Appendix 3

Trusting your adviser

Choosing an adviser is the most important investment decision that investors make. Good investment advice is extremely valuable, so investors must be willing to pay for it. However, transaction commissions, rather than explicit advisory fees, paid to many financial advisers and investment firms create conficts of interest and can encourage a sales-driven rather than an advice-driven culture in the management of wealth. Investors need to know whether they are dealing with a seller or an adviser, and to manage their relationship accordingly.

Pure advice is not well rewarded, but investment sales or investment management are. A minority of private wealth advisers offer a fee-based, advice-only investment service, although this is more common for pension fund advisers. However, it is important that investors ask whether these firms receive income, such as commissions, from providers of recommended products, so that they are aware of potential conflicts before making investment decisions.