Choose how your IFA is paid

Whether you take tied, multi-tied or independent advice, there will always be a cost for your adviser’s service. Customers pay for advice in three main ways...

1. Fees
   By paying the adviser a fee, either at an hourly rate or through a fee for the whole job. This is known as ‘fees only’ advice. Fees vary, typically from £75 to £250 an hour. Often the first half hour is free at the initial meeting where you can get to know each other.
   
2. Commission
   By paying indirectly through commission, which is deducted by the product provider from the products you may take out. Often there is not only a commission charged for setting up a plan but there may also be annual commissions on top, known as trail commission.
   
3. Fees and Commission
   By paying a combination of fees and commission. The adviser will rebate back into the financial products or hand to you some or all of the commission or offset it against the fee.
   

Everyone can choose to pay their IFA by a fee rather than commission, if they want to. In the past the majority of consumers tended to opt for commission. In the future there may well be a shift towards more people paying fees and this will be explained in the information on your IFA’s charging arrangements. Most importantly only an IFA has to offer a choice of payment options i.e. paying by fee or commission or a combination of the two. Tied and multi-tied agents don’t have to offer you this choice, but some may.

The FSA has recently proposed changes to the current system under its Retail Distribution Review (RDR). We will therefore update these pages to reflect industry changes as and when they are introduced.

What information will you be given when you visit an adviser?

The Financial Services Authority (FSA) has recently made changes with regards to the documents you should receive when you first visit an IFA. By incorporating the Markets in Financial Instruments Directive (MiFID), which came into effect on 1st November 2007, the FSA rules say that an IFA has to provide you with the relevant information on charges and the services they can offer. This information may be provided to you in a Key Facts document, in the IFAs terms and conditions, on indeed in some other document.

Essentially, at your first meeting with your IFA you will be given clear information about the type of advice and level of service being provided by the adviser and how much it will cost. You will be given details on how firms are regulated by the FSA, the range of products they are authorised to advise on and sell and any information your IFA is required to give you. The details outline the type of products the firm offers such as pensions, investments, protection, mortgages and insurance and the documents explain whether the firm offers products from the whole of the market, a limited number of companies in the market or just one company or group of companies.

You should use this information to shop around and choose the level of service you want and the firm you want to deal with from a more informed standpoint.