Are You a Smart Consumer of Financial Advice?

In listening carefully to the commotion coming out of Washington, one is able to find occasional bursts of sanity. I would direct your attention to all the talk about regulating the financial services industry. This talk goes way beyond the Bernie Madoff mess and speaks directly to the avalanche of complaints from people on Main Street, people just like you and me. These complaints include repetitive allegations of abusive mortgages, abusive credit card rates, abusive bank fees and abusive investment financial product sales practices.

So how can a consumer of financial advice, especially financial products, take action to prevent the word “abusive” from being applied to their transaction?

The answer lies in one specific word being used in the proposed legislation: Fiduciary. The dictionary defines this word, derived from the Latin word for faithful and when used as a noun, as a person to whom property or power is entrusted for the benefit of another. This is the very word that members of Congress want inserted into the new Financial Reform legislation. In other words, when someone asks for financial advice, if the person giving that advice receives compensation, the advice MUST be in the best interests of the buyer.

This is a pretty radical concept, eh?

So how can the average person apply the fiduciary concept to everyday transactions with real estate agents, investment advisors, insurance agents and bankers? How can a person make sure the purveyor of some product or service is really serving the customer’s needs first and foremost? This doesn’t mean the seller can’t make a profit. It just means the seller can’t make a profit at the expense of the customer. I think you’ll agree, this is a pretty simple concept.

Here is the answer: Type up the following Pledge and ask the person you’re about to do business with to sign it. If they sign, you’re good-to-go. If they won’t sign it, just go.

The Fiduciary Pledge

I, the undersigned, pledge to exercise my best efforts to always act in good faith and in the best interests of my client. I will provide written disclosure, in advance, of any conflicts of interest, which could reasonably compromise the impartiality of my advice. Moreover, in advance, I will disclose any and all fees I will receive as a result of this transaction and I will disclose any and all fees I pay to others for referring this client transaction to me.

RDR and the Death of Free Financial Advice in the UK

January 1, 2013 marked the death of free financial advice in the U.K. The Retail Distribution Review (“RDR” for short), went into full effect on that date. The RDR is a set of regulations put into place by the Financial Conduct Authority. The implementation of the RDR marked an excellent day in history for Britain as it created a better financial system for the country.

The RDR sets out three main objectives. Objective One states that the client is to be offered a transparent and fair charging system for financial advice. Objective Two states that the adviser must be clear about what services are being rendered and paid for by the client. Finally, Objective Three states the client must receive advice from highly respected professionals.

The first objective, a transparent and fair charging system from financial advisers, is a foundational shift in the intrinsic nature of financial advice in Britain. To set the record straight, there was never any such thing as free financial advice. Prior to January 1, 2013, most Britons thought there was free advice because the advisers, banks and stockbrokers have been paid by commissions taken from the product provider, not directly from the client. Britons have always paid for financial advice, now they must be told how much they pay for it, up front.

The second objective, establishing rules of clear reporting to the client, gives the client the details he or she needs to make informed financial decisions. The past has been riddled with less than reputable agents selling products that the client did not need and did not explain the product to the client. RDR puts an end to the financial product sellers pretending to be actual financial advisers. Now, when a client seeks financial advice from an Independent Financial Adviser in the UK, they can rest assured that they are paying for quality advice that they need and will understand instead of risking their wealth on a fly by night financial product with little or no benefit to them.

An integral part to the second objective is the newly required description of advice services. From 1 January 2013, all advisers must identify themselves as either independent or restricted. An independent adviser must consider all retail investment products, including unstructured products or no product, to provide their clients with the best advice from the entire range of investment options. A restricted adviser is one who restricts or limits their advice to a specific provider, provider set or product range. The independent or restricted nomenclature allows the client to better understand what type of advice they would be receiving from a specific adviser.

The third and final objective, which states the client must receive advice from highly respected professionals, sets up a certification system and clarifies who can give financial advice to clients. After January 1, 2013, any person giving financial advice to the British public must possess a Level 4 Diploma from a regulated and approved organisation such as the Chartered Insurance Institute or the Institute of Financial Services.

In conclusion, the RDR is an excellent step in restoring trust in the financial services industry. There was never any such thing as free financial advice. Potentially, the public could have been paying hidden costs and fees, in some cases without their knowledge. In most cases, the financial advice given was simply, “you need this specific investment product,” regardless of whether it was right advice or not in your best interests. With the introduction of RDR, those so-called advisers are gone.

