Searching for a competent financial advisor often causes problems for consumers. A mistake can come with a price tag, and you risk not only buying an unsuitable financial product but potentially your life savings too.
Who Needs a Financial Advisor?
You could use an independent advisor for any of your financial decision-making, but it comes at a cost. Any potential savings you make could be swallowed up by their fees. For that reason, a financial advisor is more important if you need their expertise for longer-term financial planning such as arranging your retirement, your pension and buying an annuity. The more complicated your circumstances and personal finances are, the more likely you are to need to consult a professional.
Financial advisors are also advisable if you’re interested in riskier undertakings such as investing a sum of money. They’re the right people to advise you of the risk of products which are harder for lay-people to understand. Apart from this know-how, these advisors also have access to products that might not be available to the general public.
Buying through such advisors also offers you a level of protection. If you’re mis-sold a financial product, you can complain to the FCA. If you mistakenly take out the wrong product on your own, you can’t seek compensation from anyone.
When is a Financial Advisor Unnecessary?
On the other hand, buying products like insurance and mortgages can easily be done alone without the help of an expert. The main thing to remember is to shop around before making a decision. Do some research on the topic so that you know what the commonly-used terms mean, the differences between the products on offer and what you exactly need in your circumstances. Such research has never been easier since the advent of the internet since there are many price comparison sites with tables. Use more than one site to get an idea of what’s on the market.
If you’re interested in products that banks and building societies offer, your local branch can be a source of information when you’re fact-finding. Impartial advisors like your local Citizens Advice or the consumer watch-dog ‘Which?’ might be able to help you as well.
Where to Find a Financial Advisor
If after evaluating the situation you decide that you need advice, a good place to start is with professional associations. These include the Personal Finance Society, the Institute of Financial Planning and by using the Wayfinder tool of the CISI (Chartered Institute for Securities & Investments). The advantage of using a professional body is that you know the advisors will be registered with the FCA. You can, therefore, be sure they’ll abide by a Code of Practice.
There are also referral sites such as Unbiased, VouchedFor and Your Money. Although they might claim that reviews have been verified to come from genuine clients, advisors also pay the site for prominent listings and/or enquiries. Bear this in mind when searching and think of them as more like directories.
Alternatively, you could ask relatives and friends for their personal recommendations. Make sure you’re asking people who have taken out similar financial products as some advisors specialise. We recently sought help from an Independent Financial Advisor in Leeds, who we felt offered us a more personal service than that of a larger company.
Initial Contact with Financial Advisors
Once you’ve done your research, you should be able to narrow down your choice to around 5 advisors. This is now the time to set up a meeting with them individually. This initial meeting should be completely free of charge. Steer clear of advisors who charge for this fact-finding service.
During this meeting, check whether the advisor is restricted or independent. The difference between them is that a restricted financial advisor will only be able to offer a limited selection of providers (or possibly just one) while an independent one offers a wider choice.
You should also know beforehand whether you’re interested in one-off advice (such as investing a lump sum) or whether you’d like ongoing advice requiring more regular updates.
On their side, financial advisors will ask many detailed questions about you, your circumstances, your financial goals and your attitudes to risk. This thorough questionnaire will enable them to recommend the most suitable product for you.
Fees for Financial Advisors
Since 2013, financial advisors have been unable to charge a commission for investment and pension advice. Whether they charge by the hour, a flat-rate fee or as a percentage, advisors are required by law to be completely upfront about how much they charge. For hourly charges, they should let you know how much work was done and how long it took.
At the end of your meeting, they’ll supply you with a ‘key facts statement’. This will include their fees and the level of service you can expect from them. For example, how often they will contact you for updates and how this will be done (in person, by email, etc.)
Narrowing Down your Choice
Like any professional-client relationship, your final choice of financial advisor depends on how well you got on at this initial meeting. Having said that, being ‘nice’ doesn’t necessarily mean that they’re competent. Instead, look at how well they took on board your long-term goals as well as your concerns. Also, how well were they able to answer your queries about the different financial products? Were they able to explain concisely and clearly?
The key to finding a good independent financial advisor is doing your research beforehand, so you know the right questions to ask.