I’ve worked with three different independent financial advisers (IFAs) since I started actively investing.
I still work with two of them.
The other, who was keen on cash payments stuffed down the side of a boxed bottle of 15 year old Highland Park, is no longer on my roster. Ironically, of the three, it was the latter who made me the most money (more on that later).
It’s these three relationships and the search for my own answers about who I can trust and how much the advice should cost which qualifies me to help you find a good financial adviser.
I’ll do this by answering the most burning questions I had, and sometimes still have, when deciding who to work with…
- Do I need a financial adviser or should I do it myself?
- How do financial advisers make money?
- Is my independent financial adviser actually independent?
- Can I trust my financial adviser – are they legit?
- How do I pick a good adviser?
- How do I actually find one?
Do I need a financial adviser or should I do it myself?
If you’re new to investing then the answer is yes… probably. Never have I encountered so much jargon as exists in the world of finance. Getting to grips with and wading through that alone can be a solid reason to kick off your journey with an IFA.
I had a million questions when I made my first investment and having someone on hand to answer them really helped save time and speed up my learning curve (this alone was worth the fee paid).
On top of the above they also set up all my investments for me which was a big time saver and at the time of my first investment, circa 10 years ago, this wasn’t anywhere near as easy to do for yourself as it is now online.
Don’t feel that just because you could do it yourself you should do it yourself.
If you make £500 a day in your day job then taking Monday off work to tile your bathroom to save the £300 it would cost to pay someone else to do it simply doesn’t make sense. The same applies here.
If you’re not new to investing, you’re confident you know the different types of investments you want to make and you’re happy to manage things yourself then by all mean go for it.
I only used my IFA’s to buy into managed funds. My strategy is now heavily index fund based (lower fee’s and arguably better returns) and these can be bought easily online without the need for an adviser.
Basically I no longer, for the most part as there are exceptions, need their advice so it’s pointless paying for it.
Don’t feel bad if you do need the advice – at one point I did too. Similarly don’t be afraid to save on fee’s and do it yourself if you’re confident.
How do financial advisers make money?
There are two main ways that financial advisers make money:
- Upfront charge for the advice they give which is usually in the form of a percentage of total money invested.
- Ongoing management fee (sometimes sold as their ongoing advice fee).
The upfront fee, which is being phased out by some advisers so you won’t always need to pay it, usually ranges from 1-5% of the total investment amount. Load £20,000 into an investment with your adviser and that’ll cost between £200 and £1,000.
The ongoing management fee is paid regardless of whether your investments make money, it is paid on the total amount under management and is usually between 0.4% and 1.5%. If you’ve got £100,000 under management then that’s £400-£1,500 per year in ongoing costs.
From January 1st 2013 advisers were banned from accepting referral commissions meaning they can’t now put you into a fund and get paid by the fund provider for doing so. This is good for joe pubic as it should keep them independent.
Is my independent financial adviser actually independent?
The simple answer here is yes they probably are. Now, since regulation changes in 2013, that the only way they can make money is directly from their customers there’s no incentive for them to put you into one particular investment or another.
There’s always an exception to the rule and financial advice is no different. Be on the lookout for advisers who deem themselves ‘wealth managers’ and not independent financial advisers. They are not bound by the same rules.
St James Place are a good example of this. Their wealth managers will only put you into St James Place funds and are tied to the company hook line and sinker. They won’t consider other products for their clients.
Not always a bad thing as long as you’re fully aware of the situation.
Wealth managers, if they truly can advise on managing wealth, can save you thousands with tax efficient investing strategies and vehicles.
Can I trust my financial adviser – are they legit?
You can quickly and easily check if your financial adviser is legit or not by running their name through the FCA’s Financial Services Register. Doing so will allow you to see if there are any warnings against their personal or business name whilst also allowing you to verify they are deemed suitable to be dishing out financial advice.
I guess the above doesn’t exactly mean you can trust them to look after your kids while you go on holiday but it’s a good start in establishing they are who they say they are and have been vetted to do the job they are doing.
You can only truly establish trust with your adviser over time.
A really good start towards building that trust, and a way to know you’ve got a good advisor, is if they explain the difference between index vs managed funds and talk to you about the fees associated with each. If your advisor is pushing index funds then you can be confident they’ve got your best interests at heart – their smaller fees often mean more returns for you over time.
How do I pick a good adviser?
There’s no magic bullet when it comes to picking a good adviser.
If you shop around and touch base with enough different potentials eventually you’ll find someone who can not only buy you into a managed or index fund of stocks and shares (for what it’s worth they can all do this) but who can also give you guidance on the most effective and efficient ways to invest your own money based on your own personal circumstances.
The best financial adviser I ever had liked getting paid in bottles of whiskey and pound notes. This guy saved me a fortune in corporation tax when he introduced me to and helped me establish my SSAS pension fund.
Along the way he tried to sell me into his most recent property development, which I rejected based on low yield and poor fundamentals, that development eventually went belly up and is now firmly in the hands of the bank.
The other two financial advisers I’ve worked with look after my money studiously but have yet to hit any home runs in terms of their usefulness.
Regardless of who your adviser turns out to be it’s your responsibility to make sure you understand exactly what they are doing with your money and question everything they do or offer you.
A few grand and a bottle of whiskey might be a small price to pay for advice which saves you hundreds of thousands in corporation tax over the years but at the same time you must have the strength to turn down investments or reject advice once you’ve done your own due diligence.
The buck stops with you.
Having said that a good IFA will be one that spends the time to help you understand your investments, can offer you a variety of different options (including index funds), has a good depth of knowledge about investment tax planning and doesn’t try to push you into anything you’re not comfortable doing.
How Do I Actually Find A Financial Adviser?
Hopefully I’ve given you some food for thought on what you should be getting from a good financial adviser but obviously you need to now go out and actually find one.
The following is a list of ways to find a financial adviser but YOU will need to make a judgement about how good they are:
- The Financial Conduct Authority (FCA) have a geographical locator for registered financial services providers on this page. Look for the ‘Find financial services in your area’ section.
- Similar to the FCA the CISI (Chartered Institute For Securities & Investment) have their own planner locator tool.
- Use the register over at the Personal Finance Society. They’re a professional body for people working in the financial sector and should be able to point you towards some options.
- Ask friends, family or colleagues… but be careful here as you need to make your own judgements. This one is last on my list for a reason. Being a friend of a friend of your mate Steve’s brother doesn’t mean they’ll look after you.