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Independent Financial Adviser

Introduction

So you've decided you want to start a business as an Independent Financial Adviser (IFA). Maybe you've recently gained the relevant qualifications or perhaps you're already working for a financial services company and want to go it alone instead. Whatever the reason, this guide will take you through the issues you need to consider and give you practical pointers on getting started.

Sector trends

One of the most significant events during the last decade or so was the creation of a single regulator, the Financial Services Authority (FSA) for the whole financial services sector. Previously, the sector was regulated by a number of different bodies. The Financial Services and Markets Act 2000 brought regulation under one roof - the FSA, which now authorises all those engaged in regulated activities.

Anyone thinking of entering the financial services market should be aware that regulation will apply to many of their operating practices and that the cost of complying with regulation can be high. Under the Money Laundering Regulations you'll need to notify the FSA if your business acts as a money service business or a trust or company service provider.

Demand for life and investment products tends to reflect the state of the economy as a whole - demand increases when the property market is healthy, levels of personal disposable income are high and unemployment levels are low. However, in recent years the weakness of stock markets has led to a decline in consumers' willingness to invest in pension and investment products, because of the low level of return. What's more, the current economic downturn means people have less money to invest in financial products. If they do invest, they'll want to be confident that the products you recommend will perform well and will safeguard their investment.

IFAs have a healthy share of the financial services market because clients value independent, unbiased advice, particularly as there is such a bewildering range of life assurance products, mortgages, pensions and savings products on the market. However, the sector is competitive and you will have to decide whether:

  • there is sufficient demand in your area to support your proposed business
  • you will be able to compete with other local financial advisers
  • you will be able to comply with all the regulatory requirements

Be aware that the FSA has recently reformed the polarisation rules - these required advisers to make it plain whether they are independent or whether they only sell the products of one company. The new rules allow advisers to:

  • provide advice across the whole market (independent)
  • sell the products of a limited number of providers
  • only sell the products of one provider

The FSA Conduct of Business Rules require IFAs to give customers details of their services and how much they cost. Until recently this information was provided in an Initial Disclosure Document (IDD) and a Menu document. These have been replaced by a single, simpler disclosure form, called the Services and Costs Disclosure Document (SCDD). You can find out more about the disclosure documents you must give to your customers on the FSA website.

The FSA can provide a great deal of useful information for would-be and established IFAs. It has a special section on its website for small firms in the financial services sector. Contact the FSA at 25 The North Colonnade, Canary Wharf, London E14 5HS or visit their website. The FSA website gives details on disclosure requirements.

Joining a professional body is an excellent way of keeping up to date with developments in your industry. Organisations representing financial advisers include:

There are also several useful trade publications catering for IFAs, including: