Getting the right help for your money problems can be as tricky as finding a good plumber. Sarah Moore explains how to find advice on a sensible budget.
If you’re looking for help in managing your money, it can be difficult to know where to start. The financial sections of the newspapers regularly carry warnings about those who realise too late that they’ve paid astronomical fees to advisers or, worse still, that they have been conned by unscrupulous predators. Others resist asking for advice at all, preferring to do it all themselves. We have a lot of sympathy with that view – ideally we should all strive for a level of familiarity with investing and personal finance that enables us to manage our own money with confidence. However, even if the relationship proves only to be a short one, consulting a financial adviser can be a good way of learning about options you may not have considered, sense-checking your own views, and putting a financial plan together. And if organisation and paperwork are not your strong point, an adviser can also help you to make sure that you stick to your plan.
But how do you find an adviser? It’s not quite as straightforward as finding a good plumber or builder (if you can even call that straightforward). And in many cases, you won’t know if they’ve done a good job or not until they’ve been managing your affairs for some time. So you need a good grasp of what you are looking for, and of how the world of financial advice works, before you start your hunt.
What kind of advice do you need?
Depending on the type of service that they provide a financial adviser might be known as a pension adviser, financial planner, or – if they sell products such as mortgages or investments – a broker. But to act in this capacity, they must all be regulated by the Financial Conduct Authority (FCA). Before you pick an adviser, you need to know what you’re looking for, so that you go to the person most qualified to help you, and only pay for the advice you need. If you are looking for assistance with a specific financial product, then a broker might be your first port of call. Advisers who sell the likes of mortgages, or life, critical-illness and income-protection insurance policies, are generally paid on commission by the product provider.
Anyone advising on mortgages or equity release requires specific qualifications. There are essentially three types of mortgage adviser: those who are restricted to one lender; those who offer mortgages from a limited list of providers; and those who can advise by looking at the whole market. Be aware that even “whole-of-market” advisers can’t sell you every product on the market, as some mortgages can only be sold directly by the lender to the customer (although they can and should tell you that these products exist). Of course, it is entirely possible to do your own research and pick your own mortgage product – this is called an execution-only application. Doing so means taking full responsibility for your decision, notes the Money Advice Service, which means you have fewer options if the product ends up being unsuitable for you – but you would also hope that an adviser wouldn’t recommend the wrong product for you.
If you are looking for life insurance, critical-illness insurance (which pays out should you contract various serious illnesses) or income protection (which pays out a regular income if you are unable to work through accident, sickness or unemployment), and your situation is fairly straightforward, you should be able to pick your own policy without having to pay for advice. However, if your family situation is complicated, or you have long-term health problems, it can be a good idea to speak to someone who can help you to find the best cover to meet your needs.
If you need help to pick a general insurance product, such as home or travel insurance, an insurance broker can help you to find the best option, as well as dealing with any claims and making sure you get the best deal when it comes to renew. Again, these are straightforward products to find for most people, but it can help to speak to a broker if your circumstances are unusual – perhaps you have health problems and need to find a travel insurance policy that will cover you, for example. Check to see which providers the broker is able to work with, to ensure you’re getting the most choice. The British Insurance Brokers’ Association offers a “find a broker” service at Biba.org.uk.
How to pick a financial adviser
If you’re looking for advice on investing or pensions in particular, and especially if you’re looking to transfer a sizeable pension fund, then you’ll need what most of us traditionally think of when we think of a financial adviser – a specialist who can help you to flesh out your long-term financial goals and to implement your plans in the most tax-efficient way. These advisers will generally be able to help you with many of the individual products noted above as part of the planning process – such as changes in your life cover needs at various milestones. Be sure to speak to a few different advisers before choosing one – don’t just take the first personal recommendation you get from friends or family.
The most important distinction to make is between an independent financial adviser (IFA) and a “restricted” adviser. An IFA can give advice and sell products from any provider. Restricted advisers are limited in the type of product or provider that they can recommend to you. It’s almost always best to go with an IFA, so that you have access to the full range of services and providers available.
There are various online adviser directories, such as those published by the Personal Finance Association (a trade body for IFAs), or the Institute of Financial Planning. You might also want to look at websites such as Find an Adviser, Unbiased, and VouchedFor. The Money Advice Service also has a directory of advisers who specialise in retirement-related advice, or you can look at the Society of Later Life Advisers (whose specialities might include equity release and paying for care).
Whatever kind of advice you’re looking for, be sure to check that any adviser you are considering is regulated by the FCA, and that they’re qualified to advise you on the subject you need help with. Since 2013, advisers have been required to hold a “Level 4 Diploma” qualification, which is deemed equivalent to the first year of a degree-level course. Examples might include the Diploma in Financial Planning (or DipFP). However, many IFAs have higher-level qualifications that allow them to claim Certified Financial Planner status (awarded by the Chartered Institute for Securities and Investment) or Chartered Financial Planner status (awarded by the Chartered Insurance Institute). Each requires that the IFA has several years of practical experience on top of passing a challenging series of exams. The adviser should also have an annual Statement of Professional Standing (SPS), issued by an FCA-accredited body. This shows that they have signed up to a code of ethics, completed a minimum amount of training each year (known as “continuing professional development”) and hold the required qualifications for the business that they undertake.
How much should you be paying?
For many years, a majority of IFAs were paid via commission payments on the products they sold. This, of course, hid the true cost of advice from clients and led to serious potential conflicts of interest. This all changed in January 2013 as a result of the FCA’s Retail Distribution Review – commission payments were banned and now IFAs have to charge directly for the advice they give.
Hourly rates can vary widely from £75 per hour to £350, but the UK average is about £150, according to the Money Advice Service. For a fixed fee for a specified task expect to pay several hundred or even a few thousand pounds, depending on what services you require. A fixed fee should be agreed in advance, and you should ask for and receive written confirmation of what services will be included in the fee.
If you’re looking for ongoing advice, the most common arrangement is to pay an annual percentage of the money under management. If you do this, then it’s crucial to be aware of the importance of getting good value. For example, if you start with £500,000 and pay 1.82% in fees, then after 20 years of growth at 5.3% a year you will have £972,743, according to data from online wealth manager Netwealth (MoneyWeek’s editor-in-chief, Merryn Somerset Webb, sits on the advisory committee here). This looks a decent enough return. But if you had incurred a lower annual fee of 0.6%, you would be left with more than £1.2m after 20 years. This demonstrates just how huge the effect of apparently small fees on your investment fund can be. So be sure to shop around and get a detailed quote (including details of service provided) to enable you to compare IFAs before you make your choice.