If you’re trying to squirrel away as much as possible for retirement, you might be put off seeking financial advice on the basis that the cost will eat into your savings.
In reality, however, the value of advice is often hugely underestimated, with research showing that it could leave you as much as £47k better off by the time you retire.
Here, we look at why financial advice matters, and how it can boost your pension and investment wealth, and prevent you from paying too much tax.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Why seek financial advice?
The aim of financial advice is to ensure your pension, and any other investments you might have (such as ISAs), are working as hard as they can for you, and to help you maximise your income in retirement.
Ideally, it’s worth seeking financial advice throughout your working life and not just when you retire because the longer the performance of your pension and investments is improved, the bigger your savings pot will hopefully be when you come to retire. You can find out more about some of the different scenarios when you might need pension advice in our guide When should I get pension advice?
Advice can also prove invaluable when working out when and how much to take out of your pension once you’ve retired, whilst keeping tax bills to a minimum. Usually, only up to the first 25% of your pension is tax-free and doesn’t affect your personal allowance (£12,570 in the 2024/2025 tax year). If you withdraw anything more than this, that money will be taxable and so is added to any other income you receive. This could potentially push you into a higher tax bracket. An advisor can recommend how much to take out each year whilst minimising tax bills and ensuring you don’t run out of money too soon. Learn more about pension withdrawals and tax in our article How much tax will I pay on pension withdrawals?
Changing tax rules can also make advice important, as an advisor will be on top of any new legislation that could impact your finances. For example, many people will be affected by the Chancellor’s proposed changes to pensions in the Budget which, if they proceed, will see pensions brought into the inheritance tax net for the first time in April 2027.
This could mean that pension savers may decide to alter their retirement income plans, possibly choosing to gift money from their pensions earlier so they can take advantage of potentially exempt transfer rules. You can find out more about these proposals in our guide Budget 2024 pension changes.
What is the value of financial advice?
Research carried out by pensions and investment company Royal London and the International Longevity Centre looked at two groups of people, those who are ‘affluent’ and those who considered themselves to be ‘just getting by’ to see if they were better off with or without advice.
Both groups ended up with an average increase in their wealth of over £47,000 more than those that hadn’t received advice. Those who had an ongoing relationship with a financial advisor were up to 50% better off than those who had only received advice once.
Interestingly, the analysis found that the financial benefits of advice were often greater for those who considered themselves to be ‘just getting by’ than for those customers who were better off. Over the 10 year period, the ‘just getting by’ group who took advice ended up an average £50,332 richer overall than those who didn’t seek advice. Those falling into the ‘affluent’ category who sought financial advice ended up on average £43,353 better off than those who didn’t take advice. You can read the report in full here.
A separate independent study by Vanguard found that those with a financial advisor typically earned around 3% per year more than those without an advisor. That might not sound a huge amount, but if, for example, you have £250,000 in your pension, then assuming growth of 5% over a 15 year period, you might see your pension pot grow in value to £495,000.
If you sought advice from a professional financial advisor who was able to boost the performance of your pension by an extra 3% per year, the pension pot might grow to £734,000 over 15 years, nearly £240,000 more than if you hadn’t sought advice. Of course, there are no guarantees, and it’s vital to remember that the value of your investments can go down as well as up.
Non-financial benefits of getting advice
As well as the financial benefits that it will hopefully provide you with, professional advice can help build confidence and boost resilience. A separate survey conducted by Royal London found that 44% of those who received advice said they felt prepared to deal with financial shocks compared to 32% of those who had not been advised.
Sarah Pennells, head of financial capability at Royal London, said: “We know that taking financial advice will have a positive effect on your financial wellbeing but what is less well known is how it can improve our emotional wellbeing. The fact that taking advice makes people feel more able to deal with financial shocks is particularly important in these current times. We all need to do more to ensure people know what to expect from receiving financial advice and the benefits it can bring.”
There are time savings to consider too. A financial advisor can research the best investments for you on your behalf, finding those that are suitable for you based on your approach to risk and your financial objectives. They can also monitor them on an ongoing basis to ensure that they remain a good fit for you, saving you the effort of having to do this yourself.
What are your rights if something goes wrong?
Another advantage of seeking professional advice is that if you’re recommended a financial product which ends up not being suitable for you, you should have some recourse if something goes wrong, which you won’t have if you make decisions yourself.
For example, if a UK-regulated advisor has given bad advice concerning a pension (for example to transfer a defined benefit pension), the Financial Services Compensation Scheme may be able to pay compensation up to £85,000 if the advisor has gone out of business. If the adviser is still trading, you can complain to the Financial Ombudsman Service.
Bear in mind, however, that if an investment you’ve been recommended performs badly because markets fall rather than rise, you won’t be protected against losses, as investing is inherently risky. You can find out more about investing and the risks and benefits involved in our guide Investing in your 50s and beyond: an introduction.
Finally…
Paying for financial advice can seem daunting at first, but usually, there is the option for fees to be taken from your pension, so in most cases there’s no extra money for you to find upfront. According to M&G, of the 11% of adults who have paid for financial advice over the last two years, 88% believe that it’s been good value for money.
Knowing where to find financial advice can be difficult, so it’s a good idea to ask friends for recommendations if they’ve used someone and they were pleased with the advice they got. If you don’t know anyone who can recommend an advisor, always make sure you do plenty of research before choosing one and read reviews to find out whether other customers are satisfied with the service they’ve received.
Advisors will either be ‘independent’, which means that they’re able to advise and sell products from any provider right across the market, or ‘restricted’, which means they are limited in the products and providers they can recommend to you.
If you’re not sure which type of advisor might suit you best, read our article How to find the right financial advisor for you.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
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