The Pros & Cons Of Hiring A Financial Advisor

First, let’s start by understanding what an IFA does…

“There will probably be times in your life when you're not sure what to do with your money or what decisions you need to make about your financial future. There are thousands of different financial products on offer and choosing between them can be difficult. If you have little experience of dealing with finances or you're confused about making a decision, it may be helpful to get professional financial advice. A financial adviser can help with things like planning for your retirement; investing or saving money; making the most of a lump sum of money such as a redundancy payment or an inheritance; buying a property or taking out a mortgage when your life changes – for example, you're starting a family, getting divorced or you've been widowed.” – the Citizen’s Advice Bureau team

Are there different kinds of IFAs?

“Financial advisers offer services ranging from general financial planning and investment advice to more specialist advice, such as the suitability of a particular product such as a pension. In the case of investment products, some advisers are ‘independent’ – meaning they offer advice on the full range of investment products from the market or a specific market segment (e.g. pensions), while others offer a ‘restricted’ service, meaning that the range of products or providers they will look at is limited.” – the Money Advice Service team

And what about investing styles – can you explain the difference?

“You should understand how an adviser approaches setting up and running investments on your behalf. Specifically, there are two main forms of investing ‘passive’ or ‘active’. Passive means investing in products that simply follow an index such as the FTSE 100. This reduces ongoing charges and is therefore a cheaper way of investing, as there is no manager involved. It can often result in higher returns too, as many managed funds often underperform indexes and consequently many investors believe in this approach. Many advisers, however, believe in an active approach to investing, either because they believe that many managers can outperform the indexes or maybe they believe that it builds in some extra security for the client.” – the Veracity Financial Planning team 

What services do they offer?

“Some firms will specialise in certain areas of advice and some will advise across all areas. Certain specific areas of advice not all IFAs have the appropriate qualifications for, so they may have to refer you to someone else. Most firms will have an initial discussion with you by phone or email in order to ascertain whether what you want is within their firm’s ability or expertise. Having established whether there is a willingness on both sides to discuss the issues in more detail, a firm will usually want to meet face to face, so they can explain how they work and understand in more detail what the client’s personal and financial position is, in order to be able to give the appropriate advice. Up to this point, there is usually no cost to the client and neither should the client feel in any way pressured to go ahead with any financial plan – this should purely be a discussion as to what is required and how the firm feels it can deliver the required outcome.” – the Veracity Financial Planning team

So, what sort of fee do you have to pay?

“All firms set their own charging structure depending on what type of advice is required and what they believe is a fair price. As there are many different areas of advice – such as pensions, investments, mortgages, life and health insurances, equity release and long-term care – there will be different types of charging structures for each area of advice. This may be a percentage of what is being invested, a set fee, an hourly rate or pure commission for non-investment/pension areas, depending on how the firm prefers to work. Neither way is right or wrong but the total cost, in cash terms, should be clearly stated and agreed in writing before any further action is taken.” – the Veracity Financial Planning team

Do you need a certain amount of income to hire one?

“There’s strong evidence to suggest that paying a financial adviser could make you significantly richer, regardless of whether you consider yourself wealthy enough to need one. In fact, research by International Longevity Centre-UK showed that people who consider themselves ‘just getting by’ financially could benefit from even greater gains than more affluent individuals – although both benefited from a significant gain versus their non-advised peers. The report found that 9 in 10 people were satisfied with the advice received, with the clear majority deciding to go with their advisor’s recommendation. You can read the full report here.” – Simon Garber, 2020 Financial

How do you know if they’re any good?

“All financial advisers must have a Level 4 or above of the national Qualifications and Credit Framework, as well as a Statement of Professional Standing (SPS). This means they have signed up to a code of ethics and have completed at least 35 hours of professional training each year. SPS certificates must be renewed annually so check your adviser is up to date. All financial advisers should also be registered with the Financial Conduct Authority (FCA). This means they meet the right standards, and you get more protection if you’re not happy with the service. For example, you can complain to the Financial Services Ombudsman and may be able to claim compensation if things go wrong.” – the Citizen’s Advice Bureau team

And how can you be confident you’re not being ‘sold’ something?

