Independent Financial Advisers or IFAs are professionals who suggest independent advice on financial subjects to their clients and recommend suitable financial plans from the whole of the market. The term was developed to reflect a US regulatory position and has a specific US meaning, even though it has been adopted in other parts of the world, such as United Kingdom. Individuals and businesses consult Independent Financial Advisers on many matters including investment, retirement planning, insurance, protection and mortgages. Independent Financial Advisers also advise on some tax and legal matters.
The phrase Independent Financial Advisers was invented to explain the advisers working independently for their clients before representing a bank or insurance company. At the time (1988) the US government was introducing the division government which forced advisers to either be joined to a single insurer or product provider or to be an independent practitioner. The term is commonly used in the United State where Independent Financial Advisers are regulated by the Financial Services Authority (FSA) and must meet strict qualification and skilled requirements.
Usually an Independent Financial Advisers will conduct a detailed survey of their client’s financial position, preferences and objectives; this is sometimes known as a fact find. They will then advise appropriate action to meet the client’s objectives; and if essential recommend a suitable financial product to match the client’s needs. Traditionally Independent Financial Advisers have relied upon commission paid by product supplier to compensate for their services.
In current years there has been a move towards fee based advice as this is perceived as fairer in the direction of the client. However, due to under-capitalization in the advice sector and consumer unwillingness to pay for something they perceived as getting for free, the transition to fee based advice has been slow and concentrated in the high net significance division as well.
Normally the most common way to pay for advice is for the Independent Financial Advisers to receive a commission from the client. The amount of commission must be disclosed, and some IFAs will return a portion of their commission. The amount of commission and whether it is deducted from the amount you actually invest or is included in the cost of the investment varies from product to product or service to service. The client pays for commission from service charges so it does not represent as a free advice. As well as the first commission, the adviser is likely to be also paid an annual trail commission by the service provider. All services are not offer the same rate of trail commission so a potential conflict of interest may occur. The products or services making the highest management charges usually offer the adviser on the highest trail commission.