Let’s assume an individual is struggling with a major financial decision. It may be related to retirement, or a property, or a variety of other issues.
Their first step should be to decide on the complexity and the values involved. If the value is low then it may be worth a do it yourself approach. However, if there is a risk a poor decision could result in a significant financial loss it may be best to pay for financial advice.
If the complexity is low then again the DIY approach may work. In contrast, if it is a struggle to understand the paperwork and the issues involved employing an adviser could be best.
Some may decide that they do not have the time or inclination to look into a financial situation themselves. They may, therefore, employ an adviser regardless of the complexity or value. It all depends on personal circumstances and preferences.
Pay For Financial Advice Not Guidance
It is important to remember you pay a financial adviser for a recommendation, not general guidance. Based on detailed discussions to establish your personal circumstances and objectives an adviser will recommend that to possibly achieve ‘X’ you should do ‘Y’.
Guidance can be obtained from a wide number of sources (some reliable, some not). It tends to be vague and outlines the options available. An example of guidance could be to achieve ‘X’ you could do ‘Y’ or ‘Z’ but it depends on ‘A’, ‘B’ and ‘C’.
A Financial Adviser must be able to justify the advice they give. If it is found (given the circumstances and the information available at the time) the recommendation was wrong and/or any risks were not clearly explained they can be held to account. If the financial adviser is FCA authorised and regulated then compensation may be available.
Your colleagues, family or friends could suggest you do X but if it does not go well there is no comeback. They may have taken their own advice on a similar issue but what is right for one person is not necessarily right for the next.
What Does A Financial Adviser Do
A good Financial Adviser will review the market acting as the eyes and ears of their client. When a client comes to an adviser with a problem or question the adviser will use their knowledge to make a recommendation on the best way forward.
If a Financial Adviser is charged with managing an investment (often a pension fund) they will monitor that investment on an ongoing basis. Based on their knowledge of their client, and their attitude to risk and objectives they will make suggestions on any action if/when it is appropriate.
Some re-balancing of an investment portfolio may be required. Better performance on products (such as ISA’s) may be available elsewhere. It may be possible to save on fees. Good Advisers will stay in touch to ensure circumstances or objectives have not changed and perform regular reviews. The ultimate objective of a Financial Adviser will be to deliver financial peace of mind.
What Is An Appropriate Fee
You may accept that some level of payment for a professional review and a personal recommendation by a qualified person is worth paying. The issue then becomes the level of that charge.
Advisers will spend several years gaining the relevant qualifications and will expect a reasonable level of pay. They have to commit to ongoing training (CPD), they have insurance costs to pay, office costs and potentially staff payments to find.
Ultimately value is in the eyes of the beholder. It is important to determine what value you will get out of the relationship (in monetary terms). Whatever you pay should be some fraction of that value.
For example, assume you hold an investment (perhaps a pension fund) that is worth £100,000. You are not happy with the growth your investment has achieved over the previous five years but on reflection, you decide you do not wish to pay for advice. You leave the investment where it is and in ten years time, it is worth £170,000.
In contrast, It may you may pay (as an example) £2,000 for advice. You may accept a recommendation have to move your investment to one offering higher returns. As a result, your investment in ten years may be worth £200,000. Was the advice cost worth it or not?
The BIG Issue.
Are all advisers good at what they do – No. Are there Scammers out there – Yes, there are. Have financial services firms in general built a high level of trust and credibility over the years – No, the opposite if truth be told. Choosing the right financial adviser is key. We have given some pointers on what you should look for elsewhere on this Blog.
There will always be a level of trust involved. The problem is nobody can predict the future so there can be no guarantees.