Financial planning can be a daunting challenge for many and seeking the advice of a qualified professional financial planner can bring much needed peace of mind.  Yet, there are many of factors to be considered when seeking financial advice, which are primarily based upon your personal circumstances.  These will most likely change over your lifetime and finding a financial adviser can guide you through these challenges.  Significant events in your life may include marriage, the birth of a child – for whom you might also want to create a financial investment account, divorce, financial inheritance, or even a lottery win.

A FAMR 2018 Survey (Financial Advice Market Review) for the Financial Conduct Authority (FCA) determined that 4.5 million, or one in ten, UK adults took financial advice on investments, saving into a pension or retirement planning.  That is an increase of 1.3 million compared to the previous year.

Yet, the FCA concludes that there are 18.2 million people with £10,000 or more in savings and/or investments who might benefit from financial advice but haven’t taken it, equivalent to 36% of the UK population as a whole.  There are three main reasons for this:

• Many people have very little savings and investments to begin with. Although a financial adviser can provide guidance on how to save, such advice is not worth paying for if you don’t have the money to invest in the first place.

• Many people are deterred from investing due to the historical volatility of the market, and they restrict their savings to simple cash ISAs which generally do not require financial advice.

• Many investors feel confident enough to make their own financial decisions without advice. They feel that they can sufficiently research the subject to educate themselves by studying investment courses and books, and resources on the internet.

So firstly, determine whether you even need a financial adviser.

For most people, their basic financial priorities should be paying off debts, accumulating cash savings, paying off their mortgage, joining their company pension scheme and understanding the protection benefits provided by their employer.  You might only need general guidance on budgeting and managing debt, and free sources of help are available online, including the Money Advice Service, Citizens Advice Bureau and, for the over-50s, the government’s Pension Wise service.

Many people only need financial guidance at tax time, in which case a Certified Public Accountant (CPA) will probably suffice. That CPA may or may not also be a financial adviser.

If you need further assistance from a financial adviser, then there are still a number of factors you need to consider.

Determine what level of advice and service you need and how much autonomy you’d like to give away to a professional.  A good adviser will want to discuss your personal circumstances, and not just the products he is selling.  You want someone who understands your lifestyle, requirements and risk tolerance, and he will then translate these into actionable decisions.

Not all financial advisers are the same; their expertise cover a variety of specialisations.  Some specialize in certain practice areas, types of clients, levels of income, investment strategies, and products.  Some work with clients nationwide, while others focus on their local town.  Some can assist you with insurance needs, taxes, or estate planning and others will focus on retirement planning.  There are advisers for young clients and some specialize on retirees. You can find a planner to help with life stages planning, estate distribution strategies and planning a business.

Financial advisers fall into two categories, and you have a simple choice between these two options: Independent Financial Advisers (IFAs) and restricted advisers.

Independent Financial Advisers (IFAs) can recommend investments and insurance products from the entire market.  IFAs are not associated with a single financial services provider and therefore, they can provide financial advice suited to your best interest.  An IFA will review all available options throughout the market before recommending a plan that he believes is the best solution for your circumstances.

Restricted advisers, however, usually work in banks, investment or insurance companies. Although they might hold appropriate qualifications, and might abide by a code of ethics, their hands are ultimately tied by their contractual commitments.  Consequently, they may only be allowed to discuss products provided by their employer, or a narrow range of alternatives from affiliated providers, even though they may be aware of a competitor’s superior product on the market that might be better suited to your needs.  Consequently, the recommendations from a restricted adviser cannot be trusted in the same way as an independent financial adviser.

To establish what type of financial advice they are offering you, simply ask them directly.  To comply with regulations, a restricted adviser should make their status very clear to you.  The type of financial advice that they can offer should also be clearly stated on their website and other promotional materials.

In addition to the above, ask your financial adviser if he will act as your fiduciary.  By law, a fiduciary must act within your best interests, before considering his own.

One of the best ways of finding a suitable financial adviser is by personal recommendation.  Do you know colleagues, friends or relatives who use the services of a financial adviser who they can refer?  Ask them how long have they been using their services?  What has been their experience and what is their relationship like?  Alternatively, a Google Search for ‘Financial Planner’ or ‘Financial Adviser’ will show a comprehensive list of offices located in your area.

If you do find a someone who is highly recommended, make sure that you check on at least two other financial advisers for comparison.

In addition to gathering personal recommendations, make sure you perform a background check of the financial professional.  Check for professional certifications and designations after an adviser’s name, such as CFA, CFP, or CIMA to validate that the company you do business with is FCA authorised.

