Need to speak to a financial advisor, but don’t know where to start? You’re not alone.
Historically the world of financial advice has felt murky and opaque. The good news is that since the start of 2013, when the financial regulator (the FCA) banned commission from pension and investment products, the industry has gone through a rapid period of change and now stands as a professional and much more transparent industry.
However, if you haven’t used a financial advisor in a long time and you find yourself needing to speak to someone about your pension or about a life insurance product, then trying to find a suitable advisor can be a daunting experience. With this in mind, we’ve put together a brief guide that will hopefully give you a sense of the type of questions you need to explore, and show you how to go about finding the right advisor for you.
Do I need a financial advisor in the first place?
Despite the generic name, financial advisors are not best suited to helping with everyday finance issues. For issues around everyday banking, credit cards or for debt advice, you are probably better off looking at free advice from the government-supported Money Helper Service. They have a free telephone helpline available for everyday finance issues on 0800 138 7777 which is open from Monday to Friday, 8am to 6pm.
Financial advisors are most helpful when dealing with complex financial products such as pensions, life and protection insurance, mortgages and equity release – or financial and tax planning. The advice is not free, but for expensive and complex products like these, it can often pay to get advice if you’re not 100% sure about which product to go for or if you’re not confident doing the research yourself. Unlike generic online guidance, a financial advisor will help you make the right decision about the best product for you.
What type of financial advisor do I need?
In order to be the best at what they do, most financial advisors specialise in one area of financial advice. So the first step is to identify the type of financial advisor you need by establishing what sort of advice you’re looking for. If you need help with mortgages or equity release, you will be best off finding a specialist Mortgage Advisor. If it’s pension advice you need, then you’re typically better off finding a financial advisor who specialises in pensions. Find out more about pension and mortgage advice in our guides How to get advice on your pension and Should I get advice on my mortgage?
Questions to ask yourself before choosing a financial advisor
Are they independent or restricted?
One of the biggest questions to ask is whether they are an ‘Independent financial advisor (IFA)’ or whether they are a ‘Restricted financial advisor’.
If an advisor is ‘independent’ or a firm advertises that it gives ‘independent advice’, this means that it’s able to advise and sell products from any provider right across the market. This gives them access to the widest range of products and providers tailored to you.
Conversely, ‘Restricted financial advisors’ are restricted in the products and providers they can recommend to you. This restriction could mean they can only recommend products from a single company, or they could have a panel of products and providers they can pick from. The advisor should be able to clearly explain the nature of the restriction to you, and has to disclose it, but if you have any questions then you should ask them to clarify.
Whatever the type of advice – be it Mortgages or Pensions – it’s often recommended that you use the services of an Independent financial advisor as they have no restrictions on the range of products and providers they can recommend. This doesn’t mean that Restricted financial advisors are bad – some argue that by carefully screening a select range of products and providers, they are able to offer a better researched set of products, at a lower cost.
The debate over which is better has been ongoing for decades and ultimately the decision is yours. The most important thing is to make sure that you clearly understand any restrictions that the advisor has on their advice, so you can find out how this might affect the advice they give you and factor it into your decision making process.
What are their qualifications and experience?
Financial advice is a highly regulated profession and therefore financial advisors hold a range of qualifications. All financial advisors will have attained a minimum Level 4 qualification, such as a Diploma in Regulated Financial Planning. However, many specialists go above and beyond this and become a Chartered Financial Planner or Certified Financial Planner. Mortgage Advisors who don’t advise on pensions typically hold a Level 3 mortgage qualification. To boost your confidence, it’s always worth checking that any Financial Advisors you are planning on using have the appropriate qualifications.
Whilst making sure an advisor is suitably qualified is essential, it’s also worth checking that an advisor has lots of relevant practical experience in the areas that you need help with. This way, you’ll know that their skills are up to date and that they are aware of the latest products and services available in that area.
NEVER use an unregulated firm
All regulated financial advice firms are listed on the FCA register at register.fca.org.uk. The register only lists financial advice firms and their Senior Management, not all individual advisors but it’s important to do a quick check to ensure that the firm, or a Senior Director of the firm you are thinking of using, is registered with the FCA. This ensures that you have some level of protection if the advice given is poor, or if you feel you have been mis-advised. If in any doubt, the company should be able to provide you with their FCA registered number for you to validate. Mortgage and Equity Release Advisors, must also either be regulated directly by the FCA, or as in most cases, be an agent of a regulated firm.
Finally, it may sound obvious but it’s always worth doing a quick google check on both the advisor and the company’s name to check it doesn’t show up anything untoward.
What are the costs of financial advice?
Sadly, there’s no way around it – good financial advice is going to cost you in the same way that using a good Accountant or Solicitor will. However, when it comes to complex, life-changing financial decisions, unless you are a highly sophisticated investor, good advice can often end up saving you more money than it costs.
