A step-by-step guide to finding high-quality, cost-effective financial advice
The right IFA can you give peace of mind about your money and help you lead a fulfilling life. The wrong IFA can leave you worse off, and full of resentment and regret.
So, how do you make the right choice? And how do you know the service you choose provides genuine value for money?
Following this article will help you to make the right decision.
“Evidence suggests that fostering an ongoing relationship with an IFA leads to better financial outcomes. Those who reported receiving advice at both time points in our analysis had nearly 50% higher average pension wealth than those only advised at the start.”
Revisiting the value of financial advice, International Longevity Centre, November 2019
For some of us, the simple answer is No, especially with the growing number of websites designed to help us invest and manage our money.
But everyone can benefit from good financial advice, and, sooner or later, all of us will need it.
Yes, it can be tempting to manage on our own. The problem is that much of the advice we read online and in the media is positively bad for us.
Particularly when markets fall sharply, it’s easy to allow our emotions to get the better of us and make a serious mistake when we don’t have an adviser we can talk to.
And another thing: don’t underestimate how long it takes to manage and check your own finances. Do you honestly have the time and the inclination to do the research required? Most people have better things to do with their evenings and weekends.
“Where an adviser really can add value is their role as a behavioural coach. We see time and time again that, when clients are left to their own devices, they can make some very costly mistakes.”
Neil Cowell, Vanguard Asset Management
Call us on 01242 505 505 or email via info@ifanearme.co.uk
It can be very hard to quantify the value of professional advice.
After all, how can you put a price on peace of mind, for example, or a sense of fulfilment?
A paper published by Vanguard in September 2019, entitled Assessing the value of advice, broke it down into three main areas — portfolio outcomes, financial outcomes and emotional outcomes.
“As research by Vanguard has demonstrated, having an adviser can add significant value, compared with trying to manage on your own. Compounded over time, that additional value can be very substantial.”
Tim Horrocks, Managing Partner, RockWealth
Vanguard studied the investment performance of self-directed investors who switched to using a IFA, and found that advice led to “meaningful changes” for most of them. To quote the report, “it materially altered equity risk-taking for two-thirds of the sample, reduced cash holdings for nearly three in ten investors, and eliminated home bias for over 90%.”
Vanguard found that, having sought financial planning, eight out of ten of those clients had an 80% or greater probability of achieving a secure retirement. Most of the remaining 20% were already at or near retirement age and had insufficient assets to fund their expected standard of living.
But Vanguard found that better investment returns and improved financial outcomes were less important to clients than “emotional elements” such as having trust in advisers, or a close connection with them. It concluded that “emotional outcomes account for 45% of total perceived value. Another 55% of value is associated with functional aspects of the relationship, such as portfolio management, financial planning and other services.”
Robo-advisers are automated ‘unbiased’ services that enable you to invest online. They usually start a conversation and ask questions about your financial lifestyle health, your time horizon and attitude to risk. They then direct you to one of several ready-made investments.
For many people, particularly younger investors, this is a sensible and cost-effective option. But there are several drawbacks.
Firstly, although they’re called robo-advisers, most of them don’t actually offer proper advice.
Secondly, robo-advisers tend to focus almost exclusively on investing. If you’re looking for help with another aspect of your finances, you may need to look elsewhere.
Finally, the biggest disadvantage with robo-advice is that, in most cases, it doesn’t offer you with an on-going relationship with a real adviser who really understands you.
The earlier you start investing the better. So, by all means, begin your investing journey with this new automated approach. But, in the long-term, it’s a poor substitute for face-to-face or phone financial guidance.
When you’ve found a financial adviser, check their FCA number against the Financial Services Register.
There are many different types of IFA, but the first distinction to make is between independent advisers and restricted advisers.
“The idea of advisers just providing information about investment opportunities is quickly going away as a value proposition. What we’re seeing take its place is the rise of true bona fide financial planning.”
Michael Kitces, Nerd’s Eye view
As the name implies, independent financial advisers, or IFAs for short, give independent advice — or at least they should do. They are able to advise on financial products from a wide range of providers, and should, in theory, give you the best advice, based on your personal circumstances.
If you are looking for financial advice, always go independent.
A restricted adviser on the other hand is only allowed to recommend products from a particular provider. It’s extremely unlikely that one company has a monopoly on all of the best financial products, so using a restricted adviser makes little sense.
An adviser may be perfectly charming. But if they’re not independent, walk away.
As we’ve explained, investing is just one aspect of personal finance, albeit a very important one. At some stage you will need advice on other issues, so it’s better to find someone who provides a wide range of services.
Ideally you should choose a financial planner. Strange as it seems, most people don’t take the time to discover what they really want to achieve in life. We carry around self-limiting beliefs that stop us living life to the full.
Having an objective observer to help you establish your goals — and make sure you achieve them — can be truly life-changing.
“The biggest way an IFA adds value is by asking you interesting questions about your values, your beliefs, the things you want to do with you life. It’s finding the meaning in the money.”
Brett Davidson, FP Advance
Call us on 01242 505 505 or email via info@ifanearme.co.uk
Different IFAs have different rates and models, and new fee structures are expected to emerge over the next few years that may affect you.
Here are the main ones:
“Avoid fees which are based on a percentage of your capital as these quickly build up over time to eat up a large slice of investment returns and bear no relation to the value delivered.”
Jason Butler, FT columnist & financial author
Asking for personal recommendations from friends or family is a sensible starting point when looking for an adviser. But bear in mind that it’s not always easy to work out whether an IFA has done a good job until years after they have given the advice.
Also, just because someone you trust has had a good experience with a particular IFA, that doesn’t necessarily mean that you will as well.
It’s crucial that whichever adviser you choose, it’s someone you have absolute trust in.
