How to check and choose a financial adviser

Anyone can call themselves a financial expert. It takes about four seconds and a ring light. A regulated financial adviser is a different thing: someone working for a firm the Financial Conduct Authority has authorised, with rules about what they must tell you and how they get paid.

This guide is about telling the two apart, and then choosing well among the real ones. It doesn't name any firms.

Advice or guidance?

First, decide what you need. Advice means a personal recommendation: "in your situation, do this." Guidance explains your options and the rules, then leaves the decision with you.

Guidance can be free. GOV.UK points to free and impartial information from MoneyHelper, and is clear that MoneyHelper doesn't provide financial advice. For pensions, Pension Wise is a government service offering free, impartial guidance to people aged 50 and over on their options for taking money from a defined contribution pension. If you're over 50, you can book a free appointment.

Advice, on the other hand, you'll usually have to pay for. Sometimes guidance answers the question. If you still want someone to tell you what to do, read on.

You can find MoneyHelper at moneyhelper.org.uk.

Step one: check the firm is authorised

Almost all financial firms need to be authorised or registered by the FCA. Before you hand over money or personal details, check.

The FCA's Firm Checker is the quick version. You search for the firm by name, pick the product or service you want, and it tells you whether the firm is authorised and has permission to provide that service. Having permission for mortgages doesn't mean having permission for pensions advice.

The full Financial Services Register goes further. The FCA says it shows things like historic fines, whether a firm can handle client money, and past authorisation. You can also search for individual advisers there, though not every person at a firm needs approval, so not everyone will be listed.

Watch for firms marked as no longer authorised, and for warnings. If the FCA has published a warning about an unauthorised firm, it shows up when you search.

Clone firms

Here's the trap. Fraudsters copy real, authorised firms: their name, address and firm reference number, sometimes a near-identical website with a different phone number, or an email address that looks right but isn't. Searching the name on the register then shows a genuine firm, and you feel reassured.

The fix is simple and dull, which is why it works. Check that the contact details you've been given match the ones on the Firm Checker, and contact the firm only through those. If they don't match, stop.

Step two: independent or restricted?

Authorised advisers come in two kinds, and the difference is about range, not quality.

An independent adviser has to assess a sufficient range of relevant products on the market, diverse in type and in provider, and not limited to the firm's own products or those of firms it's closely linked to.

A restricted adviser recommends from a narrower range. That might be one provider's products, a short list of providers, or only certain kinds of product. Restricted isn't a warning sign in itself. A restricted adviser who specialises in exactly what you need may suit you well. But you should know what's being left out.

You don't have to guess. FCA rules say a firm must tell you whether its advice is independent or restricted in good time before it gives you advice, and in a lasting form, like a document or email. If it's restricted, ask what the restriction is.

Step three: understand how they charge

The FCA doesn't set prices. Its rules give examples of charging methods, including hourly rates, a fixed fee, percentage charges or a mix of these.

What it does require is that the firm discloses its charging structure up front and in writing, in good time before the advice starts. So you should know the price, or how it will be worked out, before you've committed to anything.

A few things to look at:

• Percentage charges grow as your money grows. A percentage that sounds small on a large sum can be a lot of pounds. Ask for it in pounds as well.
• Ongoing charges should pay for an ongoing service. FCA rules say a firm can only take an ongoing charge if it's providing an ongoing service, such as regularly reviewing your investments, and must tell you how to cancel it.
• One-off or ongoing? If you want a single piece of advice, say so. You may not need a yearly review.

Questions worth asking

• Is your advice independent or restricted? If restricted, restricted to what?
• Can you put your charges in writing, in pounds, for what I'm asking?
• Is there an ongoing charge, what do I get for it, and how do I cancel?
• Which of your permissions on the FCA register cover this?
• What happens if I want to stop using you?

A good adviser will answer all of these without fuss. Hesitation on any of them is useful information.

What protection you get

Dealing with an authorised firm comes with protections that unauthorised firms can't offer. If an authorised investment firm fails and you have a valid claim against it, the FSCS can pay up to £85,000 per person, per firm. The FCA's own advice is to check the register and the Firm Checker first, because almost all financial firms must be authorised or registered, and the protections depend on it.

None of this protects you from ordinary investment risk. Even good advice can't stop a market from falling. What regulation does is make sure the adviser is who they say they are, tells you what they're paid, and is answerable if they get it wrong.