An IFA Vs. Your Mother: Whose Advice Is Best?

Given the choice, who would you take financial advice from: your mother, or a fully qualified independent financial adviser?

One in five people would rather seek advice from mum and dad than an IFA, according to new research from Norwich & Peterborough building society.

I found that figure surprising - I thought it would be higher. Clearly people don't trust their parents' financial acumen as much as I thought.

I've certainly turned to my parents for advice more often than a professional. In fact, I only had one brush with a financial adviser, a decade ago, and the experience left me angry and alarmed.

Poorly endowed

I was buying my first flat and was unwittingly ushered into the office of the estate agent's tied financial adviser, a chap from Winterthur Life (name and shame!). He spent the next 30 minutes doggedly trying to persuade me that despite all the dismal press surrounding endowment mortgages, they were actually a really good product, and just right for me.

I don't remember him warning me about the possibility of a shortfall on my mortgage, although he said plenty about how much profit I could make after clearing my debt.

I had barely started working as a financial journalist, but I understood he wasn't independent. He only had one product to sell. And he was determined to sell it to me, whether I needed it or not.

I almost had to fight my way out of his office, but I'm glad I did, given what subsequently happened to endowments.

Of course, he wasn't an independent financial adviser. They're much better. They never sold endowments, did they? Or dodgy pensions, FSAVCs, split capital investment trusts, precipice bonds... I could go on.

No complaints

Working as a personal finance journalist, I've never felt the need to pay for advice from an IFA. I've had the knowledge and experience to make my own mistakes.

Such as opting out of my first company pension scheme for no good reason, investing in Aberdeen European Technology one month before the tech crash, and holding onto a Save & Prosper Japan Growth despite making zero returns (or worse) for six consecutive years.

Oh, and taking out a four-year fixed-rate mortgage with Bristol & West (name and shame again!) that turned out not to be portable, which cost me £3,600 in early redemption charges when I bought a house 18 months later. Damn. I'd forgotten about that one.

I can't bear to think how much these mistakes cost me, but at least they were my mistakes, and I didn't have to pay anybody a fee or commission to make them for me.

Mind you, nor could I complain to the Financial Ombudsman Service either.

Good eggs and rotten apples

I shouldn't be too damning about IFAs. Most of them are good eggs and stringent FSA regulation is doing its job in steadily binning the bad apples.

IFAs have been rewarded by falling premiums for professional indemnity cover, which covers them for claims made by disgruntled clients. The profession isn't as risky as it used to be - at least until the next mis-selling scandal strikes.

And where might that come from? If I was a first-time buyer who had been sold a Northern Rock Together mortgage at 125% of property value, I might consider I had been given bad advice.

Or if I'd taken income drawdown several years ago and seen the recent market seizure hammer my pension, I might also be looking to blame my adviser.

Although in both cases, if they had pointed out the risks, and most will, any complaint is likely to be slung out.

Parental advice

So should you take advice from your mom and dad rather than an IFA? I guess it partly depends on the advice you are seeking. Most members of the Foolish community won't have any problem doing basic stuff such as buying a stocks and shares Isa or finding competitive term assurance all by themselves. They can make big savings by buying from a discount broker.

But if you need more complicated advice, say, for equity release or inheritance tax planning, then you should consider speaking to a professional. I certainly would. My mother is a bright woman, but she doesn't hold the Certificate in Financial Planning.

And I would also grit my teeth and pay a fee rather than the less painful option of commission. That means the IFA won't have any financial incentive to sell me a product if I don't need one.

If you do seek advice, there is an increasingly strong chance that your adviser will treat you fairly and honestly, like they are supposed to do. They might also help you avoid the costly mistakes I've made.

Just make sure they can offer a whole-of-market advice. Tied agents may not quite be the spawn of the devil, but in my (admittedly limited) personal experience, they inhabit the same pond.

More: Three Reasons To Use A Broker