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9 major differences between good and bad financial advisers

Getting good financial advice is essential if you are looking to make an investment, but how can tell if the adviser you've chosen is good or not? These are our 9 tips

Written on 22 March 2022

Financial advisers divide the opinions of expats around the world, British or otherwise. Quite often, while there is rarely much wrong with a financial product, the advice offered to be able to make a decision about an investment can massively vary, and have devastating consequences.

The reputation of the financial adviser therefore often precedes them and, while in the UK the FCA are there to provide regulatory back up, much of the advice and financial products available to expats are not yet regulated. When combined with a commission based payment system, the negative opinions can all too often not be too far off the mark.

However, the best financial advisers can provide invaluable advice on how you can invest your money sensibly, legally avoid unnecessary tax and provide guidance for structuring your assets to avoid inheritance tax in the future.

But how can you tell the difference between a good financial adviser and a bad financial adviser?

We’ve highlighted 9 tips which you can follow to help you distinguish between the two.

Are they independent?

This is one of the most misunderstood and incorrectly assumed terms in the financial adviser world.

It’s readily accepted that to get the best financial advice you should speak to an independent financial adviser. The theory being that they are free to choose from the full range of products.

However, independence can take a number of guises and some organisations and advisers will state independence, but actually mean that they are not “owned” or “employed” by a particular financial institute.

The FCA recommend that you deal with “whole of market” advisers, what the regular person would consider independent. “Whole of market” is as it sounds. The adviser will have freedom to offer any financial product or service from the entire market, and there will be no pressure to choose any particular product.

If an adviser does not have this freedom, often they will be little more than a salesperson, and due to the unregulated nature of some of the products available, and potentially high commissions and bonuses on offer, their advice may be more geared towards their own pocket than yours.

The best way to get an understanding of the advisers’ level of independence is to get a second opinion and then compare the advice on offer.

Do they understand your risk profile?

Any investment can go up as well as down. Often the investments which offer the greater returns for you will also be accompanied by a much larger risk.

However, it is also the case that an adviser will be paid a greater amount for higher risk investments, and therefore their incentive to “sell” these investments to you is also much increased.

During your initial consultations the adviser should always ask questions to establish your risk profile. Understanding your risk profile is essential when it comes to offering advice as it enables the adviser to understand what levels of risk you are open to with your investment.

Your risk profile will take into account a number of factors including your personal objectives, your available capital, your family situation, and your future plans.

Once your risk profile is complete, the adviser should present it back to you explaining how they have reached their conclusion and ensure that you are happy with what they have established.

Do they ever ask to transfer your investment into their bank account?

A financial adviser is just that, an adviser. At no time should they need to actual handle any of your actual investment.

They role is to offer advice on which financial products to choose, help you complete the necessary paperwork, provide guidance and to regularly review performance with you.

At no stage, unless truly exceptional circumstances, should they ever directly handle your money.

Any payments they receive will typically be paid by the investment product, unless you have agreed to pay fees up front.

If you are in any doubt, once again, either seek a second opinion or ask for clarity as to what they are doing with your money BEFORE any money changes hands.

Are they open about their qualifications?

While financial advisers do not need to be regulated outside the UK, one method of spotting a genuine financial adviser from a sales person is to ask about their qualifications.

An “adviser” who has recently moved abroad, maybe a former salesman in a previous life, will have few, if any qualifications.

Never be afraid to ask about this, most people are proud of any qualifications received and will be only too happy to share their experience with you if asked.

Also, we recommend that you search for them on LinkedIn where you will find information about their history, qualifications, previous jobs and any recommendations. The less complete their profile, the more questions you should raise.

Do they claim to be regulated?

Once a financial adviser leaves the UK and offers advice internationally, the FCA are no longer responsible for regulating the advice offered.

Different countries will have their own set of regulatory bodies, but even then a lot of products fall outside of their jurisdictions – for example QROPS.

However, just because the market may not be regulated does not mean that the product is bad, it simply means that the market is open to more unscrupulous advisers.

If an adviser has no fixed location and therefore falls outside of any regulations and simply sells one unregulated product, be careful – especially if the adviser claims that they are regulated for giving advice about products which have no regulations at all.

A good financial adviser will explain how the regulatory system works for various products ensuring you have all the information available to make an informed decision.

Can they provide evidence of satisfied clients?

The best financial advisers will be recommended by your fellow expatriates. If, however, you cannot get a recommendation from a peer, you will often be exposed to the numerous adverts and telemarketing activities.

Therefore, even if you wish to go ahead with a particular product, being able to choose between the multiple advisers and advisory firms is important.

Once you have received a second (or third) opinion, the best way to do this is to ask for references from each adviser. Never trust what is written on the website, and if you are in doubt, always look to get the names and details of a satisfied customer.

Thanks to LinkedIn you can often just do a little background research on the person to ensure they are also genuine.

A good adviser will always be proud of their clients and, confidentiality permitting, will be only too happy to offer the details of their happy clients.

Is your adviser open about charges and commissions?

In the UK, the FCA has made financial advisory organisations charge on a fixed fee basis. Therefore whatever size your investment, you can be sure about the charges you will have to pay.

Outside of the UK this is not the case. Many financial advisers will still charge on a commission basis. This will often still work in your favour, providing that you are aware of the various charges which will be levied.

Percentages in the forms of charges can quickly eat away at potential earnings making what may seem like a lucrative investment opportunity often return little more than a good savings account. In some cases the annual charges applied mean that the investor is getting little more than break even.

Before making any decision, always ask for a full explanation of the charges which will be applied, both during the initial transaction and also on an annual basis. Also ask about how this will affect the return and growth of your investment over the years to ensure that you are not simply paying someone out of your investment.

Don’t mistake bad advice for a bad investment

Investments inherently come with risk. No investment is risk free and guaranteed to make you an income. Changes in the market, economy (macro or local) can have a significant effect on any investment. Similarly, just because an investment has underperformed in one year does not mean it will not recover in the next.

This is where a good financial adviser will work with you to ensure you are aware of any major fluctuations and also offer recommendations for an alternative course of action where possible.

Question any investment product which locks you in for longer than five years

Many investments will be for the longer term, whether saving for retirement, child’s education or a major purchase. However, this does not necessarily mean that you should tie your investment down for more than five years.

Due to the fact that investments can go up or down, you may find that a new option comes available, or your current investment is not performing as well as expected.

Being tied in for a long period of time (typically more than five years) could see you penalised heavily if you decide that you wish to transfer that money elsewhere.

A bad financial adviser may push you towards a longer term tie in period and rarely offer the chance for regular reviews of your investment. On the other hand a good adviser will discuss your options in full, explaining any penalties and also offer the chance for regular reviews of your investment.

Testimonials from people who have used our specialist IFA introduction service

I learned a lot from the consultant, including very simple things like what inflation is! He explained things very clearly and did not mind explaining simple things. I feel very well informed about all my options after talking to him. Thank you

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Knowledgeable in all the areas I had questions on, spent the time to go through all my questions which gave me a lot to think about and what options I should consider. Followed up with email outlining what we had discussed. Very professional.

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I don't normally recommend financial providers to anyone as it is so personal but if someone asked specifically for advice for Expats I would suggest they tried your website.

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