The government has recently reformed UK financial
advice, with changes due in 2012. This will affect advisers'
commission and qualification requirements. The changes aim to
ensure financial advice is independent and in consumers' best
interests. Despite these welcome changes, deciding which type of
financial advice to use and which adviser to consult can seem like
a minefield. Laura Edgecumbe-Ansdell looks at how and where ftbs
should seek advice to avoid costly mistakes
Getting Professional advice
When selecting a professional adviser, you need to do some
thorough research. Consider how they're paid, their professional
qualifications, their scope of advice and their membership of
professional bodies.
What type of adviser?
Tied advisers work for just one building society or bank and only
sell products from that provider. Limited advisers advise on a
limited range of products from different providers.
Whole of market advisers/mortgage brokers
Whole of market advisers, who are not tied to specific providers,
can compare all options and are considered best. As 'whole of
market' is a Financial Services Authority (FSA) regulated term, a
mortgage broker must tell you exactly what kind of advice they can
offer. This information is in the 'Key Facts' document a mortgage
broker gives you at your first meeting. The main advantage of using
whole of market brokers is their access to a wide range of mortgage
products. A broker should have the experience, connections and
technology to assess your financial situation, compare different
mortgage products and recommend an option that's right for you.With
mortgage availability limited for most ftbs, a mortgage broker can
help you apply for the best deals as soon as they become available.
Many lenders, especially specialist lenders, offer deals
exclusively through brokers that wouldn't be available otherwise.
Brokers may know which lenders are most likely to approve your
application, reducing the risk that multiple applications will
damage your credit history. Getting professional help should save
you time and effort by carrying out research and filling in
applications. Typically you only provide information, which can be
used to find deals and submit applications, to brokers once.
However, some lenders provide the best deals direct to consumers so
your broker cannot access these, and some brokers charge fees which
is an extra cost for cash-strapped ftbs.
How do brokers get paid?
Fees
Some brokers charge fees for their services. This will either be
an hourly or 'flat fee' basis and can be charged up front or on
completion. A fee-based broker offers the reassurance that they
should make their recommendations on your best interests rather
than which deal will earn them the most commission.
Commission
'Fee free' mortgage brokers are compensated directly by lenders,
which means their services won't cost anything extra. The FSA
regulates and checks to try to ensure that brokers receiving
commission offer genuinely independent advice without being
influenced by potential earnings from a deal.
Fees and commission
Some mortgage brokers will charge fees for their services and take
commission from a lender. In this instance they may offer to offset
the commission earned against their fees. Frequently, it will look
like there is no fee. The fee may already be priced into the
mortgage through the interest rate or the mortgage arrangement fee.
Alternatively, the adviser's fee is often added on to the mortgage.
Although these may help cashflow now, it will cost you
significantly in interest over the life of the mortgage. The level
of fees should be considered, though remember that good (paid for)
advice now can save you a fortune in the future.
FSA registered
Whatever type of financial adviser you choose you must check that
your financial adviser is registered with the FSA. Check the FSA
registrar at fsa.gov.uk/register/home.do and search by company or
individual. This is important because if a firm becomes insolvent
and holds any of your cash, the FSA should pay compensation to you
for any financial loss you may have incurred.
Finding a suitable adviser
It is vital to choose an adviser who is suitably qualified to give
you the right advice. Unbiased.co.uk, which promotes the benefits
of independent financial advice, holds the details of 9,000 UK
Independent Financial Adviser (IFA) firms on its database.
Consumers looking for local IFAs can find an IFA that holds
qualifications in 'generic' financial advice or specific
qualifications in areas such as shared ownership, mortgages,
pensions, savings, investments and tax.
Getting a mortgage without an adviser/
broker
Not all mortgage deals are available through brokers: some banks
and building societies offer deals for direct clients only. The
extent to which banks and building societies offer direct-only
deals varies: some providers offer products through brokers as well
as 'exclusive' deals for direct customers, while others have no
dealings with brokers at all. Some banks and building societies
offer discounted mortgage rates to direct customers who hold other
financial products with them. These deals are not available to
mortgage brokers. Dealing with a lender directly has the benefit of
eliminating any broker fees.
Free advice
There are many government or independent advisory services that
give general advice on mortgage processes/ types. For more
information, go to:
citizenadvice.org.uk
direct.gov.uk
moneyadvicemap.com
moneyadvicetrust.org
moneymadeclear.org.uk
whichmortgageadvisers.co.uk
Comparison sites
Comparison sites can help you identify the best mortgage rates.
Make sure you use independent sites, which have signed up to the
Consumer Focus Confidence Code. These include: Confused.com and
MoneySupermarket.com.
Going to your bank
If you want, you can arrange your mortgage with your bank or
building society directly. However, remember that you'll be subject
to the same rigorous checks as any other customer. You will also be
restricted to the range of mortgage products that your bank
offers.
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