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Types of financial advice

By Michael Trudeau

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Types of financial advice

Discover the different types of financial adviser - and decide which best suits your needs.

Pre-2013, there were two main types of financial adviser - independent and tied. A tied adviser was usually attached to a bank or other financial institution and so could only recommend products from a few providers. Independent financial advisers (IFAs) consider all products.

On 1 January 2013, the way financial advisers are categorised changed, with the introduction of a new piece of legislation called the Retail Distribution Review.

Different types of financial advisers

There are all sorts of financial advisers out there, and they are governed by different rules. Mortgage advisers, for example, can still be paid by commission, as can those that offer advice on general insurance. 

From January 2013, new rules under the Retail Distribution Review have applied to financial advisers offering advice on all 'retail investment products', from stakeholder pensions to unit trusts

All financial advisers will have to have a minimum qualification equivalent to an undergraduate degree, regardless of the type of advice they provide. 

Read our guide to adviser qualifications to find out more. 

Independent financial advice

If an adviser says they are independent, their advice must be:

  • based on a comprehensive analysis of the market
  • unbiased, with no influence from product providers

Platforms and model portfolios

Some advisers use platforms, which are online services that feature a range of investments in one place. As long as advisers are using them to benefit their clients, platforms are an acceptable part of independent advice. However, advisers should use more than one platform.

Some advisers use model portfolios. These are pre-constructed collections of investments, a bit like chocolate selection boxes. Each model portfolio meets a specific investment risk profile, so one could be high risk, one low risk and one intermediate. Before recommending a model portfolio, advisers must ensure each investment suits their client – like making sure you like every individual chocolate in the box. 

Independent advisers can use model portfolios, but only once they have considered options outside them. They should not use just one model portfolio. Which? has developed a unique set of investment portfolios that can help you pick the right mix of investments based on how much money you're comfortable losing. Use The Which? portfolio builder tool to find the portfolio that hits your needs. 

Restricted advice

Restricted advisers will either focus on just one subject area, like pensions, but look at the whole of the market, or could recommend investments from all providers, but just for one type of products, such as only recommending unit trusts. 

Other types of restricted advisers may give advice on more than one area, but will only have access to a limited number of providers. This means you won't be getting recommendations from the whole of the market. If you visit a restricted adviser, it is essential that the adviser explains exactly what service he or she is providing to you.

Simplified advice services are typically automated, and on straightforward products, such as Isas. 

The same rules apply though, so advisers offering a simplified service must still meet the same standards for suitable advice, charges and professionalism as those providing independent and restricted advice. 

  • Last updated: November 2017
  • Updated by: Michael Trudeau

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.