Seven ways to tell if your financial adviser is a shark

It's not easy finding a financial adviser you can trust. It's a problem for savers at home, but it's much worse abroad, where regulation isn't as tight as it is in the UK.

In recent years British savers have lost billions at the hands of unscrupulous advisers operating overseas and these shark-like advisers – who are more interested in their own financial gain than your security – are still very much at work.

Many dodgy advisers appear legitimate, professional and charming, so they can be hard to spot. The following steps should help you suss them out:

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1. How did they approach you?

Legitimate firms would never cold call or approach you for business on websites such as LinkedIn, so it is best to ignore firms that do this. Some unscrupulous advisers also drum up business by networking in expat communities – at golf clubs, yacht clubs and at parties. They also use pressure tactics and incentives to get customers to recommend them to their friends, so be wary if a friend recommends an adviser they've just signed up to.

2. Check the firm’s website

Does the website detail the firm's address and telephone number, in the jurisdiction it is operating? If not, avoid. The website should also show the date the website was last updated so you should look for it being frequently updated with new information. If there are advertising banners also consider whether they are appropriate for a professional firm.

3. Do background checks on the adviser

Look for professional qualifications or membership to professional bodies. Google the information to see if it's relevant and phone the professional bodies to check what the qualifications are, and if they are current. You should also ask to see the adviser's work permit for the jurisdiction they are working in. If they say they are regulated in the UK you can check here at the Financial Conduct Authority's website. You can also see if they've been banned or disciplined in the past, but remember the FCA only operates in the UK – different countries have separate regulators. You also need to make sure they have professional indemnity insurance to cover them in case something goes wrong.

Any person providing financial advice in the UK requires a Statement of Professional Standing (SPS) – this can only be issued by an accredited body. Accreditation is given by the Financial Conduct Authority, and the requirements for accreditation are in the FCA Handbook.

You should be looking for your adviser to have accredited qualifications from any of these eight accredited bodies: CFA Society of the UK, the Chartered Insurance Institute, the Institute of Financial Planning, the Chartered Institute for Securities and Investment, the Chartered Institute of Bankers in Scotland, the ifs School of Finance, [Note: The ifs School of Finance acts through its Institute of Financial Services], the Institute of Chartered Accountants in England and Wales, and the Pensions Management Institute.

In order for an accredited body to issue an SPS to an adviser, the adviser must have passed a minimum learning and exam course, which meets the level 4 requirements of the Quality and Curriculum Authority (QCA). They must also have recorded verifiable Continuous Professional Development (CPD) and must meet the standards set by the body on an ongoing basis. The SPS is renewed annually and the accredited body may not re-issue an SPS if it is not satisfied that CPD requirements have been met. You should ask to see these certificates before you invest.

4. Licensing and regulation

Does the firm display any licensing or regulation? If so, check that it is appropriate for the business and advice you are undertaking. Sometimes firms might be licensed for one type of work (mortgages, for example) but not the work you are discussing (investments, for example).

5. Investments and products

According to Compliance Matters, a UK-based claims management firm which deals with victims of rogue advisers, you should always ask: “If I invest with your firm today, will I have access to 100pc of my funds to withdraw, tomorrow”? If the answer is anything but "yes", you should avoid investing as there are likely to be large exit fees if you want access to your money.

You should always ask who researches and selects the funds. Whoever this turns out to be, you should ask further questions until you fully understand what you're investing in.

6. Fees

This is probably the most "hidden" part of the whole process which is why you need to get the adviser to talk about them.

Compliance Matters suggests asking: "What am I paying fees/commissions for – and for exactly what services?" You should also ask the adviser to estimate or calculate how many hours it will take his firm to provide the services. If you are being charged a percentage of the fund being invested, find out what it is.

Some firms are also notorious for taking huge double digit upfront commissions. The way they get around telling you about these is saying they are "paid commission by the insurer or bond holder". This is true, but what they don't tell you is that the commission comes straight out of your fund. You also need to watch out for huge exit penalties which prevent you from taking your money out of the investment – typically before eight years. Make sure you request a full fee schedule which outlines whether there are any exit fees.

Ros Altmann, the pensions minister, says it's a good idea to then ask your solicitor or accountant whether this amount seems fair – and get them to check through the complete paperwork before you sign anything.

7. Servicing fees

Also hidden into the contract are likely to be ongoing servicing fees, which can vary from 0.5pc to 2pc a year. Ask the firm exactly what they are providing in terms of ongoing service and consider whether you will receive value for the servicing fee charged. Bear in mind that you might be better off asking for the contract to have a zero service charge, and paying the adviser an hourly rate when you see them.

katie.morley@telegraph.co.uk