Are investors being hoodwinked?
Expert’s ‘best advice’ to hit retirement goal ‘earlier’
FINANCIAL advice can be a risky field, especially for new or inexperienced investors that aren’t entirely sure what they are looking for, but what is the difference between independent and restricted advice and why could it see investors losing out?
Unlike material objects, services such as financial advice isn’t always quite as clear in what it is supposed to deliver a consumer, and MD of Woodward Financials David Woodward noted that investors could be getting ‘hoodwinked’ by restricted advisers. As he noted: “If you went into a car showroom and ordered a new ‘Porsche’ you’ll know what to expect to be delivered on your driveway, but when a shiny new motorcycle turns up, you know that it is not quite what you ordered, after all it has only got two wheels.”
He continued: “So, when looking for an adviser how do you tell the difference especially when there are some advisers out there not being ‘clear’ or ‘fair’ or somewhat ‘misleading’ when it comes to the consumer.”
Essentially, investors are generally advised to seek out independent financial advisers, also known as IFA’s, as this is the industry gold standard to provide unbiased and unrestricted views of the entire market.
“Have you ever heard on the TV or Radio ‘always seek restricted advice’ I thought not?” Mr Woodward commented.
“Based on the fact that an IFA gives unbiased and unrestricted advice you could determine that restricted advice is biased and thus inferior to independent advisers,” he explained.
“Which does make sense, if you headed to your local convenience store your choice would be restricted and you would pay a little more.
“But when it comes to advice if the choice is restricted wouldn’t it be ‘fair’ to pay less, however if you headed to the supermarket the range would be extensive and that would compare to ‘whole of market advice’.”
Investors, and consumers in general, should usually seek financial advice where possible to ensure they are making educated decisions about their money rather than half-thought-out guesses.
“Getting ‘best advice’ over the long term could mean you hit your retirement goals earlier than planned.”
Mr Woodward cautioned: “A restricted adviser knows the consumer does not know the relevance when they say ‘we are restricted’.”
This is often how those searching for advice let their money fall into the wrong hands as they haven’t done their homework on the relative terms and lingo needed to understand the industry.
He continued: “(They) quickly move on and head down the path of possibly misleading the client that they are making the right choice of adviser, compare this to an IFA, who shouts loud and proud that they are ‘independent’.”
Mr Woodward also explained that an IFA’s advantage over restricted advisers does come at a cost: “That is why most advice networks are going down the restricted advice route, offering a restricted range of products means cheaper operating costs and insurances for the firm.
“But there are still many restricted advisers that can not seem to grasp the importance of being ‘clear’ and fully explaining to clients that their investments may not be in the best place, that they may not be getting the best product and it may not be the cheapest, but they still do it time and time again!”
He also added that his own experience with restricted advisers: “(They were) highly skilled at saying just enough to stay within the rules and advice being just acceptable at best.”
Mr Woodward advised that the best route for investors would be to outright ask the advisers they’re interested in working with whether they are restricted or not.
It’s also important to note that there are only two financial advice recognised by the Financial Conduct Authority, anything beyond ‘restricted’ and ‘independent’ is likely not regulated or official.
“There are also many financial advice firms who operating under a different name (trading style) of larger restricted advice firms but try and find the word ‘restricted’ on any of their websites your search will be futile,” Mr Woodward noted.
“Still not convinced, ask them are you independent? If they don’t put it in writing? Run for the hills.
“Unfortunately, I only feel pity for those that have succumbed to the charms of a restricted advice firm especially those consumers that say with prowess ‘I’m with XYZ’ they still think they bought a Porsche,” he concluded.