In the rarefied world of Premier League footballers, where it’s not always clear who has your best interests at heart, a personal recommendation goes a long way. So it was that a string of football stars — from Rio Ferdinand to Danny Murphy and Robbie Savage — introduced one another to Kingsbridge Asset Management, a financial adviser that suggested the players put hundreds of millions of pounds into film investment schemes.
Unfortunately, as The Sunday Times revealed last weekend, some of those schemes have soured in the face of largely unanticipated challenges to their tax efficiency by HM Revenue & Customs, leaving many of the footballers nursing heavy losses; some accuse Kingsbridge of mis- selling, although it has rejected that accusation and has strongly denied any wrongdoing.
It is hardly the first time that a personal recommendation of this type has turned out badly. Seven years ago next month, FBI agents arrived at the offices of Bernie Madoffto arrest the investment adviser for the largest financial fraud in US history. Madoff had built a giant Ponzi scheme based on years of friends and contacts referring each other and their extended networks to his firm. His clients’ losses totalled $18 billion (£11.8 billion).
The two cases are very different — Madoff was a criminal while the Premier League stars allege only that they received poor advice — but they underline a dilemma faced regularly by millions of people: when you pay for professional help with financial planning, how do you know you have chosen a good adviser?
Recommendations from friends and family may be reassuring, but financial planning decisions have long-term ramifications — it is often not apparent for many years that the advice was not as good as it appeared at the time.
There are no easy answers, says Anna Sofat, the founder of Addidi Wealth, which last year was named financial adviser of the year in an awards scheme run by Unbiased, an organisation that promotes independent financial advice.
“You can’t just rely on recommendation,” she says. “In the case of some of these schemes, advisers were often referred because they saved tax for someone who then sang their praises.”
In practice, choosing a good financial adviser requires a bit of homework. Start with the basics, suggests a spokesman for the consumer group Which?. “Check their qualifications,” he says. “Under the retail distribution review legislation, all advisers have to be qualified to a minimum level, but look out for extra qualifications too, as that will show they’ve gone the extra mile.”
The Financial Conduct Authority (fca.org.uk) offers a free online service that enables you to check that an adviser is properly qualified and legally authorised. At the least, dealing with an authorised adviser ensures you will be covered by the Financial Ombudsman Service and the Financial Services Compensation Scheme if something does go wrong.
As for additional qualifications, some advisers have worked hard to reach certified or chartered status, which requires extra study and exams. “Certified status means an adviser will focus on advice and not just the transaction,” Sofat says. It is important to decide early on what type of financial adviser you need. “An independent adviser can recommend their pick of retail investment products from across the market,” explains Patrick Connolly, a certified financial planner at the independent financial adviser Chase de Vere who believes that this is the ideal option. “The alternative is a restricted adviser, who can recommend only certain types of products, or products from a limited number of providers; many advisers choose to be restricted because it means they can sell their own products and investment funds.”
Having made these basic checks, choosing the right firm is, in part, an instinctive decision — it’s definitely worth talking to several different advisers before you make a final decision. “It’s important to find someone you can get on with at a personal level because advisers are as much counsellors as they are number-crunchers,” says Karen Barrett, the chief executive of Unbiased. “Don’t necessarily choose the biggest firm because there are plenty of outstanding advisers working solo who are happy to visit you in your home. Also, make sure they are comfortable dealing with your level of income.” You may want to choose an adviser who specialises in a particular area.
Organisations such as Unbiased and VouchedFor can give you details of financial advisers in your local area, but distance is not necessarily a bar to a good relationship, particularly if you intend to deal with the firm mostly by phone or online. While a face-to-face meeting early on will give you an opportunity to develop a feel for the adviser, you will not necessarily want to work this way all the time.
Advisers should be willing to share testimonials from other clients, or even to allow you to speak to some of their customers. You can also ask for data such as complaints logs or feedback surveys, which may give you some idea of customer-satisfaction ratings.
In addition, make sure that you understand exactly how the adviser intends to charge for the work it does for you, and compare quotes across different firms.
Philippa Gee, the managing director of Philippa Gee Wealth Management, says that you should not be surprised if a financial adviser cannot see you straight away. “We have to prioritise our existing clients instead of constantly taking on new ones — we want happy long-term clients, and that is what I would suggest you look for in your adviser,” she says. “If an adviser is that good, why are they desperate for new clients?”
Do not be afraid to take a relative or a friend to meetings with financial advisers, particularly if you would otherwise be making decisions on your own. However, be open-minded. “If your gut reaction is negative, take account of it, but legislation has improved the service delivered by financial advisers and you should not automatically assume the worst,” Gee says. “Don’t be scared that you can’t trust anyone.”
Sofat makes another point, although she accepts that it may be considered controversial. “A female financial adviser might serve you well,” she argues. “They tend to be less sales-focused, which is why so many women leave financial services.”
● No adviser should recommend a financial service or product that is unregulated or unauthorised by the Financial Conduct Authority.
● No adviser should try to persuade you to put your money into something that you do not fully understand.
● No adviser should encourage you to make an investment decision simply to make a tax saving.
● No adviser should suggest taking money out of a pension plan before you reach the age that the private pension rules allow.
● Sack any adviser that is not honest with you or misleads you.