Can I trust you? The Financial Adviser

Occasionally I am asked “How do I know that I can trust you?” The posing of the question is not unreasonable. They may be about to hand over the advice on their investment, pension, life assurance and financing to someone that was, up to a day or two previous, a total stranger! So how can you trust your financial adviser?

When you reflect further on those high-profile cases in the media of advisers who have compromised client assets, it is only right and fitting that the issue is addressed. If the adviser cannot prove their bona fides you would be right to walk away. A basic requirement to trust your financial adviser is that they are qualified to carry out their role. So what bona fides do you need to establish?

How to check the credentials of an Irish Financial Adviser

In Ireland, all financial advisers usually have two public profiles that can be investigated quite easily. The first is the website of the Central Bank of Ireland which is the regulator for financial advice in Ireland, http://registers.centralbank.ie/FirmSearchPage.aspx . Here, you can find out if the business with whom you are dealing with is authorised. This mean they can deal with individuals resident in the Republic of Ireland. If they don’t appear on this website, you should consider dropping them immediately. This is because there is high probability they are not a legitimate business. Alternatively, if they are a legitimate business it is probable they are not dealing in a regulated product. If true, you will not be covered by the ICCL which is the investment industry’s compensation fund. This fund coverage can be viewed at http://www.investorcompensation.ie/index.php

You also need to be sure that the particular adviser is knowledgeable enough to give you specific advice. Brokers Ireland (previously the Irish Brokers Association and PIBA) support the concept of “Grandfathering”. This process allows those with long service in the financial advice business to be deemed worthy of giving financial advice. But this is without having a professional qualification. I would hold a different view.

The minimum qualifications to look for

Put quite simply, at the very least, any prospective client has a right to deal with a Qualified Financial Adviser (QFA) . The QFA qualification, however, is not the only professional qualification that deals with financial advice. The Certified Financial Planner® qualification (CFP) has resulted in the recent generation of the first circa 510 individuals in Ireland who have obtained this worldwide standard. I believe it will become the new benchmark for financial advice in Ireland.

Is the Financial Adviser truly Independent?

With effect from 1^st April 2020, as a result of an Addendum to the Consumer Protection Code 2020, a financial adviser can only be labelled as an independent adviser if they can provide a “fair analysis” of the financial products available in the marketplace and charge clients fees only for arrangement of financial product. In our own case, because of our long term renewal stream we have decided (as has most of the Irish financial advisory market) to remove references to “independence” from our market profile. This is despite the fact that we have in recent years operated primarily on a fee basis.

Documents a Financial Adviser should seek from you

Returning to the broad market analysis of financial advisers, you should ask them to send you whatever relevant documentation is needed for you to become a client. The response should be to send you a very detailed terms of business as well as copies of their various regulatory approval documents. On top of this you should also be asked to complete a financial information document, more commonly referred to as a Fact find. If these documents are not quite detailed it is quite probable that they apply a light touch approach to client relationships – not a good sign!

Ask also for a copy of a report that they have provided to previous clients. This should include the client names blanked out. It is not that you are looking for free advice as everyone requires bespoke advice. It does however give you a sense of the quality of information that you are likely to receive.

Ask for Client Referrals

Finally ask them for a number of client referrals. If they baulk at this, then they are either not geared up to dealing with clients or may have something to hide. If the prospective adviser hims and haws  at any of this, then go on your gut feeling. This will probably tell you to walk away and seek another adviser.

To trust your financial adviser is very important because they are entrusted with managing your finances. So ensure that this decision receives the appropriate level of thought.