Check The Cost of Advice

Check how the adviser is to be paid. Some charge fees, which might be based on how much time the adviser spends on your case, or on the amount of money you have to invest. Stockbrokers will charge you commission on the value of the shares you are buying or selling. An insurance company representative can be paid in some or all of the following ways - salary, fringe benefits, commissions, bonuses. But the vast majority of independent advisers are paid largely through commissions from the companies whose products they sell - though some, including solicitors and accountants, are paid wholly or partly through fees that they charge.

Don't assume advice is free just because you pay nothing directly. The cost of paying commissions to advisers - whether independent or tied - is taken into account in setting the level of charges for a product, and is a major reason for the hefty surrender penalties if you cash in a life insurance product early. An adviser earns different levels of commission for selling different types of product. Selling some products - such as National Savings investments - earns no commission at all.

If you ask, an independent (but not a tied) adviser must tell you how much commission they'll receive from selling you a particular product. At present, if you don't ask, you won't get any direct information about commissions at the time you buy a product. An independent adviser might be paid in accordance with an old scale of commissions called the Maximum Commission Agreement (MCA) - if so, you'll be told this, and you can get details of the MCA from LAUTRO. More likely, the adviser will be paid more than the MCA rates - you'll be told that this is the case, but you won't get details of the amount of commission that the adviser is getting until you receive the full product details up to 14 days after you've bought the product. It's proposed that from January 1990 you'll only be given information about commission up to 14 days after you've bought the product. The details must usually include a 'cancellation notice' which tells you that you have a period of 14 days from receiving the notice within which you can change your mind about the deal. But having got so far, it's unlikely that you'd cancel the deal just because the amount of commission being paid to the adviser looked too high. The SIB plans to publish regular surveys of the levels of commission being paid to independent advisers, so that you can have an idea of the appropriate level for the product you're interested in.

WARNING Under the Financial Services Act, an adviser should act in your interests and give you best advice regardless of how much or how little commission they stand to earn. Nevertheless, it's a good idea to ask the adviser how much commission they'll get on the various investments that might suit you, and to check again the reasons for any recommendation if you think commission

might be influencing the adviser. If you're still unhappy about the recommendation, don't take it up and consult another adviser.

TIP - Seemingly free advice is not necessarily the cheapest or best. Paying a direct fee to an adviser could work out cheaper in the long run.

`Best Advice'

Under the Financial Services Act, advisers are obliged to give 'best advice' - though precisely what this means in practice is the subject of some debate. Broadly, independent advisers must monitor all the products on the market and regularly review them so that they can recommend to you a specific company's product which seems best suited to your needs. A 'tied' adviser can consider only the range of products of the company they represent and recommend the most suitable from those - if none is suitable, the adviser should tell you.

TIP - Don't assume your adviser is giving bad advice just... see: `Best Advice'

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