Most people are reasonably comfortable with more routine financial matters such as banking and shopping around for services like utilities and insurance. However, when it comes to pensions and investments, it can be a different picture.
Of course, some keen DIY investors do have a good understanding of tax, pensions and investment, but they’re probably in the minority. Most of us will need some help at some point with making choices about taking an income at retirement or passing on wealth as an inheritance. Watch our video to find out why Laura used financial advice to start planning her early retirement.
When seeking help about financial issues, financial advisers are best qualified (and regulated) to provide that assistance. But many people find it hard to know where to start looking.
The government and, increasingly, some pension providers offer a level of guidance for free. These can be good places to begin, but bear in mind that guidance services do not provide ‘advice’ – that is, they don’t tell you what the most suitable course of action is.
Some sources of guidance offer pre-booked telephone or face-to-face appointments as part of their service:
- Pension Wise helps people over 50 with defined-contribution pensions to navigate the complex choices faced at retirement. As well as online help, this service offers free personal appointments to discuss your retirement plans either over the phone or face to face, helping to boost your knowledge of your options and confidence when making decisions
- Some pension providers offer free guidance services of their own. For example, with Aviva, you can arrange a telephone appointment with one of our MyFuture experts. They can also talk you through your retirement options and help put you in a position to make better decisions
Other guidance is provided primarily online:
- Online information and guides are provided for free by the Money Advice Service. This covers all financial issues including debt and mortgages as well as pensions and insurance. Their website contains a wealth of information providing useful background, whether you decide to organise your own finances or seek help from a regulated financial adviser
- The Pensions Advisory Service is a free government-funded service providing online information and guidance on pensions, as well as assistance by telephone
Although not qualified to the same standard as regulated financial advisers, the guidance provided by government services and pension providers is given by well-trained staff, many of whom have worked elsewhere in the financial services industry. It’s also free, so can be regarded as a ‘no regrets’ introduction to the issues you need to grapple with when making decisions about your pension planning.
Here’s a summary of the main differences between guidance and regulated financial advice:
|Free to use?||Yes||No|
|Protected by the Financial Services Compensation Scheme||No||Yes|
|Personal recommendation given?||No||Yes|
Regulated financial advice
If free guidance doesn’t provide the help you need, you could consider paying for regulated financial advice. Regulated advisers tend to fall into four broad camps:
- Mortgage and protection advisers: As the name suggests, these advisers specialise in recommending and arranging house purchase loans.
- Pension and investment advisers: These advisers focus on tax planning, including choosing the right tax wrappers for saving. They also help people make the right choices at and throughout retirement, and provide advice on estate planning, investments and inheritance tax.
- Later-life advisers: These advisers focus on financial needs in later life such as equity release loans and funding care home fees.
- Corporate advisers: These advisers specialise in advising business owners and cover issues such as setting up a pension scheme for staff.
When you approach an adviser for help, they should tell you whether they’re able to help with what you require or whether you’d be better speaking to another adviser who specialises in the type of advice you need.
Independent or restricted?
As well as specialising in different types of advice, advisers can also be classified as independent or restricted.
- Independent advisers will generally provide a holistic financial advice service covering all your financial needs and wants.
- Restricted advice can mean a number of things:
- The adviser has chosen to restrict the advice service they provide to one specialist topic, such as estate planning.
- The adviser may not provide advice on all products or all areas of advice.
- The financial services firm for which the adviser works only recommends products and investments from a limited range of product providers and, in some cases, only products and services provided by the firm that employs them.
This table summarises key differences between independent and restricted advisers:
Advice fee options
Advisers charge fees in a number of different ways, although not all advisers offer all the options available. You should pick an adviser and a fee structure that best suits your own needs and requirements.
- Ad valorem: As the Latin name suggests, these fees are proportionate to the amount of money you invest and are a percentage charge. There may be two percentage-based charges, one for initial advice and one for ongoing advice. Typical fee ranges can be:
- Initial advice 1% to 4%
- Ongoing advice 0.5% to 1%
While the percentages may look small, they can add up to substantial sums if you have a lot of money to invest. Converting the percentage charge into a monetary amount will give you an idea of whether you think you’re receiving value for money.
- Hourly rates: Hourly rates can typically range from £100 to £300. The rate payable will depend upon the adviser’s location (e.g. London is likely to be more expensive), how well qualified the adviser is, and the type of advice given. As a guide, a full financial plan can often take anything between 8 and 12 hours and, in some cases, even longer.
- A set fee: This is most common when advice is given on a very specific topic such as transferring a defined benefit pension to a defined contribution pension.
- A monthly fee: This is a fee in pounds and pence and is usually charged to cover ongoing advice, for example advice about withdrawal and investment issues for people who are taking an income from their pension.
Regardless of how an adviser charges for advice, they’re obliged to give you a fee schedule setting out how they charge. This schedule will detail the payment options available and the range of likely charges.
Finding a financial adviser
As you can see, there are many elements to consider when selecting a financial adviser. Remember, though, that advisers are providing a service – and as with all good service providers, a good adviser will ensure you understand all your options before you progress. If you’re unsure, you should feel confident in asking the adviser to clarify. And if you’re still not clear, you should ask again. After all, it is your money.
If you’re considering getting advice from a financial adviser but unsure where to look, we can help put you in touch with one, call us on 0800 302 9656 to find out more (Monday to Friday 8am-6pm).