Due Diligence is Necessary to Choose the Right Financial Adviser – Part 3

by | Feb 28, 2024

Use our Due Diligence checklist to find out if your financial adviser is qualified, regulated, and legally able to advise you correctly.

Due diligence needs to be done by clients when investing and insuring to protect their own future or those of beneficiaries. The intricate regulations, licences, reporting, and regulatory scrutiny exist to protect investors. Clients are probably unaware that they lose some of these essential protections by choosing the wrong adviser based purely on claims on a website or even within contracts or terms of business which may prove worthless.  

For example, do you want to really be advised about taking out an insurance product based in the Caribbean that is not even regulated in the European Union or the UK or the US? 

Clients need to conduct due diligence on the adviser firm that is offering them advice, which invariably means the firm that is actually represented by the adviser sitting in front of them. If the adviser works for Firm A, then the research should be conducted on Firm A. If the adviser says that, actually, the advice on insurance / investments is coming from Firm B, then clients should realise that the adviser sitting in front of them should be attached directly to Firm B or the client should seek a separate and clear contract with Firm B and be able to talk to them.  

In the worse cases, if the adviser is from Firm A, recommending Firm B investment management which is sitting in Firm C outside the UK, the EU and the US – do we really need to explain the consequences? 

Key questions for due diligence

To try to assist, this article provides a simple (not comprehensive) due diligence outline that clients should consider for investment advice. There is other due diligence which should be done on the providers! There may be other questions that should be asked as a result of answers, or indeed, where confusion arises. 

As the client, find out if the adviser you are working with is actually regulated or provides any protection to you or your investments.

Due Diligence Questionnaire
How Can I Make Sure I’m Being Advised Correctly?

*(3 and 9) – Advisers are normally listed on the investment register in the country they live in. Alternatively, they could be listed for the company that is providing you the investment advice in the country it is located. However, not all tied-agents of a regulated company appear on some registers. In these cases you should write to the company directly. You should obtain written confirmation from the company that the adviser has qualifications relevant to where he/she is based- not just UK qualifications- and is formally giving investment advice from that company.  

** Alternatively, can the adviser put you in contact with the relevant person with the relevant qualifications required by their registry IN WRITING?  

*** Any FIRM or company claiming to be passported from another firm or another country always appears on the local register as it is part of the passporting rules. If it does not appear, then it is NOT legally passported which for investment firms simply means they are not registered nor regulated. 

How does your adviser stack up?

Depending on your answers to the above, you could be about to receive investment advice from someone who is not qualified, or not regulated, to give you investment advice whether it be in a pension, insurance contract such as a bond, or on a “platform” of direct investments.  

If you proceed, you are unlikely to have any protection and, in the worse case we have seen, invest in products with high commission that lose you a lot of money with no ability to complain or seek compensation.  

Examples can be provided and many expatriate “company” failures have occurred leading to the losses of hundreds of millions of pounds of clients’ money. 

If you answered “No” to questions 2, 3*, 5, 7 OR answered “Yes” to any of the questions 4, 6, 8, 10, 11 YOU NEED TO BE AWARE that you are about to take advice from someone or a firm that is not authorised or is operating in a misleading way, probably (but not always) meaning you have NO LEGAL PROTECTION , nor cover.  

Protect yourself

If you are unable to carry out the due diligence yourself, then please contact a lawyer or someone who can carry out this due diligence for you. Do not believe any “due diligence pack” you are provided by your adviser in isolation. You can independently check their status or ask a lawyer to do so.  

One hour of due diligence now can save you years of heartbreak and loss of money. Please do the due diligence. 

What Should Investors Know About Differences Between MiFID and IDD Advisor Licences?

The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

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Post written by:

James Pearcy-Caldwell

James founded and runs Aisa with an emphasis on a pro-client and transparent approach. He is always looking for the most suitable solution for the benefit of the client. He has been in the field of investment advice since 1998, and therefore fully understands the necessity of open communication and honesty. James is certified in many financial areas in several countries and also holds the most prestigious European certificate in investment planning EFP (European Financial Planner).

Aisa International is the only financial advice service company specialising in advice for expats that is regulated as a Securities Trader in the Czech Republic, USA, and UK.