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?
What do they do, what do they cost, do you need one and if so, how do you pick a good one?
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 with regards to retirement planning, just bite the bullet and call 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 crystal clear with you about what they are charging you for their advice. They no longer get any kickbacks from financial firms.
The fee is around 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 always more expensive.
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.
Investments, pensions and planning
These guys must be fully qualified and charge an explicit fee – they are not 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.
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.
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.
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.