Do you need a financial adviser?

Annie Shaw / 25 August 2015 ( 05 April 2019 )

Annie Shaw looks at the pro, cons and how-to’s of taking professional financial advice.

The world of finance has turned into something of a rollercoaster over the last few years. 

The new rules on pensions have given us flexible access to retirement savings that we can spend as we like. 

There are more opportunities to save tax-free with the increase in the ISA (individual savings account) limit, and some of us will be able to leave more to our children and grandchildren now that the rules on inheritance tax have changed in respect of the family home.

But, while the changes are exciting for many, for others the brave new financial world has become a scary place. The availability of choice gives more opportunities for making mistakes, many of them costly and irreversible. A bit of handholding is more than welcome.

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Why seek advice from a financial advisor?

Chartered financial planner Emma Sterland says: “Many people are confident with their money and enjoy choosing investments, particularly before retirement, when they are watching their money grow. Other people are less confident or simply have things to do that they consider more interesting, and would rather leave things to a professional adviser.

“Even people who have managed their own investments extremely successfully during their working lives turn to an adviser when it comes to using their savings to live on in later years."

I can put my hand up to being in this category. As a financial writer I am knowledgeable about finance, and I am a zealot when it comes to saving money.

You’d think I’d be an obvious do-it-yourselfer. But I look at my situation this way: I love gardens, but hate gardening. I’d much rather sit in a deckchair and admire the flowers than wield a spade. Likewise, I spend most of my working day pondering investments and saving matters, but I can think of nothing worse than managing my own. I simply have other things that I like doing more.

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Isn't financial advice expensive?

One thing that puts people off taking advice is that it can seem expensive – particularly at the top end. The cost does not, however, mean that it’s a rip-off. 

As with any professional service that is highly regulated, and where practitioners have to reach a high level of expertise, you are going to have to pay fees, and you will generally get what you pay for. 

Advice should, however, always provide value for money and most advisers will have a range of solutions to suit different budgets. 

For those with simple needs, these solutions may be online tools and investment platforms that cost little or nothing to use, in addition to the cost of the investments, while those with more to invest or complicated requirements may wish to pay for a full face-to-face service.

No one should be deterred from taking advice simply on the grounds of cost. The truth is, unless you are both confident and competent, not taking advice can work out a whole lot more expensive.

A good financial adviser will earn his money by making money for you, or at the very least helping you to save it and preventing you from losing it. 

The trick is in knowing when you need professional advice, and when you can save money by doing it yourself or doing nothing. 

When should you take financial advice?

Who needs financial advice?

If you are living on pensions paid direct to your bank account and have little in savings, you probably don’t need the help of a financial adviser – although, if you are on a really low income, it could be worth contacting one of the free or charitable services such as Entitled To that will make sure you're getting all the benefits you may be able claim.

Read more about the benefits you may be entitled to in retirement

If you are extremely wealthy, you probably have financial, accountancy and legal advice already. The problem is with those in the middle.

An adviser can also help with general investment advice, drawing up a financial plan or advising on individual projects, such as paying for school fees, or allocating assets to benefit from the inheritance tax rules.

If you can tick one or more of these boxes you will benefit from seeing an adviser:

  • You have a substantial sum to invest, such as an inheritance or the proceeds of a property sale.

  • You want to give money to someone else, including by inheritance.

  • You are planning your retirement and want to make the most of your assets.

  • You want to transfer your pension from one scheme to another.

  • You want to draw money from your pension without buying an annuity to secure your future income.

  • You need help in buying an annuity to make sure you get the best deal.

What are the advantages of using a financial adviser?

As well as the obvious – advice and expertise – a financial adviser will usually be able to give you the benefit of access to a wider range of investment choices than are available to purchase direct, and you will also be covered by guarantees and protections. 

These include recourse to the Financial Ombudsman Service if things go wrong, and the Financial Services Compensation Scheme in the event of adviser default. 

It should, however, be pointed out that compensation is only available for mis-sold products or other advisory wrongdoing, such as fraud, and not simply if your investments don’t perform as well as you hoped.

Won’t a financial adviser just try to sell me stuff?

No. They don’t “sell” anything. While in the past advisers often received the bulk of their income from commission on the products they sold, this is no longer the case. 

Since 2012, financial advisers dealing with savings and investments have been banned from accepting commission, and they must charge their clients transparent fees. These have to be made clear at the outset. 

Financial advisers, therefore, have no incentive to get you to take any particular course of action, and in some cases their advice may in fact be to do nothing. 

If you are advised to sit tight, this doesn’t mean the fee was a waste of money. If you see an adviser with a view to switching your pension and the adviser tells you to stay put because the pension has valuable guarantees, the advice to do nothing could save you thousands of pounds.

Some products, such as mortgages and insurance, may still be sold on a commission basis, but these products are usually the province of specialist brokers rather than firms calling themselves financial advisers.

Read more about applying for a mortgage after you have turned 50

Financial adviser? Wealth manager? Financial planner? 

To some extent these are just names – a bit like calling a hairdresser a “coiffeur” or a “stylist”. 

Financial planning usually means drawing up a strategy for accumulating wealth for personal goals including funding retirement, while wealth management tends to be about stewarding existing wealth and ensuring it is invested to maximum advantage.

Don’t be put off by the names, though. A look at the firm’s website or its literature will give you an idea of the work it undertakes.

Can’t I manage my finances myself?

Apart from some transactions, such as certain pension transfers, you may be able to manage without taking advice. This applies if you:

  • Enjoy managing your money.

  • Are prepared do your own research.

  • Have the expertise you need or are prepared to acquire it.

  • Can afford to make mistakes - in other words, not get too upset if you lose money or you “mis-buy” products directly, for which there is no consumer protection.

Many people are quite happy to do this, either because their affairs are simple or they already have a secure income and they can afford to take risks with other investments.

Times when it is advisable to get financial advice

One area where even the most experienced investor might need some help is managing their retirement income to make sure it does not run out.

How much money will you need in retirement? Read our guide...

Emma Sterland says: “Once arranging a retirement income stream was easy because you simply swapped your pension savings for an annuity, which gave you an income for life. Now that you have freedom to draw as much from your pension pot whenever you like, it is really important not to take too much so that you run out of money.”

An adviser can certainly help with this – and, it has to be said, with making sure you are not taking too little and failing to enjoy your retirement years or even living in hardship because you are afraid of drawing down too much.

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How do I choose a financial adviser?

As with any professional service, from dentists to designers, a substantial part of the relationship is one of trust and simply “hitting it off” with your adviser. A recommendation from a trusted friend is a good start. Meeting the adviser informally before getting down to business can also be a good strategy, if circumstances permit.

Emma Sterland says: “A good advice firm will give an initial consultation at no cost. It will then set out in writing the service you need and give you an estimate in pounds and pence of what it is going to cost you, unless there are undisclosed or unforeseen difficulties.”

How do I know my financial adviser is qualified?

Financial advice is highly regulated by the Financial Conduct Authority, which ensures that only suitable people enter the business – for instance those without a serious criminal record.

While in the past bank employees barely out of school called themselves “financial advisers”, when they were little more than unqualified salesmen, this is no longer permitted. 

Advisers working in financial advice firms these day will generally have one or more of a vast array of qualifications, many of them at degree level. The key qualifications to look for are Certified or Chartered Financial Planner. You can check your adviser’s authorisation and qualifications on the Financial Conduct Authority website.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.