Now, when you seek financial advice, you can only obtain it from highly trained financial advisers, whose only profession is to provide real financial advice. Real financial advice counsels you on whether you even need an investment product in the first place and if you do, instructs you fully on the risks and consequences of an investment product based upon your own attitude toward risk. The best financial advisers are independent lifestyle financial planners who determine your lifestyle financial goals before they develop a plan that includes lifelong strategies that may or may not include investment products to achieve those goals. All of this was possible through the introduction of the Retail Distribution Review.

Useful Personal Financial Advice

Finance is not of interest to most people, this is the reason why many are losing in the battle over taking control of their finances. However, with the personal financial advices that are plenty there, it is not a losing case to get hold of your control on the situation of your finances. There are many financial help you can get through reading and practicing to put them into application.

Getting the right personal financial advices for your application can really be easy. The challenge comes on applying them to your daily life. However, if you get successful in applying them for your financial needs, you will sure gain rewards for the efforts you give. The personal control of the financial aspect can be really hard unless you have great control of yourself and discipline in following the advices that you sought.

Here are some good personal financial advice you can consider to follow for you to be able to get that control of your own money and its flow:

– Spending Limits
Set yourself some limits when utilizing available funds you have. For a start, it will be wise to curb an extra spending amount for each week. It will be very hard and frustrating not to have some extra spending for those treats you want to buy for yourself. Moreover, if you do not have the extra allowance, you will be tempted to cut some money from the savings you have and may lost the control you are trying to develop.

– Prepare for some huge expenses.
Usually, if you do not plan for your future expenses, you will end up using the money you have saved for the last months you have been applying the personal financial advices you get from many experts. If this happens, you will surely feel discouraged seeing you drain your savings hugely for some expected expense that you did not allot your money for. Setting aside small amounts for the big expense is the secret to avoid losing control of your finances again. Moreover, you will save more by paying these bills and expenses on time since you will not have to incur interest charges.

– Prioritize the use of your money.
Be aware that those people who are not successful in applying the many persona; financial advices are those that never learned to identify their needs from their whims. Be sure to know which your needs are and which are the things you can survive without. This way, you can prioritize your needs and save up money for the things you want to buy yourself as a reward.

– Invest your money wisely.
Investing money is a common personal financial advice you can hear. However, wisely an investment needs a lot of studying and analyzing. If you will be able to learn which investment will gain you much more is the key for this success, all you need to do is do your homework.
Make sure when you follow any personal financial advice to consider savings as the top of your priorities. All the advices you get will be of no use if you will also spend all the earnings you get from investments and all the planning you do. Make sure to prepare yourself in how you can make the money you have now grow and have the money under your control by keeping them.

Does Independent Financial Advice Find the Best Deal For You?

After what feels like an eternity in recession, lenders are still not keen to lend and until the UK general election is over, it doesn’t feel like very much is going to change.

Pre credit crunch times had a mortgage market providing in excess of 25,000 different mortgage deals and loans galore, but today the UK markets have less than 5000 mortgage products on offer to the consumer.

So where did the credit crunch come from and could it happen again?

The US finance markets imploded in the 4th quarter of 2007 due to bad credit on the balance sheets of large financial institutions, which ultimately caused what is known as a credit crunch.

In a credit crunch, lenders stop lending and start hoarding cash because they are afraid of rising bad debts, leading to bankruptcies and loan or mortgage defaults. They charge higher interest rates in a bid to stem the flow of business or reject all but the safest loans.

The UK economy had been flooded with easy to access borrowed money since the mid 90’s, but the credit crunch meant that tightened credit would spell trouble for companies who needing funding in the form of loans to pursue their business plans and the consumer, who had become used to freely spending money they didn’t have, but could easily access on credit cards for expensive purchases such as luxurious holidays and smart cars.

The answer to could it happen again is a simple one, YES!

If an appetite for investment in more risky markets returns, which you have to say it will, then pushing the limits commercially to gain extra percentage market share and profit, could lead to the whole thing happening all over again. Having said that, it will take sometime to get there, as returning confidence to dabble by investors will be slow to return, but good times will return and the painful effects will soon be forgotten.

So, how is the man on the street directly affected?

UK mortgage and loan lenders are releasing more new products on a daily basis and the best mortgage deals of today are soon replaced tomorrow, but the good news is that the deals are getting better and better. The percentage levels that lenders will loan to is increasing and a 90% mortgage, with a competitive interest rate is out there to be found, if you know where to look.

