritance tax planning.
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. All information is based on our understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.