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What does being a trusted financial adviser mean?

It would seem that the financial services' industry, including banks, building societies and all forms of financial advisers, has been doing its hardest over the last few years to prove that it lives up to the media's worst criticisms! Not only have banks gone bust and financial advisers (as well as accountants and solicitors) run-off with people's money but there have been far too many cowboys out there - either the plain incompetent who love to pretend they are skilled to the downright fraudulent who have been 'flogging the wrong products' to people just so they bag the biggest personal commission. Sadly, over the years some of these wolves have been masquerading as sheep as well - the nice young man from the long-established bank or building society (who has oppressive sales' targets for unattractive bank products to justify his above-average salary) or the lovely gent from 'the Country's oldest mutual insurance society, dear Henry' - Equitable Life, which didn't pay commissions to middlemen but curiously in its last selling year was giving its sales' reps over four times what the lowly 'man from the Pru' was receiving and all these target-driven bonuses paid-out before the reward for policy-holders was declared (and the rest's history).

Yes, financial advisers have to live too but they can do so quite respectably by doing the best thing for their clients. Looking after their clients' long-term interests is, after all, really their own! Of course, if you expect 'perfection' and for your adviser to never recommend an investment which might risk a fall in value or which could cost you some fees to source, then stop looking as he/it doesn't exist. If you think you've found one, you're being deceived. However, if you believe that all you'd like to see is an adviser with competence and integrity, trying to do his best for you, then read on.

So, after all the carnage where it seems to find a 'trusted' financial advisory firm (one which has survived the worst market conditions for over seventy years) can seem difficult, it's still wise to use a good dose of common sense in your selection. That's not to suggest that the worst cynicism about the trade is right but if you don't complete some simple checks and you lose your money to an unregulated fraudster who rang you from Spain to sell you some cheap shares, you only have yourself to blame. Now, then, where should you start?

First, check to see that the adviser is a member of the FSA, the regulator. All British financial advisers must be regulated and this also gives you protections should something not happen as best hoped - sometimes unfortunate and unforeseen industry incidences can arise and you want to know that in a worst case scenario, you are as safe as you should be. You will also be protected by the Financial Services Compensation Scheme and the Financial Ombudsman Service - your financial adviser will be covered by these automatically. Yes, whilst I am biased as well but you must find an independent adviser, not one who is restricted to a limited range of 'products' or just selling his employer's packages. An independent adviser must search the whole marketplace for you - he is acting legally as your agent and not the other way around when representing just one company which has compromised interests. And no, don't be duped by the many commissioned salesmen out there who suggest that as their firm offers a 'selection of the best fund managers that they have carefully scrutinised' that that is independent too, because it is not.

What else should you do? Check the Firm's level of regulation. If your need is 'simple' then I suspect that could be addressed by most firms but the more sophisticated your needs might be, then you will need specialist skills and you can check the qualification levels held by the Firm's staff. These range from the basic to the most advanced - think about it like the medical trade - you wouldn't want the nursing assistant to provide brain surgery but she may be fine to take a blood sample. Consider the rest of the team - what would happen if your one-man-band falls under a bus? Are there others in the firm to continue looking after your needs and how important is that for the relationship and the products/advice you need?

What about asking around? How long has the firm been advising people? That's not saying that a new firm isn't to be trusted but if the firm has a many-year reputation in the area for being respectable, then that is likely to count for something. Do remember of course that a bigger, longer-standing firm will have attracted a few complaints over the years too - usually connected to investments which might have fallen in value because of market conditions and really, that's not the blame of the adviser but actually is a risk (as it is a reward) that is held by the clients themselves. So, one or two such cases don't detract from the general view of integrity held about the firm!

A professional firm will deal with you ethically too. This means professionally and not by selling you a range of 'fluffy-sounding' investments, incidentally! It will be clear about how it might transact business with you, the cost of its services, how and when you will be charged for the service/advice and the likely quantum of it. Remember, other than goodwill or the firm's investment in the possible future of the relationship with you, that there's never 'no cost' to advice or a transaction and if that's what you're being told, you should suspect that a high-commissioned product is involved and one way or another, you are going to be paying a hefty fee.

The professional firm will probably have other services to its arrangement with you as well - perhaps a newsletter or offers of regular future review as opposed to 'selling you a product and moving on'. In fact, the 'aftercare service' could be the most important part of a developing relationship, where hopefully you will develop a growing trust in your financial adviser (and he will learn to trust you too) who you will learn has your best interests at heart and is advising you on what he believes is the best for you as your life and circumstances move along. Then you will cherish your adviser and will recommend him to your friends and colleagues - not as a faultless person but one who you know uses his qualified expertise, his years of experience and contacts and professional skills to try his hardest to look after your financial needs not only at the beginning but over a lengthy relationship.

From the adviser's perspective, it is a great honour - as well as an onerous responsibility, to be entrusted in this way. I do not say this as an overwhelming burden but it is a perspective which drives the ethical considerations of the adviser and his firm, which are both trying their hardest to do what is right and proper for it and its clients. That's the sort of adviser and firm you should seek.

This article was written by PHILIP J MILTON DipFS CFP FCIB FPFS - Managing Director of Philip J Milton & Company Plc, Chartered Financial Planner, Fellow of the Personal Finance Society and former ACFA chairman.

May 2011