So how do Independent Financial Advisers add value?

Independent Financial Advisers (IFA’s) are well placed to search the market, compare mortgage rates on their client’s behalf and secure a great mortgage rate to suit the borrower’s exact needs. In addition to finance, IFA’s can provide a good value for money service if you are looking to source good quality, value for money, but cheap life insurance cover and pension plans, with advice that is specifically tailored to the individual or families needs.

Financial advice is available in many guises, the internet has led to a plethora of channels being available for the consumer to utilise when seeking help and advice. Finance related price comparison websites have the added advantage of being a one stop shop for all mortgage, loan and insurance needs. By completing your details once, you have the advantage of using their services to trawl the market and find you the best deals available, but there is still an argument for using the services of a local to you, independent financial adviser. The IFA can take the time to understand any unusual circumstances that you may have and tailor their financial advice accordingly and some finance price comparison websites are now offering both options under one roof to facilitate the needs of a far wider consumer group.

Financial Advice: Rebuilding A Relationship of Trust

“We can’t legislate wisdom or passion. We can’t legislate competency. All we can do is create the structures and hope that good people will be appointed who will attract other good people – people who will make careers and listen and see to it that never again do we go through what we have gone through.”

Connecticut senator, Chris Dodd, as quoted in The New York Times, July 15, 2010

With the recent passage of the historic Financial Regulation Bill, the transgressions of the financial industry and new provisions designed to prevent these types of excesses in the future have once again taken center stage. The legislation comes at a time when mistrust of financial services is epidemic. Nervous investors traumatized by losses and mismanagement of their funds wonder how to go about getting reliable and trustworthy advice.

Not long ago I came across a small column in the Business section of The New York Times Sunday edition, entitled “Beware Advice That’s Generic.” I thought, “What’s wrong with offering advice that may have a broad general application?” I realized that if people mistake such advice as directed towards them specifically, it could end up doing them a disservice. This led me to the larger question, in relation to financial matters, whose information and advice can you trust?

Three Suggestions

This is a big issue and one that deserves careful thought. I would like to offer three basic ideas to help put you on firmer ground when seeking and evaluating financial advice. First, become more independent. Take more responsibility for your financial well-being. Second, commit to the selective use of a number of different resources. Third, establish a relationship, or two, with trusted financial professionals.

Taking more responsibility means educating yourself about financial subjects. Pick a topic and research it. Maybe you want to learn more about bonds or determining a good investment mix. Having more information will help you make better financial decisions. While you will probably still want to seek professional advice, the more you know yourself the better your decisions will be. The old saying is true- no one cares as much about your money as you do.

Beware of Sound Bites and White Noise

Choosing your resources for information selectively is extremely important. People seem to want sound bites and easy answers. But in personal finance there are few easy answers and the sound bites can lead you astray if you aren’t careful. I would encourage people to avoid the television and radio. There is too much “white noise” being passed off as valuable information about the markets.

Pare down both the quantity of information you take in, as well as the focus of your information gathering. Investigate subjects of particular interest to you. I find the personal finance articles in The New York Times, The Wall Street Journal and Morningstar to be of very high quality. And, referring back to the article I saw in The Times – be wary of generic advice that doesn’t apply to your situation!

Financial Relationships

Becoming better informed is an important part of taking charge of our financial health. However, we recognize the need for expertise. Much as the family physician is a trusted source of advice on many important issues, he is not the one we would go to for a knee replacement. We may very well turn to him, though, for a good referral to the appropriate specialist. In much the same way, we need to cultivate those relationships we already have with trusted professionals in various areas of our financial lives. These could be personal bankers, accountants or estate-planning attorneys. Ask these professionals, as well as neighbors and friends, if they can recommend a financial planner whom they like. Many financial advisers offer free initial consultations. Subscribe to their newsletters. Get to know who they are and how they might help you.

In conclusion, educating ourselves is really our best response to the skepticism and mistrust we may feel when looking for sound financial guidance. Seek out a few good sources of information, and begin to develop a relationship with a financial professional. Don’t wait until an urgent need leaves you scrambling to find someone. Engage simultaneously in all three of the steps we have discussed. The old adage applies here: dig your well before you need it.

And finally, you still need to be skeptical and to ask a lot of questions. By all means, get a second opinion.

To read “Beware Advice That’s Generic” click here.