Getting the best advice that money can buy

Small investors have to cut through the jargon and shop around to find cost-effective, impartial financial advice, writes Caroline Madden

When it comes to our health, most of us wouldn't dream of relying on self-diagnosis; it's second nature to seek advice from an experienced, qualified doctor. But when it comes to managing our finances, many of us take a DIY approach, with varying degrees of success. It's the norm to have a trusted family GP and dentist.

Isn't it common sense to add a financial adviser to the list and should we not take some time to ensure that we have the best available information when it comes to money matters?

Whether you're in need of a general financial check-up or require more specific guidance - such as where to invest that €10,000 that's gathering dust on deposit - getting professional advice can have its advantages.

For one, independent financial advisers can save their clients time and money by shopping around for products and services on their behalf, and can sometimes negotiate discounts.

Furthermore, they can recommend which investment options would best match the individual's risk profile.

So far, so good. But remember that not all financial advisers are created equal, and unfortunately, the term "independent advice" is subject to some very loose interpretations, as a cursory glance at the Financial Services Ombudsman's website proves.

It is littered with cautionary tales, ranging from inappropriate investment products being sold to elderly people by their advisers to mortgage brokers failing to disclose conflicts of interest.

If you're a small investor without much financial expertise, how will you find an adviser that you can trust to look after your best interests rather than someone who will simply line their own pockets?

The first rule of thumb is that it's impossible to receive independent advice from a bank, or a tied agent (who, as the name suggests, is tied to a particular financial institution). They are only licensed to recommend products from the institution that employs them. They may well have the best product for you, but without a full survey of the market, it's impossible to be sure.

The next step up in terms of greater independence and choice is a multi-agency intermediary (MAI), the category into which most mortgage and insurance brokers slot. Multi-agency intermediaries advise on and sell products from a number of financial services firms with which they have agencies.

But they are restricted; they cannot offer products from the full range of financial service providers and can only shop around among the offerings of the companies with which they have agencies. Clearly, the more companies with which a multi-agency intermediary has links, the wider the range of products on which he or she can advise.

Finally, there are authorised advisers who are obliged to search the entire market on your behalf.

A second headache is cost. One of the great myths about financial advice in Ireland is that it is free. This is hardly surprising when brokers and financial institutions are constantly marketing the notion of "free" consultations or "free" financial makeovers - especially at this time of year.

And, in part, this approach has been dictated by a legendary reluctance by the Irish consumer to pay up front for such advice. We will happily pay a doctor €50 or €60 to reassure us that this week's sniffle is not full-blown pneumonia, but we will seek investment tips for that €100,000 windfall from a "friendly local broker" over a pint or from unqualified newspaper columnists.

Financial advice is never free. It can't be - otherwise no one could afford to be a financial adviser. "No matter which type of financial adviser you use, financial advice is not free," warns the Irish Financial Services Regulatory Authority. "Even where you don't pay a fee directly, the cost of the product you buy will generally include the cost of commission or salaries, or both."

But won't the broker's commission influence the sale? Eamon Dwyer, marketing manager with City Life Wealth Advisors, a Cork-based multi-agency intermediary, argues that this isn't the case. "Nearly all insurance companies offer the exact same type of commission across the board, so it doesn't make any difference," he says.

Pat O'Sullivan, director of financial services with the Irish Brokers' Association, refers to the protection provided by regulation, in particular the Consumer Protection Code. "Whatever product is chosen, it has to be followed up by a rigorous 'reasons why' [ letter] by the financial adviser," he explains, adding that the adviser must be able to stand over their recommendation. "It's a really robust process, and it's all backed up by the financial regulator being able to go in and carry out inspections."

Nevertheless, clearly your best chance of accessing impartial and complete advice is with an authorised adviser. "We're working for the client rather than the institution," says authorised adviser Jim Hegarty, of Hegarty Financial Management. "We're not limited in the number of institutions we use."

He explains that his firm uses a research engine called www.bestadvice.ie to search all financial products in the market.

Authorised advisers are more likely than multi-agency intermediaries to offer fee-based advice, which is generally charged at an hourly rate. The adviser may agree to refund commissions in exchange for this fee.

While many consumers balk at the idea of paying an upfront fee, opting to get "free" advice from a commission-based broker, the advantages of negotiating a fee are twofold: it increases transparency by separating the price of the service from the price of the product you're buying and it guarantees that the adviser isn't being swayed in the slightest by commissions.

So if fee-based advisers are the safest bet for independent, impartial, complete financial advice, where can you get a list of them? Unfortunately, the answer is nowhere. The financial regulator, which spends a sizeable portion of its marketing budget urging consumers to know their rights and directing them to its consumer website www.itsyourmoney.ie, doesn't compile a register of advisers broken down by charging structure.

When asked why such a list isn't produced, the financial regulator said regulations were in place to oblige firms to disclose charges to customers.

Regulations are also in place to require brokers to disclose whether they are tied, multi-agency or authorised advisers, but the regulator still sees fit to publish an exhaustive list of the precise status of all investment brokers on its main website.

The "Register of Investment Product Intermediaries" - brokers in consumer-friendly parlance - at www.ifsra.ie/data/rf_files/Section 31 .pdf categorises each intermediary by status (tied, multi-agency intermediary or authorised adviser) and outlines the product providers with which each intermediary deals, but it doesn't contain any information on the key criteria, pricing.

Another problem in this area is the confusion that surrounds the various terms used to classify financial advisers: "multi-agency intermediary" and "authorised adviser" mean nothing to the average person.

"The problem behind this is that when the financial regulator brought these [ terms in], it didn't consult with the industry bodies," says Jack Fitzpatrick, chairman of the Professional Insurance Brokers Association (Piba). "So what we're actually looking for is that we get back to simple terms."

The financial regulator began a review in December (working with representative bodies such as Piba), which it says will "consider appropriate terms to describe insurance and mortgage intermediaries that will reflect the range of services provided and will be clear for consumers".

The second strand of the review will focus on "improving transparency in relation to the services provided by the insurance intermediary and how the insurance intermediary is remunerated", according to the regulator.

It remains to be seen whether this review will simply produce a whole new set of mystifying acronyms, or actually make it easier for the unsophisticated small investor to find out exactly where to get unbiased, independent advice.

In the meantime, what is your best option? Rather than plucking a name at random from a list with no indication of pricing, word of mouth continues to appear the best starting point. But don't rely on recommendations alone.

Make your own enquires to ensure that you're dealing with a reputable, trustworthy, well-established outfit with qualified staff and a good track record.