Financial advisors specialising in pensions and investments have been banned from accepting commission on the products they recommend to people since the start of 2013. This has been great for the industry and especially for those seeking financial advice, as there are no hidden incentives for financial advisors to recommend specific products or providers. The consequence however is that, to get paid, financial advisors must charge you a fee which has been agreed up front.
For advice on mortgages or complex insurance policies – such as life, critical illness and income protection – advisors are still allowed to take a commission from the products that they recommend to you. Sometimes this is an upfront commission payment, as in the case of a mortgage.
An increasing number of mortgage brokers offer a fee-free service however, which means you don’t have to pay them a penny for their advice. Instead, they rely purely on the commission they receive from the lender whose mortgage they’ve recommended to you. It’s important to stress that almost all mortgage brokers receive these commissions – some just choose to charge a fee on top.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for somewhere to start, you can speak to a Rest Less Mortgages advisor and get high quality advice** on standard, retirement interest-only and buy-to-let mortgages.
If you’re looking for advice on taking money out of your home with equity release rather than by remortgaging, it’s a legal requirement to speak to a specialist equity release advisor – you can read more in our Guide to equity release.
For insurance products with an ongoing monthly premium, the commission can be a percentage of every month’s payment. Whilst this is often very convenient as you are not handing over any money directly to the advisor, it’s important to remember that you are still paying for the advice, just over a longer time period which can add up.
How much will it cost me?
Most financial advisors will offer a free initial consultation but not all, so always check before you attend a first meeting to avoid being landed with an unexpected bill.
After your initial consultation, you will be expected to pay for any further advice or support. Most financial advisors will either charge an hourly fee, a fixed fee or a ‘percentage’ fee depending on which advisor you pick.
A percentage fee is where you are charged a percentage of the mortgage you want, or a percentage of the pension pot that you want advice on, or help managing. Some advisors will charge a fee up front for becoming a client and investing your money, whilst others will charge an ongoing percentage every year – and some will charge both. These fees can vary widely with the percentage charge ranging from 0.5% to 5%, so be sure to ask before signing up to anything.
When it comes to a fixed fee service, an advisor will quote you a fixed fee for a specific piece of advice, in the same way a Solicitor would. The fees are charged for each specific piece of advice. This could be ‘help with consolidating your pensions’ or ‘finding you the right equity release product’. Whilst this can seem expensive if you have to part with £500 -£1,000 up front, if you only want one or two specific pieces of advice, it can end up being more cost effective if it prevents you from paying out 1% of your pension fund each year.
Being charged an hourly rate is similar to being charged a fixed fee, but you will pay for the time incurred on a specific piece of advice, rather than for the piece of advice itself. In this scenario, it’s good practice to ask for an estimate upfront, with the advisor coming back to inform you mid-way through if they think the estimate will grow, so you can choose whether or not to continue. This way, you will at least have some control of the total costs. At the end of the project, be sure to get given a full breakdown of the work they’ve done and how long it took. Hourly rates vary significantly based on experience and expertise in any given field and can be anything from £100 to £250 an hour, so make sure you know what you’re signing up to before going ahead.
Whatever method of payment you and your advisor agree, the important thing is to make sure that you understand what the total cost of the advice will be, so you can make an informed decision. It is a Financial Conduct Authority (FCA) requirement for financial advisors to clearly disclose fees at the first meeting, and this includes clearly spelling out what the total cost of the advice is in pounds and pence, not just as a percentage. If you’re not convinced that financial advice is worth paying for, read our article The value of financial advice to find out more.
How do I find the right financial advisor for me?
Word of mouth is always incredibly important and many advisors focus on building their reputation locally. So in the first instance it’s always worth asking trusted friends and family who they have chosen to advise them on their money, and if they would recommend using them.
Given many advisors offer a free first session to give you a chance to try out their service before paying for anything, it can make sense to meet more than one. This way you can make a comparison and see who you have the best rapport with – to ultimately help you decide who you trust most to give you the best advice for your circumstances.
Finally, if something feels wrong and you don’t feel 100% comfortable with an advisor, always walk away. Financial decisions are too important and you don’t want to be kept up at night worrying about whether you made the right choice. Especially when there are plenty of other advisors out there who can help.
If you’re considering getting financial advice and are looking for somewhere to start, Rest Less Pensions are offering a free Pension Health Check with one of their experts. They can offer you information and guidance on the call and at the end will discuss whether you would benefit from paying for professional financial advice. Capital at risk.
Do you use a financial advisor and if so, how did you find them? Do you think their advice has been worth the cost? We’d be interested in hearing from you. You can join the money conversation on the Rest Less community or leave a comment below.