Everyone – business owner or employee – could benefit from good financial advice.
We rarely hold bank notes, invariably ditch coins at the first opportunity, and most likely live via plastic. All of this makes it easy to spend beyond our means.
But just because we rely on non-cash methods of making payments doesn’t abrogate our responsibility to be careful with our money. By extension, this means planning our financial futures for the long term. For most, unless they are a ‘sophisticated investor’, this means hiring a financial advisor.
Worryingly, many do not, as an October 2023 story in Professional Advisor noted[1]. It reported that “only one in ten adults have sought professional advice.” Further, the research, conducted in collaboration with YouGov and 2035 adults, showed that almost half (49%) felt uncomfortable with their level of retirement savings, whilst 38% said it is unlikely they will achieve their retirement goals.
Similarly, a January 2024 report in the Independent found that “more than half of people (59%) do not have a financial plan in place.” [2]
But with a bewildering array of financial advisors, not to mention the acronyms used in the world of finance, it’s never been more important to find the right person.
It’s important to be mindful that someone needing financial advice does not have to be classed as ‘rich’ to qualify for help – indeed, good financial advice is as crucial for the average person on the Clapham Omnibus as it is for the wealthy. For some, seeking advice will be a function of being at a crossroads in their life – where something significant has occurred, such as the death of a spouse, an inheritance, or an upcoming retirement.
Advisors differ
As in other walks of life, advisors differ in the services they offer and the markets they serve – mortgages, investments or pensions, for example. Consequently, some may refer to themselves as a financial adviser, or they may call themselves a financial planner or wealth manager.
In overview, a financial adviser is likely to offer a wide range of services outside of savings and investments – perhaps mortgages, insurance products or equity release (from a property).
A financial planner or wealth manager, on the other hand, tends to be more focused on investment and wealth and will seek to form a strategy taking account of the client’s current circumstances, goals and other factors. They will look at the bigger picture and aim to take a rounded approach.
But regardless of the specialism, all are regulated by the Financial Conduct Authority (FCA). Accordingly, they have rules to follow and obligations to their clients; any advisor officially recognised will be listed on the FCA’s publicly searchable Financial Services Register.
While there are minimum qualifications for recognition, the more avant-garde will hold other specific qualifications particular to their interest. Understanding how well-qualified an advisor is not a wasted exercise.
If an adviser deals with investments, pensions or retirement products, they will be categorised as either ‘independent’ or ‘restricted’. Independent financial advisors seek to recommend products from firms across the market as a whole. In contrast, restricted advisors invariably have limitations on the type of products they offer, the providers they are able to choose from, or possibly both.
This means that it’s important to know the status of the adviser being considered and what they can offer; if their status is unclear, it should be clarified. If they are restricted, their providers should be clarified, too.
Recommendation
The obvious way to begin the search is to ask for personal recommendations from friends and family, noting, however, that their assets, needs and level of sophistication will be different. Questions to pose should revolve around ‘personal chemistry’, responsiveness, charges and importantly, results.
Apart from friends and family, there are websites such as Vouchedfor, the Society of Later Life Advisors, Unbiased, the Personal Finance Society, and the Retirement Advisor Directory on moneyhelper.org.uk.
Paying for advice
Advice comes with cost, and it’s important to walk into a relationship without surprises.
Any first meeting should be free. But after that, the charges can be highly variable.
Advisors recommending products such as investments, pensions or retirement income products cannot receive a commission. Consequently, they will charge fees, which may mean an initial onboarding fee followed by ongoing fees, which could be monthly or annual. Fees might be flat rates or based on a percentage of the assets. And while fees are presented as fixed, it may be possible to negotiate them down.
According to moneyhelper.org, hourly rates vary from £75 to £350 per hour, with an average of £150. But there could be a set fee for a given job, which may range from hundreds to several thousand pounds.
As for other forms of fee structure, searches of VouchedFor shows one instance of investment advice on assets of £250,000 being charged an initial fee of 3% and 0.75% ongoing plus any investment fund fees payable. Another for the same investment found a different advisor charging £1500 plus 1% of the assets initially with 0.75% ongoing plus any investment fund fees.
Fees will also depend on location, service delivery (in person, phone or online), whether the advice is independent or restricted, who provides the service, qualifications, complexity of the work, and whether the service or product is actively or passively provided. Advisers must provide a copy of their charging structure before providing any services.
Advisers for mortgages, equity release, general insurance (car, holiday or travel), or protection insurance such as life insurance may be paid commission, which should be disclosed.
While acknowledging that advice comes with cost, those seeking pension advice may be able to use the UK Pensions Advice Allowance. This allows those in defined contribution pension schemes to take up to £500 out of their pot tax-free to pay for retirement advice. This is permitted up to three times and no more than once in a tax year. However, not all pension providers provide for this.
Finally, there’s also the government’s free Pension Wise service for those 50 or over who have a defined contribution pension. Pension Wise, via appointments of around 60 minutes, gives ‘guidance’ but not regulated financial advice. The ‘advisor’ will go through the options and tax implications but won’t make any recommendations.
Summary
Taking financial advice is a serious matter where percentages may look small but could, in time, through compounding, make thousands of pounds of difference. Ultimately, the choice of advisor is personal. But even so, it’s key to look beyond the glossy brochures and to the results an adviser can bring.
[1] www.professionaladviser.com/news/4134234/brits-unsatisfied-retirement-savings-shy-away-advice
[2] www.independent.co.uk/money/more-than-half-of-people-do-not-have-a-financial-plan-in-place-survey-b2474450.html