Act now to avoid future problems; Alok Dhanda, of Newcastle-based Dhanda Financial explains the effects of the upcoming radical shake-up of the financial services IFA sector and offers solutions to help you get ahead of the changes.
Proposals introduced by the Financial Services Authority (FSA), which will be implemented in 2012, aim to put an end to episodes of commission-driven mis-selling of pensions, endowments and other financial products.
To restore consumer trust, the FSA wants to present greater transparency in the sale of all investment products. The move will mean a huge shake-up of the traditional adviser business model as 80% of today's payments come through commission. The new model will involve a conversion to fee-based advice.
The existing payment structure, where product providers include built-in commission in many of their products as an incentive for advisers to recommend them, will be demolished. There will be a complete ban on financial groups offering commission to secure adviser recommendations and advisers in turn will not be allowed to recommend products that automatically pay commission.
There will be a clear distinction between independent advisers and 'restricted' advisers. Independent advisers are free of any bias and can recommend products from right across the market. All others will fall into the 'restricted' category, including staff selling products in bank branches and so on.
Advisers will be required to reach a stringent minimum qualification, equivalent to university standard examinations. A professional body for advisers will be able to discipline members who fail to meet the required standard.
These transformations will incite more advisers to work towards 'Chartered Financial Planner' status. Advisers must hold the minimum of an Advanced Diploma in Financial Planning before they can call themselves independent.
Naturally, these dramatic changes raise huge concerns about whether less well-off consumers will be prepared to pay for solely fee-based advice. It is very disappointing that these changes will do so little to encourage savings and advice for the mass market as it limits the type of advice that the majority of the public will be able to afford.
Inevitably, as commission for independent financial advisers is to be culled, fees must go up considerably. This unfortunately sounds the death knell for universally accessible independent financial advice, instead reserving the best advice for the exclusively wealthy.
The number of financial advisers is shrinking.
In the early 80s there were approximately 300,000 financial advisers in the UK but now that figure has dropped to 25,000. Although this shows that the number of advisers has already been heavily culled, this figure is set to drop to dangerously lower levels in the coming years. By 2012, 10,000 independent financial advisers will leave the business because the average age of financial advisers today is 57 and many will be looking to retire.
Additionally, some independent financial advisers will no longer be able to retain all of their clients by 2012. For instance, a company with 400 clients may have to lose 200 if the majority are not prepared to pay high fees for quality advice and good service.
It is so important, then, that you make the most of the full range of financial advice available to you now, rather than risk this enormous change in the delivery of financial advice disadvantaging you and your family.
The advice process will only become more competitive as we progress towards the radical shake-up in 2012 so don't be left behind. Make sure you seek out the quality of advice you deserve whilst it is still available, as you shouldn't ever have to settle for second best when considering your important finances.
Time is of the essence in today's world - we can only live too long, die too soon or become sick or disabled. By being proactive and making an appointment to see an independent financial adviser to help you work out a comprehensive holistic programme, you will guard against financial difficulty in the future.
For further information on how Alok Dhanda can help you with your personal or business planning needs, contact Dhanda Financial, 52 Dean Street, Newcastle upon Tyne, NE1 1PG, telephone (0191) 255-8960, email alok@dhandafinancial.
com or visit www.dhandafinancial.
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|Publication:||The Journal (Newcastle, England)|
|Date:||Oct 24, 2009|
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