Regulated advice from a financial adviser is the gold standard. You get an adviser, they have all the right qualifications, they will be clear about where they can offer advice and you have plenty of come-back – via the Ombudsmen or various industry bodies – if it doesn’t work out for you. You’ll get your own personal financial trainer to sort through your money goals, needs and actions. The problem? The quality is reflected in the cost.
When do you need it?
This is a practical cost thing. Financial advice cost money. Assume about £150 an hour or about 1% a year of your total pot of money. If all you want to know is where to put your £100-a-month ISA it simply doesn’t make sense. There are great online tools – investment “buy-lists”, model portfolios, Robo Advisers – that can do all that for you.
However, if you have any complexity in your finances – either because you have a lot of money, it is spread across lots of different investments, or because you have complex family circumstances – then an adviser can really help disentangle your financial arrangements and ensure that they are set up efficiently.
We think this is especially true when you face retirement. For example, if you have an old final salary scheme with words like ‘guaranteed’ being bandied around, well this could be really worth hanging on to. Also there’s tax to think about. We’ve heard stories of financial advisers coming on board within product ‘cooling off’ timeframes and saving their clients £1,000s in unwanted and avoidable tax bills.
Financial advisers can also be good if you don’t have much financial discipline and tend, accidentally, to buy shoes rather than put money in a pension. Nothing like someone nagging you to encourage you to do the right thing.
And if you’re going through a really horrible time like a divorce, having someone on your side to fight your corner and offer calm guidance as you experience red hot flashes of rage, well that’s valuable!
How much does it cost?
As a rule of thumb, depending on where you live, advisers will typically charge a fixed fee for or a percentage of the assets you hold with them. So you might be charged £500 and upwards for an initial review or, if you have a £100,000 pension and ISA portfolio, you would probably pay an adviser around 0.5% -1% per year to manage it. If they work on this basis, they are obliged to give you ongoing care and attention, so make sure you get it.
The Unbiased website, which allows people to find qualified financial advisers in their region, has a useful list of indicative costs .
Financial advisers are heavily regulated and it means they have to pay lots in insurance and consumer protection levies. They have quite high fixed costs of operation to meet so more and more are (often reluctantly) having to turn their backs on people with less than £75,000 to invest. So if you’re not loaded you might actually not be able to find one who will help. Don’t shoot the messenger…..
What to expect
You’ll probably just start with a little off-the-record chat, an ‘initial consultation’. Most advisers will see you for a freebie 40 minute chat. After that it all gets a bit more formal and the meter will start running. Your adviser will need to know all sorts of personal stuff – your income, expenditure, goals and ambitions – so don’t be coy and take as much information as you possibly can (bank accounts, pensions, salary statements).
After this information gathering exercise, the adviser will be able to go away and come up with a whizzy plan, telling you how much you’ll need to save and where, whether you need wills (hint – you probably do!), life insurance or any other bits and pieces. The adviser can then help you and sort all this stuff out for you.
Many will now offer to do what is called a ‘cashflow modelling’ exercise which is actually a really useful exercise and a way of really thinking about how much you need, for what and when. And it can be a scary wake-up call about what you’re spending your money on today. Gulp. We (brutally) weren’t allowed to define shoes as a basic living expense. #joyless
If you’re not keen to pay an ongoing fee, do ask if you can pay a flat fee just for the upfront advice – and then sort it all out yourself.
Still unsure? Anna, in her early 40s, wanted to know if she needed a financial adviser. Here’s what we said.
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