“The line between advising and selling is a fine line, because all advisers need to make a living like anyone else. However, above all else, you should feel comfortable that you are primarily being advised in an impartial manner at all times and wary at any time that you believe that the selling of a product comes before this impartiality. Recognise that some firms will set targets that advisers need to meet and their job may depend on producing high levels of business and that some individuals have certain pressures that require them to make sales. In the main, regulated individuals are regulated for that reason, to ensure that they act in a fair way and the FCA has set certain standards which they call TCF (treating customers fairly) and that these are generally very effective and in place to protect the client.” – the Veracity Financial Planning team

Finally, what are the real benefits of hiring one?

“Financial advisers are experts in their field, who must undergo rigorous training before they are qualified. Like most professions, they must continually update their knowledge to stay up to date with the latest regulations and industry changes to retain their professional status. Financial advisors are also trained to be objective and to look at your personal situation as well, so any advice will be in your best interests and not based on what works for somebody else.” – Simon Garber

“If you buy an investment product based on financial advice and a recommendation, you should get a product that meets your needs and is suitable for your particular circumstances. Depending on the type of adviser you use, you might also have access to a wider range of choices than you’d be able to assess realistically on your own. You also have more protection if things go wrong if you buy based on advice. For example, protection would be given where unsuitable advice was given, or your adviser is found to have not acted in your best interests. Similarly, non-advised investors would also be protected if they were misled or mis-sold a product.” – the Money Advice Service team

Interested? Five tips for financial success from Ze Bailey, a chartered financial planner at Tilney...

Take control 

“While most of us don’t keep exact tabs on how much is leaving our accounts every month, it’s important to know what your outgoings are vs your income. Going back to basics and monitoring your monthly finances will help you have a better understanding of where you could make cutbacks, stop unused subscriptions, review any extra money you could add to your savings or investments. Or where you may need some additional support. Also take this time to educate yourself on the polices you hold. For example, what is your pension, how much is in it, what are the charges, and what is it invested in?”

Set up an emergency fund

“Everyone should endeavour to have some ‘rainy day’ cash savings squirreled away, to provide a financial buffer for emergencies and unusual times like these. I would recommend at least three months basic expenditure. While a large savings account can seemingly provide a sense of security, over time the future spending power of that cash will be slowly eroded by inflation. As a first step, pay off any short-term loans or credit card debts, if you are able to do so without incurring any prohibitive early repayment penalties. Take a long-hard look at how much cash you need to keep readily available. Consider feeding any excess cash that you can identify as highly unlikely to be needed in a hurry into investments or your pension for the longer-term.”

Look to the future

“The future is uncertain for all of us right now, so it’s crucial you take this time to put a plan in place, while also accepting that it might need adapting at short notice. Financial planners can offer even one-off services such as cashflow modelling, which is a simple and visual way to clarify whether you are on track with your short, medium or long-term goals or if you need to make changes now. Speaking to a professional about this kind of financial planning is a key starting point towards financial peace of mind, so that you can understand your options better and what advice you may need before moving forwards. While nearly all of us are currently reviewing our expenditure, it’s important to ensure you are secure next year, and to also consider your life goals and what you need to do now to reach them later on.”

Don’t ignore later-life 

“Around 71% of women in their 40s are saving for retirement and, while this is encouraging, that leaves 29% of the female population who aren’t. Plus, with women statistically retiring with around a third as much money in their private pension pots as men and living six to eight years longer, now’s the time to look at your retirement plans. In addition, those that do already have pensions might have seen their value drop as a result of falling investments or reduced monthly contributions so it’s still important for them to book in a pensions check-up. There are options to consider, such as delaying your planned retirement date. Or if you’re about to withdraw, consider taking money from a different pot rather than a pension, which comes with greater risks.”

Protect yourself 

“While we all hope we are over the worst of the crisis, there is no telling what the future will hold. The economy will eventually bounce back but managing our money effectively will remain a challenge, so it’s important to think about how we can protect ourselves and our loved ones from future uncertainty. Consider insurance arrangements – like life cover, critical illness cover or income protection – that will protect your finances should anything unexpected happen and give you greater peace of mind.”

For more financial information, visit CitizensAdvice.org.uk, MoneyAdviceService.org.uk, VeracityFP.co.uk, 2020Financial.co.uk and Tilney.co.uk.

*DISCLAIMER: Anything written by SheerLuxe is not intended to constitute financial advice. The views expressed in this article reflect the opinions of the individuals, not the company. Always consult with an independent financial advisor or expert before making an investment or personal finance decisions.