Independent Financial Advisor

These days, most people with be familiar enough with the term to know that an independent financial advisor is obliged to give impartial advice to clients on financial services and products across the board of the entire financial services market. Most people will also have come to expect that that advice is generally offered free of charge. Perhaps fewer people will be aware, however, that although clients can indeed choose to receive "free" they can equally well choose to pay a fee for it.

Why pay a fee for a service that is otherwise offered free of charge? The answer, of course, lies in the fact that the Independent Financial Advisor also has to make a living. Good, professional and expert advice does not come entirely "free". If it is provided free of charge to the individual client, therefore, the advisor covers the cost of that advice by taking a commission from the provider of those financial products he sells. There is nothing intrinsically wrong or underhand in such an arrangement, but many will argue that it is important for the consulting client not only to be aware of the fact, but also to have the option of paying the Independent Financial Advisor directly for his services. In this way, the client can be assured that there is absolutely no way that the advice can be influenced by the prospect of an advisor?s commission on what is being bought.

Since July 2005, therefore, the regulatory body ? the Financial Services Authority ? has made it a condition that all licensed Independent Financial Advisors must give their clients the choice of paying a fee for their advice. Therefore, the advisor has three ways of earning his professional fees:

Commission from the provider of financial products ? conventionally, this has been the most usual method of paying for the Independent Financial Advisor?s services. Nowadays, however, the amount of commission received must be disclosed by the advisor, who will also explain whether that commission is deducted from the amount being invested by the client or whether it is included in the cost of the investment. Either way, of course, the client is effectively paying for this commission. This puts a rather different slant on the concept of "free" advice;

Fees paid directly to the Independent Financial Advisor ? although this arrangement is still probably less usual, it is an alternative that must be offered by the advisor. The actual fees charged will, of course, depend on the amount and type of investment being made and how complex is the advice needed. It can prove cheaper than paying a commission and the client can be entirely reassured about the objectivity of the advice, without worrying that the advisor is somehow influenced by a commission he could earn from a particular provider.

Commission and fee ? thanks to the transparency of the relationship between advisor, client and providers, it is also possible to have a combination of both commission and fees. This breakdown of the actual cost of the advice being provided by the Independent Financial Advisor makes it much easier for the client to compare the real profitability of any chosen investment decision.

Sean Horton is a Director of Enhanced Wealth, a whole of market mortgage broker and independent financial advisor specialising in mortgage advice and the associated areas of income protection, mortgage protection, and mortgage life cover.