Key Issues

Industry Issues in Insurance

The rules are changing for those thinking of entering financial advice and now is a great time to capitalise on this, writes Caspar Bartington of The Chartered Insurance Institute.

Ask most students to explain what financial advice (an interchangeable term with financial planning) is, and only a small number would be able to.

Part of the reason is that many financial advice employers are small and medium-sized enterprises (SMEs) who do not have the time or resource to explain who they are and what they do. There are some big players in this area (for example, high street banks) who tend not to go into detail about this aspect of their business.

However, the financial advice sector is in the midst of important changes, which could offer you a great opportunity to develop your career, so now is the time to find out more.

The changes taking place are known in the trade as ‘RDR’ (from the Financial Services Authority’s Retail Distribution Review), and are concerned primarily with enhancing professionalism. Hoped-for outcomes of the RDR include a repositioning of financial advisers closer to professions such as accountants, lawyers, architects and chartered surveyors.

Financial advice is a sector that is regulated by the Financial Services Authority, and those practising financial advice must hold professional qualifications. At present, the level of qualification required to give advice is lower than some other sectors. The Certificate in Financial Planning, one of the most popular licence to practise qualifications in this area, is at the same level as an A level, Diploma or BTEC National.

By 2012 the level of qualification required to give advice will be at the level of the first year of a degree. The Diploma in Financial Planning is one qualification that advisers are currently taking to meet the 2012 requirements.

Looking further ahead, there may come a time when a higher level qualification, such as the Advanced Diploma in Financial Planning, is required to give advice. That is a little way off, and at present the focus is on Diploma-level. There are of course many advisers who go beyond the minimum level required, and who are Chartered Financial Planners in their own right, and who may also work for a Chartered Financial Planning organisation. These are the advisers who are likely to earn most money and have the greatest prestige.

So, why is all of this a potentially excellent opportunity for you to enter the advice sector? The reason is simple. The average age of an Independent Financial Adviser is around 50 and many of these advisers have not sat an exam for many years. For a not insignificant number of these advisers, the prospect of taking more exams to enable them to meet the 2012 requirements is not as tempting as moving away from the advice space.

Thus we could be left with a situation where high numbers of advisers leave the sector and leave clients that need advice.

So, what does financial advice cover?
Quite simply, it is the process of dealing with individuals or companies who want guidance on financial decisions. In reality, this could be anything from advising an individual on how to make their money work better for them to advising a company on its long-term pension strategy.

Many graduates will become a paraplanner as their first role in financial advice. A major part of paraplanning is supporting a financial planner. For example, a financial planner will often meet with clients to understand their needs (this is called a fact-find). The financial planner brings back the client’s response to the paraplanner. The paraplanner then researches the market for the best solution for the client at that time. In so doing, the paraplanner gets to understand the process of supplying financial advice, and the marketplace. At the same time, the paraplanner studies for professional qualifications to enable them to provide client-facing advice.

Financial advisers don’t necessarily have to come from a financial background. In fact, the most important part of being a financial adviser is communication, both speaking and listening. Good financial advisers are more than a business contact, they are a trusted member of the community, and will provide advice according to changing client needs over a long period of time. As you can imagine, someone in their thirties who has recently got married will have a very different set of financial priorities from someone in their sixties who may be approaching retirement and has paid off their mortgage. The skilled financial adviser is able to understand these different needs, understand the client and provide the best solution.

There are two types of financial adviser at present – a tied adviser, who can advise on a limited range of products (those offered by his or her employer, typically a bank), and an independent financial adviser (IFA), who can give advice on a far wider range of products on account of not being employed by a product provider.

Tied advisers receive a basic salary from their employer and a performance-related bonus on top. Typically, salaries range from £30,000–£60,000. IFAs, on the other hand, make their money in one of several ways (by charging a fee for their services; or commission on the products they sell to clients; or even charge each of their clients a retainer) with earnings limited only by the drive and ambition of the adviser. Salaries in the IFA market can vary from £30,000–£300,000.

Financial advice offers you the chance to be your own boss or work for a large company; to earn large sums of money; and help people make the right financial decisions throughout their life.

Case study
‘I came to Financial Planning and Advice midway through my career. To be honest I had not really viewed it as intellectually demanding enough based on my own early experiences of advisers. I spent ten years working in the City in Analyst and Relationship Banking roles and most recently worked as a Stockbroker for Bank of America. It was during this time that I decided it would make sense to put my broad financial experience to use helping individuals rather than the companies they work for.

Having had some bad experiences of financial advice I was keen to make a difference and prove how much value good advice and planning can add to people’s lives. I set up North Financial Ltd in April 2008 and although starting a business is never easy, I am pleased to say I have already managed to build a solid business and thoroughly enjoy the flexibility, variety and challenges of what I do. I definitely make a difference.’

Hayley North
Managing Director, North Financial

For more information
Retail Distribution Review
www.fsa.gov.uk/Pages/About/What/rdr/index.shtml

Professional qualifications and entry points into financial advice
www.thepfs.org
www.fssc.org.uk/directions

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