THE COMMISSION

CHOOSING A FINANCIAL ADVISER

What is a financial adviser?

A financial adviser helps you sort out your financial needs and recommends financial products and services to meet them.

If financial advisers give advice on certain types of investments - such as life insurance, unit trusts and shares - the firms they work for must be authorised by the Commission and they should follow Codes of Practice designed to protect their customers.

(Firms of financial advisers just advising on loans, mortgages, term insurance, or bank and building society accounts currently do not have to be authorised by the Commission to provide such advice.)

Financial advisers generally fall into three categories:

• those who advise on, and sell, the products of just one company;
• those who advise on, and sell, the products of a restricted number of companies; or
• those who can help you shop around the whole market to choose the best company for you as well as the right product.

Where a financial adviser provides advice about investments from a restricted range of the available providers of the same type, he/she must inform you in writing of the nature and extent of that restriction.

What should a financial adviser do?

Ask you in detail about your financial situation and needs - this is called a 'fact find'. It should include questions on your investment objectives, your level of experience in investment matters, your time horizons, and how much risk you are willing to take with your money.

Explain why the product they have recommended will meet your investment objectives and desired risk level.

They should tell you about all fees and charges including commissions (both initial and recurring) relating to the product they have advised you to invest in.

How do I pay for financial advice?

Financial advisers are usually paid by:

• commission, usually a percentage taken out of the money you pay or invest; or
• one-off fee, usually paid direct to the adviser; or
• a combination of commission and fee.

When you're deciding which financial adviser to use, ask how they expect to be paid. Even those who are paid by fees often give the first half-hour of advice free, but check before you meet them.

If a financial adviser is paid by commission, you ultimately pay this through the product charges. But charges are often the same whether you buy through a financial adviser or not.

If you know you want to buy a particular product check out whether you can buy it cheaper through a financial adviser than direct from the firm by ringing around.

Some financial advisers give back (”rebate”) part of the commission if you ask, whilst still giving you advice.

As mentioned earlier, the financial adviser should tell you about all fees and charges including commissions (both initial and recurring) relating to the product they have advised you to invest in.

Remember charges can have a major impact on the return you get so you should check them out. Compare the charges on a number of products to help decide which is the best value.

How should I protect myself?

DO make sure that the financial adviser’s firm is authorised by the Commission to conduct investment business (although as noted above, not all firms of financial advisers require authorisation). You can do this by looking on the Commission’s website (www.jerseyfsc.org) or by contacting us on +44 (0) 1534 822000.

DO take accurate notes when you meet a financial adviser and keep them safe. They'll be essential if there's a dispute later on and you want to complain or claim compensation.

DO make sure you ask for and understand the documentation explaining the product recommended to you - ask questions if you don't.

DO shop around and compare different products to ensure you are getting the product which is the best value for you.

DO obtain a copy of the financial adviser’s terms of business and ensure you understand them.

DON'T be embarrassed to ask questions.

DON'T be afraid to say NO, even if the financial adviser has been recommended by a friend, or has gone to so much trouble that you do not want to disappoint them.

DON'T sign anything until you are confident you fully understand it.

DON'T ever sign a blank form allowing the financial adviser to fill in the details later.

DON'T get carried away by promises of amazing deals. If it sounds too good to be true, it probably is.

Before signing anything…

…ask the following questions:

How many companies can you recommend, and why have you selected this particular company's product for me? (This should be explained in writing to you.)

What other options could I consider apart from the product(s) you are recommending?

What are the plus and minus points of this product?

How much commission will you get paid?

How long am I locked in for? Am I committing myself to making regular payments for a long time? What happens if I can't keep up the payments?

For investment products, are there heavier charges in the early years for this product? (This will mean you lose out if you have to surrender early on and may get back less than you paid in).

Think twice if:

• The financial adviser’s firm doesn't seem to be authorised (check with us).
• You are told the offer will disappear if you do not buy now.
• Someone suggests you put money into a special deal they cannot explain or do not have proper documents for.
• Someone suggests you put all or a large proportion of your money into one investment.
• The financial adviser keeps suggesting you sell your current investments and buy new ones.

Once you've handed over your money you should:

Make sure you get a proper receipt or written record of the money invested through the financial adviser, and keep it safe.

Get regular (at least once a year) statements showing how your savings or investments are doing.

Where else can I get information and advice?

Newspapers and magazines: Regular articles on savings and investment and lists of building society and bank interest rates in the personal finance pages of newspapers and in specialist magazines. But check the information given is up-to-date and accurate.

Websites: Web addresses are often listed in newspapers and magazines; follow links from one site to another; or use search engines to find key words relevant to the subject you're interested in - for example 'unit trusts' or 'life insurance'. But check the information given is up-to-date and accurate.

Libraries: Most libraries have a range of books and magazines on financial services. They can also give you details of local advice agencies and help you get information from the internet.

Trade Associations: These often provide free information to help people understand different types of investment and saving.

Individual firms: Most banks, building societies, and pension and life insurance companies produce free leaflets. But remember: they want you to buy their products.

This Guidance Note is dated 12 May 2005

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