How To Choose (And Use) A Financial Adviser
We're all for a DIY approach to planning your finances, but there are times when it's best to seek advice.
When you think of financial advisers do you conjure up images of unscrupulous, sales-driven vultures? There's a lot to be said for going it alone. Who can you trust more with your finances than yourself? And websites just like The Fool are here to help you make the right financial decisions.
But financial matters can be complex and not all independent financial advisers (IFAs) should be tarred with the same brush. In this article, I'll look at when you can be confident of looking after your finances yourself, when it's best to seek advice and how to choose a good adviser.
When You Can Take Control Yourself
Some financial products are reasonably straightforward. Seeking advice on them is a waste of your money. By reading articles on The Fool and visiting our discussion boards you should be able to get all the guidance you need for switching your current account, choosing a top savings account or cash ISA. Selecting a credit card or personal loan is usually pretty easy too.
Some Fools probably also feel confident to make some investment decisions such as choosing index tracker funds for a stocks & shares ISA. The same applies for a personal pension. But expect this to be quite a bit more work than say, choosing a savings account. And if you don't feel confident to make these decisions on your own, then you should seriously consider getting some professional advice.
When it comes to life insurance, if you only want life cover to protect your mortgage, then The Motley Fool Insurance Service can help you.
When You Need Advice
It's when financial decisions become more complicated that it's sensible to seek advice from an IFA. Here are five circumstances when I think that's a good move:
You need to take benefits from your pension
There are numerous options open to you when you retire, so advice from a good IFA can ensure you avoid making the wrong choices. You'll be guided through the maze of annuities or, if you have a large pension fund, more complex ways of taking an income through say, an unsecured pension (USP).
You want to transfer your occupational pension scheme
The key issue here is to understand what you might be giving up. Occupational pensions often have valuable benefits which would be in your best interests to keep. An IFA will advise you whether it's better to stay put.
You want to reduce your inheritance tax bill
It's very difficult to do this on your own as there are so many ways of reducing your IHT bill. In fact, tax planning in general can be very complicated, so let a qualified IFA do the hard work for you.
You want to sell or surrender your endowment
Endowments are a particularly thorny topic following the mis-selling scandal. If you're considering selling or surrendering your policy, a qualified IFA will be able to assess whether it's worth your while.
Your protection needs extend beyond basic life cover for your mortgage
If you need life cover to protect your partner and/or children or you want to protect your income, consulting an IFA will help you to find the right policy to suit your needs. It's also a good idea to seek advice on writing life policies in trust.
This isn't an exhaustive list, but it covers some areas where paying for advice can pay dividends. Now, how do you go about choosing the right IFA?
10 Tips For Choosing A Top IFATake a recommendation for a good IFA from people you know. Word of mouth speaks volumes.Book an initial meeting and make sure there's no charge at this stage. Check the IFA is fully authorised by the Financial Services Authority (FSA). Check the IFA really is independent. If an adviser is tied or multi-tied they won't be able to offer you whole-of-market advice, so steer clear. Ask how long the IFA has been established. That's not to say young advisers can't do a good job, but experience counts for a lot in this game. Check the IFA's qualifications. All IFAs need basic qualifications but choose someone with more advanced exams under their belt. IFAs with the new Diploma in Financial Planning, DipPFS (or equivalent) will have been thoroughly tested. Chartered Financial Planners and Certified Financial Planners are highly qualified and experienced. Ask how the IFA will be paid. These days the option to pay by fee has to be on offer. Some work on a combination of fees and commission. Ask for details in writing before any work is done. Find out how fees are calculated. A fixed fee is preferable to a time cost basis because it's difficult to predict how many hours work you'll have to pay for. Remember investments which pay commission to advisers will usually suffer higher charges which drag performance down so it may be better to pay a fee instead. Ask the IFA about their typical client. If you're `HNW' (high net worth) make sure the IFA is able to deal with you. If your means are more modest, check he/she is equally interested in advising on smaller cases. Get any recommendations in writing and check you understand it all fully. If you have any questions, ask. Finally, find out how regularly recommendations are reviewed and evaluated to ensure your adviser is adding value.
More: Getting The Most Out Of Your IFA