What do financial advisers actually do?
And what will they cost? The idea of seeing a financial adviser is quite a daunting one. How do you pick someone who’s good and honest? And what exactly can you expect?
In this article, I feedback after a chat with Richard Allum, MD of The Paraplanners about financial advisers. What do they do, what do they cost, do you need one and if so, how do you pick a good one?
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Richard Allum is a paraplanner. That means he’s a bit of a technical geek who beavers away behind the scenes making your financial plan a reality. He’s the financial advisers’ wingman and works with loads of different advisers – currently his firm supports over 25 financial advisers’ practices. Just like doctors have paramedics and lawyers have paralegals, most advisers will work with paraplanners.
Here are our thoughts on what to consider.
When it comes to a financial decision, especially a major one like how to invest in the stock market or what to do at retirement, consider biting on the bullet and calling in the experts.
The regulator ripped up the rule book a few years ago and banned commissions (when it comes to investments and pensions). Advisers now have to be very clear with you about what they are charging for their advice. They no longer get any kickbacks from financial firms.
The fee is about 3% of the assets they manage on your behalf for any initial work which includes sorting all your stuff out. Once this has been done, an ongoing fee of about 1% a year is typical. An hourly fee tends to range from £120 to £170 and it also depends on where you live. London is pricier – as always.
Bear in mind that you don’t need to sign up to a permanent relationship and end up paying a fee every year. Some advisers will give you a quote for a one-off piece of work.
Mortgages: Advisers may be called brokers, they can still earn commission on selling a product and they can also charge a fee. There is a huge choice of mortgages out there and some firms will deal only with a small number of lenders or be “tied” to one. “Whole-of-market” advice does what it says on the tin – it scans all the products available.
Insurance: Just like comparison websites, insurance brokers get paid commission by the insurance providers. But unlike the online services they have specialist expertise, and should be considered if you are thinking about how you would cope financially if you lose your job or fall ill. They can help you pick the best income protection cover on the market for this purpose. They’re also worth a shout if you are travelling and have health issues, or live in a flood-prone area.
Investments, pensions and planning: These guys must be fully qualified and charge an explicit fee – they ain’t allowed to receive commission. They may also advise on insurance, particularly life or critical illness insurance, but in this area be aware that commission may still be in play.
They are categorised as “independent” (able to cast their eyes over the whole market) or “restricted” (limited to recommending a fixed range of investment firms). Most of the big national advisory firms are technically restricted, and your small local firm may be too. When it comes to investments, firms may in reality have as much choice at their disposal as you could possibly need. Don’t be blinded by ‘independence’, but do check their offering, because ‘in-house’ set menu funds may be more expensive than a la carte ones.
Many offer ‘holistic’ planning, for all your advice needs. This can be helpful if you haven’t got a clue and are looking for a total financial MOT but be aware that this is likely to be more expensive and result in you taking out more products. If tax advice is needed, be sure the adviser has this expertise and experience.
Most will offer a preliminary no-fee meeting. Be methodical with your questions so you can decide whether you get on well and whether the adviser really wants to get to know you (or your wallet). If you proceed, ask for a fact-find form and fill it in before your first proper meeting.
*Know your own needs. Are you looking for investment advice, or a bit of insurance cover? Is your adviser going to respect your wishes, or try to sell you products you don’t want?
*Check their qualifications, status, and expertise. For instance, chartered status often denotes a very well qualified adviser.
*Understand the fees and be ready to negotiate. You shouldn’t be paying more than £170 an hour (London will be more expensive) or 1 per cent per annum on your investments – unless you’re getting something which merits the unusually expensive fees.
*You want personal not generic advice. For instance, can they cater for your desire to invest ethically? Will they take your kids into account and help your family? Will they go that extra mile and contact you after important financial events such as a budget which impacts you?
*You want someone you can trust. Often it’s a good idea to ask friends and family as word-of-mouth can be worth far more than a fancy advert.
* You want to know you can contact your adviser and/or check your investments during turbulent markets, like those seen following the EU referendum result. Ask your adviser what their protocol is in such situations.
To hear from a financial adviser about how to pick a good ‘un, listen to Tips from financial adviser Pete Matthew, the podcast with one of our favourite advisers, who runs his business out of Cornwall. He hangs out about as far West as you can go before you hit America! He shares some brilliant tips including how he thinks people should go about picking an adviser.