Why financial advice needs a little TLC

Financial planning has never been more complicated. We have to work our way through a huge array of financial products and, with the erosion of the state pension, take more responsibility for our retirement provision. And then there's the tax implications of all our investments. While we're becoming more financially aware, many of us still want help from an independent financial adviser (IFA). But how do we know if we're getting good advice?

Financial planning has never been more complicated. We have to work our way through a huge array of financial products and, with the erosion of the state pension, take more responsibility for our retirement provision. And then there's the tax implications of all our investments. While we're becoming more financially aware, many of us still want help from an independent financial adviser (IFA). But how do we know if we're getting good advice?

Fay Goddard, director of policy and technical services at the Association of IFAs, says the best way of selecting an IFA is via a personal recommendation. It is not always as simple as that but there are other ways to narrow the search.

IFA Promotion (IFAP), the organisation that promotes the benefit of independent financial advice, has an online service which claims to identify a local IFA that will be right for you. The site, www.unbiased.co.uk, searches for advisers for both individual consumers and businesses. If you have a specific requirement, such as tax planning, you can refine the search to find a specialist firm.

Clearly, the advice you get will vary depending on who you see. However, IFAs are continuously assessed under a regime known as training and competence. Some IFAs will be better than others, but this industry is strictly regulated by the Personal Investment Authority and David Elms, chief executive of IFAP, points out that companies which don't have an adequate training and competence scheme can be fined by the regulator.

To give financial advice, three Chartered Insurance Institute (CII) exams need to be taken - Financial Planning Certificates 1, 2 and 3. But people getting the qualification can't just set up straight away as an IFA; they have to do on-the-job training to be judged competent. The training varies between companies but takes about three years and often includes a lot of role-play exercises to prepare advisers for as many scenarios as possible. Trainees will not be able to give advice unaccompanied until they have achieved the "threshold level competence" (TLC). Mr Elms regards this as probably the best guide when looking for a good IFA. TLC is not an exam, and there is continuous monitoring to ensure advisers maintain competence.

There are further CII exams that can be taken, though they may not be obligatory. "A lot of IFAs have tremendous experience but may not have all the higher qualifications," says Ms Goddard, who adds that a huge list of qualifications does not necessarily equate with an excellent IFA. However, certain exams are compulsory. For example, the G60 is about pension switches and if a firm is conducting pension-transfer business, someone in the company has to have passed this exam.

The need for continuous training is understandable as new financial products are coming on to the market all the time and rules are regularly being reviewed and altered. Some firms offer more structured training and assessment than others. The Millfield Partnership, for example, has its own training academy to keep employees up to date.

Between 80 and 90 per cent of IFAs have had previous experience in financial services. This is the traditional route, but some in the industry would like more IFA firms to offer training schemes to graduates.

Paul Nixon from Gradus, a firm that specialises in graduate recruitment for the financial services industry, says the average age of an IFA is 54. He fears there could be a shortage within the sector if it doesn't work to replenish numbers. Graduates may not have a background in finance, he argues, but they have strong IT skills and tend to have had work experience. "It makes a lot of sense for firms to offer graduate trainee schemes as they [graduates] are in the position to reach the highest level and be excellent advisers."