Receiving a windfall can present you with one of life’s best dilemmas – how to spend it or, more sensibly, how to invest it. This is where the services of an independent financial adviser (IFA) could be vital.
They can also be useful in a myriad of other ways – for example, in reviewing your financial affairs and highlighting shortfalls in retirement planning, savings or protection. Key life events such as taking pension benefits, inheriting money, getting divorced or redundancy are all made easier with the help of a reliable IFA, who can help you with financial planning, the selection of tax-efficient products and deciding where to invest any lump sums.
Lasting a lifetime
Advisers can help clients make savings by moving them from expensive old-style pension plans or arranging cheaper protection policies. They can help with school fees, tax and inheritance planning. Through their networking they may also be able to find other reliable advisers such as solicitors, accountants or surveyors.
But with daily reports of scamsters preying on vulnerable individuals, how do you find that trustworthy adviser, whether for a one-off consultation or to last you a lifetime? First, make sure that your adviser is authorised by the Financial Conduct Authority (FCA). To give regulated financial advice, advisers must be authorised.
You can check that your adviser is authorised via the FCA’s Financial Services Register, a public record that shows details of firms, individuals and other bodies that are, or have been, regulated by the Prudential Regulation Authority (PRA) and/or the FCA. The entries for individual advisers will list their ‘controlled functions’, which are the tasks that any individual must be approved for in order to perform them in an authorised firm.
Personal recommendation is one avenue to explore. Ideally you may get a recommendation from a friend or colleague in a similar position to yourself, or from your accountant or solicitor, if you have one, although this is no guarantee of success. Employers often use IFAs and they have usually done due diligence checks, so another option is to ask your employer for recommendations.
There are also directories of advisers, which allow you to compare areas of expertise and qualification and even read client reviews. A recent investigation into adviser directories by the consumer organisation Which? suggested that qualifications listed against some advisers may not always be accurate, so caution is needed. But they are helpful if you want to quickly identify advisers who are located close to your home and can provide you with the type of advice you are seeking.
However, directories should be just the first stage of selecting an adviser. Take any opportunity to click through to the adviser’s own website and contact details in order to get to know about the adviser and their firm ‘from the horse’s mouth’, rather than taking everything that is stated on the directory at face value. Ask the firm for testimonials from clients, and also look for comments (favourable or otherwise) on Google.
Alternatively, look for someone with the chartered financial planner qualification from the Chartered Insurance Institute/Personal Finance Society. Malcolm McLean, a former chief executive of the free government-backed Pensions Advisory Service and currently a senior consultant with pension consultancy Barnett Waddingham, says: ‘Such qualifications reflect professionalism, dedication to the profession and significant experience as an adviser.’
You should ideally draw up a shortlist of three or four independent financial advisers; wherever possible, try to meet and interview all the advisers on your shortlist. Due diligence is an important part of selecting an adviser, as this is a person that you will entrust with a lot of information about yourself, both financial and personal.
McLean says: ‘Many advisers offer a complimentary first meeting, where you can get to know each other and have an opportunity to explain what sort of financial advice you are seeking. First impressions will count for a lot here, as will the quality and layout of the premises that they work from, together with the quality of their website and other client-facing documentation.’
But not every adviser is prepared to spend time engaging in a beauty contest. Chartered financial planner Scott Gallacher of Rowley Turton in Leicester advises doing your research before you meet the adviser: ‘This way, unless you really don’t like the adviser when you meet face to face, you can proceed with confidence. This saves time for both you and the advisers and avoids the need to disclose your personal and financial information to any more people than necessary.’ Face to face or remote connection?
Face to face or remote connection?
Stephen Kavanagh, chief executive of the nationwide IFA firm Chase de Vere, explains: ‘When looking at which financial advice firm is right for you, you need to decide whether you want to meet face-to-face with your adviser, whether you’re happy to work with them remotely by telephone or email, or if you want to make your own financial decisions and only need some information or guidance. However, if you are just receiving information or guidance, you are fully responsible for your choices and will have no comeback if it all goes horribly wrong.’
If you are taking advice you also need to find out whether your adviser is independent or restricted. An independent adviser can recommend their pick of all retail investment products from across the market; restricted advisers, as the name suggests, are restricted in what they can advise on or recommend. They can usually recommend only certain types of products or only products from a limited number of providers. In practice, many of the larger and better-known financial advice companies give restricted advice, including St James’s Place and Hargreaves Lansdown. All firms providing advice should disclose upfront what type of advice – restricted or independent – each customer will receive.
However, many restricted advisers don’t explicitly promote their services as restricted. While they can’t call themselves ‘independent’, they’ll often use other titles such as ‘wealth adviser’, state that they provide ‘wealth management’ or claim to provide ‘objective advice’ or ‘impartial advice’. The main advantage of using an independent financial adviser is that you get access to the whole market. Some restricted advisers, although they are household names, limit investors’ choices.
However, the case can be argued either way. Danny Cox of Hargreaves Lansdown outlines the Hargreaves perspective: ‘Our approach is described as a “restricted advice” service. We will not offer advice on products or services that do not meet our selection criteria or which we feel are unsuitable for our clients. We do not offer “independent advice”, where each individual recommendation should be based on a comprehensive analysis of the whole market of products and services available.’
Chase de Vere’s Kavanagh says: ‘Many advisers choose to be restricted because it means they can sell their own products and investment funds. This is understandable from their perspective, but it isn’t such a good idea for clients if their products are expensive and poor value.’
How much should you expect to pay? It can vary enormously, depending on complexity. The initial meeting is often free but check first. Then most advisers charge between 1 and 3 per cent of your portfolio value for the initial financial planning meeting, with annual reviews costing 1 per cent. Some advisers use hourly rates, varying from £75 to £350 an hour, although the UK average rate is about £150 an hour according to the Money Advice website. It might make sense to pay an hourly rate for one-off pension advice, but a percentage fee for ongoing advice about your investments. It is really a matter of personal preference.
Either way, your adviser must give you a copy of the charging structure before providing any services to you. It should also tell you how much the service you need will cost, or at least give you an estimate.
Avoiding adviser trouble: beware the danger signals
• Your adviser offers exceptionally high returns.
• Your adviser offers exotic offshore investments.
• Your adviser tries to sell you their own products or investment funds.
• Your adviser recommends products that you don’t understand.
• You don’t know exactly how much you’re paying or how you’re paying it.
• You don’t feel comfortable with your adviser or don’t fully trust them.
• Your adviser pressurises you to make a decision.
• You have received a cold call or email.
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