Is it time for you to sack your Independent Financial Advisor (IFA) and show them the door for good?
In this article, I’ll be giving you 10 reasons why you should seriously think about firing your IFA and learn to manage your own investments yourself.
1. Your IFA Is Not Really Independent
I’ve put this one first because it’s pretty obvious that, despite their title – “Independent Financial Advisor”, they are not ALWAYS independent.
Before any IFAs reading this start complaining, I do recognize that some IFAs are independent or at least more independent than others.
However, the reality is that most IFA’s are not as independent as we would logically expect them to be and like them to be.
The reason I say this will become more evident to you as you read further down my list.
This lack of independence – or confusion surrounding independence – is the main reason behind the recent Retail Distribution Review (RDR) in the UK and is a prime example of the UK Government protecting the great British public from ourselves.
Just like the financial services industry, the Government thinks we are all stupid too and has therefore created another set of regulations to protect us.
2. Your IFA Is Earning A Kickback On The Products You Buy
This follows on from (1) above and applies to some, but not all, IFAs.
If your IFA is earning a commission of some kind on the products you buy from them then they are not as independent as they could be.
This is being banned by the previously mentioned RDR in the UK but if you are not based in the UK then this may still be relevant for you, so I mention it here.
To be truly independent, your IFA needs to earn 100% of their income from advice fees alone.
If this is not the case, then fire your IFA and find a different one who does.
3. Your IFA Is Selling Products, Not Advice
If your IFA is selling you products then they are a product advisor, not a financial advisor in the first instance.
At best, you will be getting a mixture of financial and product advice and this makes it difficult to discern between the two.
This may be okay if you are buying an insurance product of some kind such as medical insurance, say (in which case see the next reason below) but beware if you are wanting financial advice about investments.
4. Your IFA Is Only Offering A Limited Range of Products To Select From
Assuming you are buying a packaged product of some kind such as medical insurance, then make sure your IFA has access to and knowledge of the full range of products available on the market and not just a limited range of products from companies they represent.
You want to be able to select and buy the best product from the widest range available.
5. Your IFA Only Recommends Packaged Investment Products
If you are wanting help with your investments, then IFA’s will start recommending mutual funds or pensions.
In my experience, they never recommend investment trusts or bonds or company shares, for example.
Why do you think this is?
The simple answer of course, is that they have no way of earning a commission from them.
In the UK, with the RDR changes, we all hope that this will start to change when we pay for all our financial advice with fees.
But I’m still to be convinced because the typical IFA does not provide this kind of a service.
For this, you need a special wealth manager or investment manager and they cost a lot more than an IFA.
These types of investment advisor also have qualifying criteria such as the size of your investment lump sum or investment portfolio before they will take you on as a client.
And this means that only the wealthy get to access this kind of investment advice.
6. Your IFA Wants Too Much Information
You asked for some help with managing your investments and they’ve started by filling in a long form asking for every last detail of your financial situation.
They are doing this because the regulations say they have to, irrespective of whether the questions are relevant for you and your situation or not.
What’s all this about?
Not only do they want all your financial details, but they want your spouse’s details also!
All this before they will even consider talking to you in any detail about what you want advice on.
To my mind, this is nonsense dreamt up by the Government and financial authorities to cover their own backside.
It’s another example of a process that is designed to help them instead of helping you.
7. Your IFA Only Provides General Advice
Too many IFAs are only able to provide general advice that applies to lots of people.
Unfortunately, this is not specific enough to you and so often it is not what you want.
These types of IFA have often got lots of impressive sounding qualifications and letters after their name but all that means is that they have sat an exam and achieved a certain score in it.
That doesn’t prove that they are capable of helping you with your specific situation.
If you’ve ever sat an exam yourself you’ll know that it’s possible to answer questions by following a method without necessarily understanding the underlying rationale for why the question needs to be answered that way.
If you disagree with me, then answer me this – when you are dividing one fraction by another, why do you do it by inverting the second fraction and then multiplying the two?
When I studied mathematics at school, I was told this is how to do it but never told why – I had to learn that for myself when I got to University and studied a pure mathematics degree!
8. Your IFA Can’t Assess Your Risk Profile
This is another version of the over-generalizing problem again.
They ask you questions about your attitude towards risk to assess whether you are a cautious, moderate or aggressive risk-taker with your money.
Unfortunately, they are assessing you as a person and putting you into a risk profile pigeon hole when what they should be doing is segmenting your available money and applying a risk profile to each.
So, for example, I have an amount of money in cautious cash savings, an amount in a conservative pension and an amount in company shares.
Whenever I talk to a financial advisor, they can’t work out whether I’m a cautious, moderate or aggressive risk taker – I rest my case!
9. Your IFA Doesn’t Understand The Stock Market
If your IFA thinks that all company shares are extremely high risk, then they are wrong.
And if they think that all government bonds are low risk then they are wrong again.
Yes, I understand that conventional risk profiling says that this is the case, relatively speaking.
At least that’s what the IFAs always tell us and are told to tell us by the various financial authorities.
But not all Governments are the same and not all company shares are the same.
I therefore believe in assessing each particular asset on its own merits.
Right now, there are many government bonds that I would not touch with a barge pole.
Granted, there are also company shares that I would not touch with a barge pole either!
However, there are many company shares that are solid blue-chip companies, highly diversified, global multi-product businesses, which are far less risky to own than Government bonds.
When interest rates are this low and can only go one way (up), so many Governments in the world are printing money (inflation) and so many Governments have huge debts which are still growing and they can’t pay back – this is not the time to buy Government bonds.
If these Governments were companies, many of them would be bankrupt by now.
The only reason they aren’t is because Governments can’t go bankrupt and disappear like companies can.
Governments default on their debts instead.
This is a fancy way of saying that they don’t pay their debts back.
So if you are still holding those Government bonds when they ‘default’ – you lose your money (also known as “taking a haircut”).
10. Your IFA Can’t Tell You How To Start Investing In Company Shares
Most IFAs don’t invest in company shares and, even if they did, they would not be able to advise you how to start.
For that, you need a coach with specific knowledge of the process of how to get started.
How To Invest In Shares
If you want to learn how to manage your investments yourself then you can start learning right now by signing up for the FREE guide below and booking yourself on to one of my FREE Investment Strategy Sessions.
With opportunities like these, if you want to sack your IFA and learn how to invest in shares, then there’s no reason to wait any longer.