IFA

Independent financial advisers (IFAs) can advise you on all of the important personal finance and investment decisions you may need to make.

If you're investing for the first time or even if you're a fairly experienced investor, IFAs can help you to make the most of your money and help you to avoid making poor decisions. IFAs are also authorised and regulated by the Financial Services Authority (FSA).

There are three main types of adviser. Tied advisers only offer products and services from the providers they work with, while multi-tied advisers can advise on a restricted range of products from a variety of providers they're linked with. In comparison, an IFA will offer you unbiased advice across all financial products available in the market. However, IFAs often specialise in specific areas of financial services.

When you first meet an IFA they will ask you about your aims, needs and attitude to risk – generally by filling in a questionnaire. This information will be confidential. The more information you can give to your IFA, the better the advice you will receive.

It's a good idea to contact a number of different IFAs to enable you to get a better idea of who you are dealing with and to check what qualifications they have – they should be happy to tell you what exams they have taken. Their websites should spell out their qualifications and if they have expertise in specific areas. You can find a list of local IFAs at unbiased.co.uk.

You should also always ensure you understand absolutely everything about your investment – if something isn't clear, ask your adviser to explain it again. Don't go ahead with anything you are not comfortable with or sign up to something you don't understand.

Finally, make sure you also understand the risks involved with your investment and ensure your IFA has explained this fully.

How much does it cost?

Your IFA has to tell you about the cost involved with taking advice and buying any financial product. You should compare the fees carefully.  Generally, IFAs are either paid a fee or commission.

If you are just charged a fee, you can expect to have to pay between £75 and £250 an hour depending on the level of expertise involved and where you live. However, you may find your first meeting is free of charge.

Alternatively, if your IFA is commission-based, the provider(s) will pay commission to the IFA depending on the products you choose. There is usually an initial sum but there can also be a 'trail fee' where the IFA receives a regular sum of money as long as you still hold the product. The amount of commission should be spelt out to you clearly before you make a decision and some IFAs discount part of their commission back to you.

Most IFAs work on commission as it is the most popular option with investors, who have consistently chosen this route rather than pay a fee upfront. But there is controversy around this method of payment. Consumer watchdogs and regulators worry that the commission can influence the advice you receive. After all, a provider is well aware that if it increases the commission rates, its products are more likely to be recommended. And investments that don't pay commission are rarely promoted.

This is why changes are being implemented as part of the Retail Distribution Review (RDR) initiative from the Financial Services Authority which means IFAs will have to charge a fee rather than receive commission. The RDR will come into force on 31 December 2012 and will mean that advisers will no longer have an incentive to recommend the products that earn the highest commission – as they simply won’t receive it.

Instead, IFAs will need to agree an upfront fee with you before they can do any work for you. This means that customers should no longer be encouraged to invest in certain products simply because the IFA earns a high rate of commission.