These rules not only formalise qualifications within the profession, they will also make it easier to compare the service offered by advisers and understand the value of the advice you are given. Here are the three main areas that are changing.
1. How you pay for advice
Under the new rules, your adviser must explain how much their advice will cost and agree these charges with you before they carry out any work for you.
The way you pay for advice will also change. Rather than pay commission, you will either pay a fee for the advice or you can agree to have the cost of advice taken from your investments. It’s up to you and your adviser to decide which method suits you best.
The rule change won’t affect the existing commission your adviser receives on your products brought before 31 December 2012. But, if you do require advice on these products, your advisers cannot receive any new commission and they’ll need to agree a charge with you for that service.
2. The type of advice offered
Advisers will either be independent of restricted, depending on the nature of the advice they provide.
Independent advice
To be independent, your adviser will need to offer advice on all the financial products available in the market, without any restrictions or bias towards a particular product or provider.
Restricted advice
A restricted adviser will focus their advice on a specific range of products. This may be because they specialise in an area, for instance pensions, or because they work with a select number of product providers.
Importantly, whether an adviser is independent or restricted, they will need to tell you, and explain any restrictions, before they provide you with any recommendations. This will make it much easier for you to see what type of advice you will be receiving and whether it will be suitable for you.
3. Higher qualifications
All financial advisers will be required to hold a higher minimum qualification, although some may want to invest in further qualifications. At the moment, advisers must be qualified to at least level three of the Qualifications and Credit Framework (QCF), which is roughly equivalent to an A-level, but, from January 2013, the minimum qualification will be set at level four, which is equivalent to the first year of an undergraduate degree. There are many different recognised qualifications at this level, covering a broad range of areas, including investments and investment risk, pension regulation and tax.
As well as demonstrating their knowledge and expertise with higher qualifications, financial advisers will also have to spend at least 35 hours per year studying as part of their continuing professional development. They will also be required to sign up to the Financial Services Authority’s code of ethics.
You’ll be able to check your adviser meets these standards by asking to see their Statement of Professional Standing (SPS). This is a certificate issued by an accredited body, such as the Chartered Insurance Institute, and demonstrates they meet these new higher professional standards.
Finally, it’s worth noting that many financial advisers have been ready for these changes for some time, having already invested in higher qualifications and moved to fee-based charges. Here at Serenity Financial Planning we are proud to say as a firm we have anticipating these changes and have been ready and prepared since the launch of Serenity Financial Planning 2010.
We are delighted to confirm that Serenity are an Independent, Fee Charging, Fully Qualified Firm.
To download the full guide “The New Approach to Financial Advice” with details of all the changes please click here
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