A financial adviser can be worth their weight in gold when making some of life’s most important decisions.
After such a turbulent financial period, now more than ever, clients want value for money when managing their money.
Yet advised clients are being warned to check they are not paying fees for a service which is now no longer up to scratch. Your financial needs may have changed post-pandemic or you may be overdue an annual review. Advisers are obliged to assess the suitability of their advice a minimum of once a year, under rules enforced by the City watchdog.
Annual reviews can require hours of work and in some cases, after many advice firms furloughed support staff, will have fallen by the wayside throughout the crisis.
Neil Moles, of advice firm Progeny, urged clients to check their agreements with advisers to ensure they had not fallen into a “fees for no service” scenario over lockdown.
“It takes a lot of time and work to look after clients properly and at larger firms where advisers have 400 or 500 clients each, this isn’t possible.
“Clients should be thinking have they seen or heard from their advisers in the past year. If the answer is no, then at first try and make contact, but if that isn’t successful then you are free to choose with your feet,” said Mr Moles.
Good advisers will be proactive in maintaining relationships with clients and radio silence over the past year should ring alarm bells.
If you now have different ideas about where you want to live, or when you want to retire, you should be able to speak to your adviser to discuss new goals, said Matthew Connell, of the Personal Finance Society, a professional body for advisers.
“The frequency of contact a client has with their financial adviser depends on their needs, what is agreed and at what stage in their personal finance cycle they are.
“For example, someone who only needs budgeting or long-term investment support for instance may be contacted less than someone who is entering retirement,” he said.
What should you be paying your adviser?
There are two main types of adviser: independent financial advisers (IFAs) and “restricted” advisers.
The former have the greatest freedom to help you with no strings attached by providing impartial and unrestricted advice which considers every option on the market. They are also not allowed to make agreements with investment groups and other financial firms to peddle their services. Restricted advisers may only be able to recommend certain products or investments. Britain’s largest adviser, St James’s Place, is restricted.
IFAs are not paid commission, but the way they charge clients can differ depending on the service, be it investment advice or a pension transfer, and time involved.
Smaller jobs can be billed using an hourly rate, but advisers will usually charge a fixed fee or a percentage of your portfolio value for larger jobs or a long-term service.
Good financial advice should cost less than the benefits which will come from that advice in the long run.
Regardless of the charging structure, advisers should always be upfront and clear about what their service is likely to cost.
Advice fees can vary from around £500 for investment advice to £5,000 for more complicated pension advice, according to Unbiased, an adviser directory.
If you are paying an adviser for a long-term service, such as managing your investments, then you can expect to pay an ongoing fee.
The most common of these is charged as a percentage of the money invested and, according to consultancy the Lang Cat, around half of advisers charge between 0.5pc and 1pc.
But be wary. The Financial Conduct Authority, which regulates the advice market, recently warned too many clients were being charged an ongoing fee by “default”, when it may not be the best option.
According to the City watchdog more than 90pc of new customers were placed in arrangements for ongoing advice, when the adviser also offered a one-off service. The FCA warned some customers might be “paying for a service they do not need”.
Ask the right questions
When choosing an adviser, consider the questions below.
- Is the adviser independent, or restricted?
- Can they give you a summary of the services they provide?
- Who exactly will be advising you? What experience and qualifications do they have?
- Will the same adviser be handling you for the long term? What will happen if they leave?
- Can they provide testimonials from existing clients?
- Who are they regulated by?
- What charging structure do they use?
- How regularly will you be able to speak to them?
- Do they offer personalised advice, or use generic planning models?
- How regularly will they review your portfolio?
- Will they update you on any changes that affect your financial situation, and how?
- How do they conduct their research?
- Do they have specialist expertise in the areas you require? If not, do they have links to specialists in the areas they do not cover?