Can you trust a financial adviser?

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Financial advisers don't have the best of reputations. From the high profile mis-selling scandals, to equally high-profile scams, clearly there have been some shady characters causing consumers a great deal of heartache.

The authorities have been wrestling with the dilemma of how to protect consumers for well over a decade. They think they have finally found the solution. However, there is one big drawback.

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New rules

There are three aspects to the new rules for advisers, which are being introduced on December 31st. First and foremost, all advice will haves to be paid for upfront, by the person getting the advice. This is a major change from the current situation, where you can either pay a lump sum or choose to pay by commission - which is where the provider pays the adviser for your business.

The second change is that advisers will have to declare whether they are independent - which means they can consider any type of product at all from across the market - or whether they are restricted in some way.
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The third change is that advisers will have to pass more stringent qualifications in order to be allowed to give advice.

AOL spoke to Linda Woodall, head of investment intermediaries at the FSA about what the changes mean for consumers.

Why do things have to change?

It is geared around helping investors get advice they can trust. After these changes, consumers will know just what the advice will cost, they will understand the nature of the advice they receive, and the adviser will have to have met certain standards in order to offer that advice. Over time we believe these changes will help promote trust and confidence.

Why are you making consumers pay for advice?

Financial advice has never been free. If you received financial advice without paying a fee you would have been paying commission which means a percentage of any sum you invested would be paid to the adviser.

The size of that percentage could be anything from 1% to 8%, so if you were investing £10,000 you could have paid £800 for that advice. From 31 December, the adviser has to be clear about the cost of advice.

Don't consumers already understand if their advice is independent or not?

Ordinary investors don't really understand the way advice is given at the moment, and the different types of adviser. Some advisers can advise on everything - others only advise on certain products (such as pensions for example), or only do business with certain providers.

In future, the adviser will have to make it clear whether they are independent and considering every product on the market or whether they are restricted - and what the nature of that restriction is.

How can we know an adviser is up to the task?

We have raised the standards of qualification, advisers have to keep their knowledge up to date, and they have to sign an agreement that they will treat customers fairly. The FSA's job is to monitor and review how the changes are playing out in practice.
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