Have you reached a point where you’ve decided you need professional financial advice to organise your affairs more effectively?
This decision is often triggered by a life event such as the approach to retirement, starting a family or receiving an inheritance, though I would argue that the sooner someone takes advice, the better prepared for life they will be.
Once you’ve decided you need some professional help, selecting the right adviser is vital. The relationship will ideally last for many years and usually involves the whole family as well as other linked professionals such as accountants and lawyers from time to time. The adviser may well know more about a client’s personal and financial affairs than even their closest friend.
Financial advisers come in all shapes and sizes. How do you choose the right one for you?
Here are some factors to bear in mind and questions to ask.
1. Personal recommendations
Financial advisers rarely advertise and there are few well-known brand names. The best introduction is always a personal referral from a friend or family member with an established and fruitful relationship. People will only refer if they are happy with the service.
2. Qualifications and Awards
The minimum level of qualification required by law is a Diploma which equates to a foundation degree. The badge of excellence in the UK is Chartered, which requires a minimum of five years’ experience and Advanced Diploma qualification. Chartered standard will also be an indication that the adviser is qualified to deal with more complex advice and that they have committed to a high level of professional standards. There is an additional level above Chartered which is Fellow of the Professional Finance Society - this is equivalent to a Masters degree.
The Chartered designation is also awarded to a small number of firms who meet strict criteria and again this shows they have reached a high level of professionalism and have highly qualified employees. Some firms will also have industry awards which is always a good sign. Take a look at their website to see what accreditations they have.
Financial planning is a wide area. Some firms or advisers will choose to focus on one area. Therefore, look out for an indication that the adviser can deal with the matter at hand. In particular, defined benefit pension transfers and lifetime mortgages require particular qualifications and experience.
Independent Financial Advice means the adviser can consider any product or fund from the market with a view to getting the best deal for the client. A tied or multi tied adviser will select from a limited range and cannot shop around. Ask the potential adviser about his or her status.
5. Costs and Method of Charging
All advisers are required to explain their fees in a clear fashion. Unfortunately, there are a multitude of ways fees can be expressed and it can be difficult to compare two options. New Model Advisor, an industry magazine, polled fee levels recently. Their report showed average ongoing fees for advice at 0.83% per annum of assets. Charging based on assets under advice rather than time spent is most common but this is gradually changing to a flat fee or time costed charging.
Ask your potential adviser what their fees cover, how they are charged, how they are reviewed and what this is based on. The fee and service proposition should be clearly expressed and easy to understand. Alongside advice fees will be separate fees for investment platforms, for investment funds and investment management. Again, ask how this works and the likely total cost.
Small or very simple transactions probably do not need to be advised. It is worth considering robo-advice or an execution only approach in that scenario.
6. Investment proposition
A firm may run portfolios internally, may outsource some or all aspects of investment or may offer a suite of options based on client demand. Ask about performance net of costs and the differences between options.
Financial advice can involve a lot of technical jargon. Find someone who can explain things in a way you understand.
Financial planning involves getting a full grip of a client’s objectives and plans which the client may never have fully formed until the first discussion. It is vital to find an adviser who you can talk to easily and who will challenge your assumptions and world view. This is not something learned from a book and takes diligence and experience to master. It also comes down to chemistry and finding someone you’re comfortable with. Having a conversation about your finances and future hopes can be difficult unless you feel completely at ease with your adviser.
The best advisers do not work alone. There is a large element of administration behind the scenes which is best handled by competent administrators rather than expensive advisers. It is also important to know how the team works if the adviser is away. The whole service needs to reassure the client they are in the best of hands, whoever is doing the actual piece of work. Very small firms may struggle with this aspect. Equally, a client should want to avoid being passed around a large impersonal organisation. Ask about the support team and the firm’s size and organisational structure.
Technology provides plenty of new tools for both clients and advisers to use, particularly in areas such as tracking performance and cash flow analysis. Ask about apps, portals and how these are used.
10. Problem resolution
Not every long-term relationship will run smoothly. Mistakes do happen and if they are resolved professionally and quickly can result in a stronger relationship. Ask how the firm deals with problems.
Ultimately, it will be hard to judge the quality of the advice and service before it has been received. Most advice firms will offer an introductory meeting which gives you the chance to ask many of the questions above and also to see how you connect with a particular adviser. Above all, financial advice is probably the most personal matter, other than a medical issue, that you will discuss with anyone, so make sure you feel you can trust the adviser.
If not, go elsewhere.