Occasionally just when it seems like I may be making a new client relationship I am asked “How do I know that I can trust you?” The posing of the question is not unreasonable when you consider that they may be about to hand over the advice on their investment, pension, life assurance and financing to someone that was, up to a day or two previous, a total stranger!
When you reflect further on those high profile cases in the media of advisers who have compromised client assets, it is only right and fitting that the issue is addressed. After all, if you have just spent a lifetime accumulating wealth you need to be sure about who will be helping you manage it going forward. And if the adviser cannot prove their bona fides you would be right to walk away. So what bona fides do you need to establish?
In Ireland, all financial advisers usually have two public profiles that can be investigated quite easily. The first is the website of the Central Bank of Ireland which is the regulator for financial advice in Ireland, http://registers.financialregulator.ie/. Using this you can find out if the business with whom you are dealing with is authorised to deal with individuals resident in the Republic of Ireland. If they don’t appear on this website, then you should consider dropping them immediately as there is a very high probability that they are not a legitimate business. Alternatively, if they are a legitimate business it is quite probable that they are not dealing in a regulated product and as such you will not be covered by the ICCL which is the investment industry’s compensation fund. The coverage of this fund can be viewed at http://www.investorcompensation.ie/index.php – in essence, you are only covered if the adviser is dealing in regulated products in which he/she is authorised to deal in or advise on. For this you need to refer to the aforementioned regulator website to check out exactly what products that they are authorised for.
Following on from this you need to be sure that the particular adviser is knowledgeable enough to give you specific advice. While Brokers Ireland (in its previous organisational forms of the Irish Brokers Association and PIBA)supported the concept of “Grandfathering” i.e. allowing those with long service in the financial advice business to be deemed worthy of giving financial advice by way of their longevity in the industry without having a professional qualification, I would hold a different view.
Put quite simply, I would feel that, at the very least, any prospective client has a right to deal with a Qualified Financial Adviser (QFA) . This is someone who has at least proven a minimum professional understanding of the financial services industry. As the QFA qualification itself is about 15 years in the Irish market place there has been ample time for someone who is serious about their business to prove it.
The QFA qualification, however, is not the only professional qualification that deals with financial advice. The Certified Financial Planner® qualification (CFP) has resulted in the recent generation of the first circa 510 individuals in Ireland who have obtained this worldwide standard and will, I believe, become the new benchmark for financial advice in Ireland. These individuals have received formal professional recognition having successfully completed a Graduate Diploma in Financial Planning through UCD Business School before sitting a final exam of this global body.
With effect from 3rd January 2018, as a result of the European Union Directive MiFID II, a financial adviser can only be labelled as an independent adviser is they can provide a “fair analysis” of the financial products available in the marketplace and charge clients fees only for both broad financial advice and arrangement of financial product. As at the time of writing many advisers do provide fee only advice for both but because of an historic situation where they receive long term renewal commissions from products that could have been arranged as long ago as twenty years previously it appears that they cannot promote themselves as independent, irrespective of their new client engagement process. In our own case because of our long term renewal stream we have, rather reluctantly decided (as has most of the Irish financial advisory market) to remove references to “independence” from our market profile. This is despite the fact that we have in recent years operated primarily on a fee basis for a substantial portion of the client advice and implementation of personal financial products. I would add that going forward even though we cannot promote ourselves as independent, all of our client product implementation will be only arranged on a fee only basis..
Returning to the broad market analysis of financial advisers, you should ask them to send you whatever relevant documentation is needed for you to become a client. The response should be to send you a very detailed terms of business as well as copies of their various regulatory approval documents. On top of this you should also be asked to complete a financial information document which is more commonly referred to as a Factfind. These non regulatory documents should be quite detailed. If they are not, it is quite probable that they apply a light touch approach to client relationships – not a good sign!
Ask them also for a copy of a report that they have provided to previous clients, with the client names blanked out. It is not that you are looking for free advice as everyone requires bespoke advice but it does give you a sense of the quality of information that you are likely to receive. It also gives you a sample to compare against any particular advice that they may give you in the future.
Finally ask them for a number of client referrals who have been dealing with them for several years. If they baulk at this, then they are either not geared up to dealing with clients or may have something to hide.
If the prospective adviser hims and haws at any of this, then go on your gut feeling, which will probably tell you to walk away and seek another adviser. I know that this may seem a lengthy process but bear in mind that it is your money that we are talking about and, above all, your financial future!