Of course, you need to be satisfied that they are thoroughly competent. But whether or not you feel you can trust them and forge a productive relationship with them is a call that only you can make.
Ask yourself: Do I feel relaxed when I talk to them? Do they share my core values? Do they listen patiently to what I say? And do they appear to have my best interests at heart?
If you can say Yes to all of these questions, you’ve probably found what you’re looking for.
Want to meet? Call us on 01242 505 505 or email via info@ifanearme.co.uk
You should go about selecting an adviser in the same way as an employer would approach appointing a key member of staff.
Every adviser will expect you to give them a thorough interview, so don’t be nervous. You are the client after all.
Insist on speaking to them face to face — preferably in person, or, failing that, via video link. Also, tell the adviser that you’re interviewing others, so they know you won’t be making an immediate decision.
Prepare for your interview thoroughly. Have a think about your personal and financial goals. Decide, in advance, on the questions you need to ask the adviser, and listen carefully to their responses, taking notes if necessary.
Remember, you’re paying for someone to help you clarify your entire financial life. You’re also looking for someone you can trust and have a long-term working relationship with. So if the adviser makes you feel stupid or uncomfortable in any way, you need to look elsewhere.
What happens if you take all of the steps we’ve mentioned to ensure that you pick a good financial adviser, but later feel that you’ve been given bad advice?
First, don’t be unduly worried about finding yourself in this situation. Only around one per cent of the complaints the Financial Conduct Authority receives each year are against financial advisers. About two-thirds of those are rejected.
But, if you think you’ve been sold the wrong financial product or products, given your state of affairs and risk profile, you should take action.
Start by collecting the relevant paperwork, and then write to them and explain clearly and concisely why you think you were wrongly advised.
If you’re not satisfied with the response, you can take your case, free of charge, to the Financial Ombudsman Service. If the Ombudsman decides in your favour, it will ask the firm to put things right, which usually involves the payment of compensation.
You can, if you wish, use a claims management company to act on your behalf, but you will be charged, which is typically a set percentage of the sum you receive in settlement of your claim.
Any questions? Speak to us on 01242 505 505 or email via info@ifanearme.co.uk
Do you charge for the initial consultation? Most advisers (IFAs) do not charge for an initial meeting, but other do, so check at the outset. Also ask for any other additional service cost/costs, commission or other paid options.
Are you FCA authorised? Preferably check the register on the Financial Conduct Authority (FCA) website before you meet them.
What professional qualifications or diploma do you have? A minimum requirement is a Diploma in Financial Planning (DipPFS) qualification. But ideally they should either be a Certified Financial Planner or hold Chartered status with the Chartered Insurance Institute.
What qualifications do you have above and beyond the minimum requirement? Good qualified advisers are constantly building their knowledge and expertise. Additional relevant training, diploma or qualification is a definite plus point at this professional level.
Do you give restricted financial advice? You must ensure that the adviser is independent and is free to advise on, and recommend, financial products from the full range of providers.
What is your charging model? Crucially, establish whether the adviser charges a % of assets managed, fixed cost, or by the hour. Some firms offer more than one fee model.
How much would I pay for your advice on an on-going basis? The adviser should be able to give you at least an approximate figure for how much you will pay each year, and explain how that amount may change over time.
Are most of your clients like me? Most advisers tend to work with clients in a certain wealth/tax bracket. Others work mainly with business owners, for example, or people who are either in or approaching retirement.
How long has your company been in business and how big is it? With advice firms, bigger doesn’t necessarily mean better. Smaller and newer firms to the market often have higher professional and ethical standards.
How long have you been working as a financial adviser? Experience is reassuring, but don’t be put off by the fact that one adviser is less experienced than another. Again, young advisers often have higher standards.
Will I always see you or will other people in your company look after me as well? Ideally you should have a relationship with one adviser who knows you very well.
Do you have any specialisms? Many advisers have specialist expertise in a particular area/service — behavioural coaching, ISA, shares, trusts, mortgages or tax planning, for example.
What is your investment philosophy? The adviser should be able to explain in plain and simple terms what their philosophy is.
Do you use active funds, passive funds or both? Actively managed funds are far more expensive than passive, and predicting outperformers in advance is almost impossible. Avoid advisers who favour active over passive.
How do you ensure that my investments match my capacity for risk? Investors should only take as much risk as they need to take, can afford to take, and feel comfortable taking. Find out how the adviser monitors the riskiness of your portfolio and your personal capacity for risk over time.
What ongoing service do you provide? Most advisers offer ongoing reviews and meetings. Ask how regular these will be, and whether advice will be provided in person, or by video link, or by email or telephone.
Do you have references I can look at? As well as seeking out online reviews, you should also ask an adviser to show you other references or testimonials. Any suitable content from a search engine or third-party such as VouchedFor. Ensure the details/links are current and from your area (Town or City etc).
Call us on 01242 505 505 or email via info@ifanearme.co.uk
The term “financial adviser” means different things to different people. When many of us think of financial advice we think of pensions and investments.
Yes, investing is a very important part of an adviser’s expertise. But someone who purely advises on investing is more accurately referred to as an investment adviser.
A financial adviser should be able to advise on a wide range of financial issues, and not just mortgage advice, pensions and investments. If they don’t have expertise in a specific area, they should be able to refer you to someone who does.
These other areas include the following:
Mortgages
Equity release
Critical illness cover
Income protection
Annuities
Tax advice
Long-term care planning
Wills and legacies
There is, however, a very important area that many advisers ignore, namely financial planning. As well as having a thorough grounding in financial advice, a financial planner looks at the bigger picture.
A planner will help you work out what you want from life and draw up a financial plan to help you achieve your goals.
The plan is not set in stone, and it may need amending over the years as your circumstances change. But the planner is there to remind you of the plan and ensure that you to stick to it.