Advice has never been free. If you received financial advice before our changes came in, your adviser probably received ‘commission’ on the investment you bought.
The changes mean you will now know how much advice costs.
Just as when you pay for other professional services, such as a solicitor or accountant, you can now decide whether financial advice and the cost involved is right for you.
Your adviser now has to clearly explain how much advice will cost and together you will agree how you will pay for it.
This could be charged as:
The amount you owe could be paid upfront or you may be able to agree with your adviser that they can take it from the sum you invest.
Find out more about paying for financial advice.
The cost of advice will vary, often depending on the experience, qualifications and location of the adviser.
It may also depend on the type of advice or product you are interested in, or the amount you are asking an adviser to deal with, but it is important you know what you are paying.
Knowing the cost upfront also means you will be able to shop around to compare prices, and we expect this will lead to a more competitive market.
The company providing the product would have given your adviser a percentage of your investment – typically 1% to 8%, or sometimes more on a lump sum investment.
So for an investment of £10,000, you would have paid your adviser, through the product provider, between £100 and £800 commission.
Instead of you paying an unclear sum as commission in the future, your adviser now has to explain how much advice will cost. This way you know exactly what you are paying.
The main problem with commission was the potential for advisers to be influenced by what they would receive for recommending a particular product or using a certain provider.
The changes mean you can now be more confident you will get a recommendation that is right for you, not one that is influenced by how much your adviser could earn from your investment.
There are some products that can still see you paying commission (and trail commission) to your adviser or an intermediary, including life insurance products like investment bonds and with-profits bonds, where switching funds within a policy on the recommendation of an adviser does not end trail commission.
The ban on commission also does not apply to insurance policies such as for your car or home, protection products like critical illness and income protection, or mortgages and equity release products.
If your adviser recommends a product that still involves you paying commission, ask about the cost and why it is the most suitable product for you rather than one with a fixed cost.
Find out more about ongoing commission and how to stop paying it.
Intermediaries, such as discount brokers and fund platforms, may still receive commission (and trail commission) where they only provide information about investments and sell you a product, rather than providing personalised advice or a specific recommendation.
This can mean that the service looks low cost but the annual fee you pay may not be clear so check what you will be paying to make sure it is the right way for you to invest.
Many annuity advisers provide a range of quotes and then let you make a choice about which one to buy. This could be seen as information rather than advice and allow them to receive commission rather than a set fee from you.
Trail commission is an annual fee paid to financial advisers by their customers over the lifetime of products such as pensions, with-profits bonds and unit trusts.
It is also paid to intermediaries, such as discount brokers and fund platforms, that recommend or enable the purchase of funds or other investments.
Trail commission is a percentage fee, typically 0.5%, which is taken out of the sum of your investment each year.
The fee is intended to cover an ongoing service but is often paid to advisers each year without them reviewing their customers’ investments or pension, or providing further advice.
Find out more about trail commission and how to stop paying it on investments you bought before our changes took effect.
A financial adviser or intermediary can receive trail commission for advice they gave you before 31 December 2012.
However, for any advice you receive after this date your adviser has to clearly explain how much advice costs and together you will agree how you will pay for it.
This might be an upfront fee though it could also include an annual fee from your investment. If you agree to pay an annual fee, you should make sure it is for an ongoing service, such as a yearly review.
Find out more about paying for financial advice.
If you received financial advice or used an intermediary to invest in a product before 31 December 2012, you may be paying trail commission and, if so, will continue to pay it in the future.
However, there are ways to stop or reduce the amount of trail commission you are paying on your investments or pension, including selling your investment or asking for a rebate.
Find out more about how to stop paying trail commission on investments you bought before our changes took effect.
We cannot apply our rules to agreements that were made between advisers and their customers before our changes came into effect on 31 December 2012.
However, your adviser cannot receive trail commission when you buy a new investment product.
You should also feel more comfortable asking your adviser for an improved service for the trail commission fee, such as ongoing advice or an annual review
Find out how to stop paying trail commission on investments you bought before our changes took effect.
If you want to get financial advice – or just need help buying shares or other investments, planning your pension or deciding on long-term care options – there are several ways to find an adviser. These include:
Find out more about finding a financial adviser.
Financial advisers that provide ‘independent’ advice can consider all types of investment products that might be suitable for you. They can also consider products from all firms across the market.
An adviser that has chosen to offer ‘restricted’ advice can only consider certain products, product providers or both.
Advisers that specialise in certain areas, such as pensions or long-term care, can also consider products from across all the companies in that area. These advisers are known as ‘restricted whole of market’.
Your adviser has to clearly explain whether they offer ‘independent’ or ‘restricted’ advice and what they can advise you on.
Find out more about the key differences between independent and restricted advisers.
We have raised the standard for financial advisers. They all now have to meet higher minimum standards of qualification, known as Qualifications and Credit Framework (QCF) Level 4, which is the equivalent to the first year of a degree.
You should ask your adviser if they have this qualification.
Many advisers have chosen to go further, working towards Level 6 qualifications in specialist financial areas or becoming Chartered Financial Planners.
If you are looking for a financial adviser, you might consider choosing one with specialist qualifications in the relevant area. For example, if you want advice on pensions, you could look for an adviser with Pensions Management Institute qualifications.
Your adviser also has to keep their knowledge up-to-date with ongoing training and subscribe to a code of ethics which should ensure they treat all of their customers fairly.
You should ask your adviser:
Your adviser should also be able to explain how these changes affect you and your finances, and whether they offer independent or restricted advice.
Copyright © 2015 FCA. All Rights Reserved.