A financial adviser must have personally completed at least a ‘level 4’ financial planning qualification. Such a qualification refers to the level of difficulty on the Regulated Qualifications Framework (RQF) scale, which means that ‘level 4’ is equivalent to between a GCE ‘A’ level and a bachelor’s degree.  You should be looking for a diploma-level certificate, such as the Diploma in Financial Planning (DipFP) (formerly the Advanced Financial Planning Certificate), or better still, the Advanced Diploma in Financial Planning (ADFP).

Financial advisers must also have a valid Statement of Professional Standing.  This means that they have signed up to a code of ethics and that they have completed a period of at least thirty-five hours of professional training and development each year.

Taking professional financial advice is going to cost you money, but when it comes to making life-changing financial decisions, this may save you money in the long run.

There are three types of pricing commonly used in the UK:

• Percentage of Assets Under Management If your financial adviser proactively manages your investments over the long-term, he may choose to charge an annual fee as a percentage of your money that he is manging on your   This may appear unfair as your wealth grows, because managing £500,000 is very little different to managing £100,000.  However, this can work to your advantage if you have very little money, since you will be charged less when you will be the most cost-conscious.  Remember also that a financial adviser may charge an additional initial fee to cover initial research and advice costs.  Expect to pay fees of 2% upfront and 1% each year thereafter.  If your financial adviser is located in a prime location with expensive offices, expect to add a further 0.5%.  Also, ask him how often he will review your portfolio.

• Fixed-Price A financial adviser may offer a variety of different options for a fixed price.  This is unlikely to include ongoing monitoring of your investment.  You will be charged each time you go to the adviser for a new ‘project’.  However, if you just need a one-off session with a trustworthy source on a financial matter such as setting up a pension, or investing the proceeds of an inheritance, this may be your best choice.  Fees will depend on various factors such as location and the complexity of your finances, and it is unlikely that you will spend less than £2,000 for this service.

• Hourly Rate This is the least common pricing method.  You will be charged an hourly rate for the number of hours actually spent, at an agreed-upon rate, which could be anything from £50 to £250 per hour, so ask before you commit.  Your adviser should be able to give you a reliable time estimate (and therefore price) for the work in advance, but if he does spend more time than planned, you may be charged the additional costs.

The best financial advisers and planners will not only help you profit on your investments, but will also help you reach your life’s goals, avoid undue financial risks, and save money on insurance and other major decisions throughout your lifetime.

To gain the greatest benefit from your financial adviser, you should meet regularly, preferably in person, to share your concerns and goals, and allow him to review all of your financial and legal documents regularly.

Ask you financial adviser how often you will meet to review your portfolio and your overall circumstances? Will it be 3 months, 6 months, annually or as needed?  How will he normally communicate with you?  Will it be by phone, email, Skype, or even text messaging.  It is becoming more important and more common for clients to work with their financial adviser remotely.

As with any industry or profession, not all advisers are competent. Choosing the wrong financial adviser could end up being a costly mistake.  Remember, it is your money, and you must understand what your financial adviser recommends and why.  So, don’t be shy when asking questions before committing.  Ultimately, it is up to you to make sure that you are comfortable with the right financial adviser for you.

You will very likely establish a long-term relationship with this person, so don’t be afraid to shop around and find the person who is right for you.  Make the effort to find someone who is experienced and qualified, and above all, someone with whom you ‘click’ and feel comfortable with managing your future retirement.

In addition to the above, here are some more questions that you can ask your financial adviser:

1. How long has your company been in business and how big is it?
2. How long have you been working as a financial adviser?
3. Can you file my tax returns and help me with other tax-related questions?
4. Do you specialise in a particular area?
5. Are you qualified in any specific areas where I want advice?
6. Will you refer me to another professional if the firm cannot provide the service itself?
7. Will I always see you or will other people in your company look after me as well?
8. Is there a succession plan, in case something happens to my adviser?

Please continue reading the Benefits and Disadvantages of a Financial Adviser

Wishing you healthy and prosperous future for you and your family

The FRY Team

Footnote:

The title financial ‘adviser’ or ‘advisor’ are both correct spellings of the term and both can be used interchangeably.  However, the standard appears to be that a registered financial professional tends to call himself a financial ‘adviser’, whereas a broker tends to refer to himself as a financial ‘advisor’.  For this blog, the term ‘adviser’ is used throughout.

A financial adviser is a term broadly used to cover many types of professionals. These individuals include bankers, accountants, stockbrokers, insurance agents, and estate planners. Financial advisers handle a wide variety of financial issues for individuals and businesses, while a financial planner handles more specific cases to create programs with long-term financial goals.