This guide is designed to help you get an idea of how regulated financial advice works. It is not a recommendation on whether you should get professional advice or not.
Thanks to COVID-19, many young professionals have been furloughed from their staff jobs or self-employment. Many have found that while they’re stuck at home, they’ve been able to save more than they would in ‘normal’ times.
So now could be a great time to think about what to do with these savings. Maybe you’ve been thinking about saving towards a deposit for a property, buying a car or putting money away for your retirement?
Deciding how to reach those savings goals can be tricky, with so many competing priorities for your money.
One way to help define your financial goals and get control of your cash is to get financial advice from a professional.
You might have an image of a financial adviser as somebody that only helps very wealthy people put their money away in complex, jargon-filled financial products.
But sound, independent and affordable financial advice can be within reach.
An independent financial adviser (IFA) can advise you on all the financial products they think will meet your needs. They are independent and ‘whole-of-market’, which means they aren't acting on behalf of any particular product, provider, or other body.
They usually work for themselves, acting on behalf of you, the client. This means the advice they give you must be impartial.
The financial advice industry is strictly regulated. So, before you agree to speak to a financial adviser, make sure that they are actually allowed to give you advice.
If you make investment decisions based on ‘advice’ from somebody who is neither qualified nor regulated it can spell big trouble.
Advisers will usually have to tell you how they are regulated and whether they are a member of a relevant professional body.
The FCA’s website has a register of all the companies, including financial advisers, that it oversees. So if in doubt, search the register.
Many financial experts say that there is an ‘advice gap’ where people who could benefit from sound financial advice cannot afford the fees charged by many traditional advisers.
But thankfully, there are a range of options for young professionals looking for independent, practical financial advice.
Some people will decide which adviser to speak to about their finances based on recommendations from friends or family who have used their services before.
A good personal recommendation from someone you know who has used an IFA can be invaluable, as it will speak volumes about their character and ability.
If you are recommended an IFA, remember to check them out on the FCA register first to make sure they are properly regulated.
Otherwise, the best place to start is to use search engines like Unbiased.co.uk and VouchedFor. By entering your postcode, you will be shown a list of all the authorised and regulated IFAs in your local area.
An IFA will spot areas in your personal finances where improvements can be made, by looking at your current circumstances and understanding your financial goals.
They will take into account your:
They will also look at how you can make your finances more tax efficient. Make sure you know exactly which areas they cover before agreeing to use their service.
After your IFA has assessed your financial circumstances, they may suggest a change in lifestyle rather than recommending that you buy a particular product.
If your IFA gives you bad advice, you can claim compensation from the Financial Ombudsman if things do go wrong.
Not all advisers work the same way. Some specialise in providing advice on a particular area of personal finance.
They are known as ‘restricted’ advisers. They are restricted because they will only be able to give you advice on a limited number of savings and investment products, or on a specific list of companies.
While the scope of their advice is limited, they are still FCA accredited, and must offer objective advice.
Both independent and restricted financial advisers need to declare upfront how they charge for their services. This way you can compare prices and make an informed choice.
Exactly what you pay also depends on the scope of the advice you need, and the pricing structure you agree with your IFA or restricted adviser.
There are typically three main ways that IFAs will charge for their services.
A fixed fee
An hourly rate
Percentage of your assets
The average hourly rate for an IFA carrying out certain types of work for clients is around £150 per hour, according to Unbiased.co.uk. If your adviser charges on an hourly basis for their time, you should always ask them for an estimate upfront based on your needs and circumstances.
Unbiased.co.uk also has a ‘cost of advice’ calculator tool.
The ‘percentage’ payment structure on the above list will only really apply if you’re asking your adviser to manage your investment portfolio for you over a longer period of time. This kind of long-term arrangement may not be something you’re looking for right now.
Beware: IFAs should never be paid by commission. If somebody says their advice is free, they’re probably a salesperson working for a financial services provider. Stay well clear!
If you find an IFA you like but that is a little outside your price range, it's always worth asking them whether they would drop their fees to a more affordable rate.
You may have heard of some of the big name brokers that offer online investment platforms. They include AJ Bell, Hargreaves Lansdown, IG and Interactive Investor. But these platforms are largely ‘execution-only’.
This means that they allow you to set up an account to buy and sell investments like stocks, bonds and funds, but they don’t provide advice on how suitable these products are for your circumstances.
So, in recent years a new type of online investment management service has sprung up. These are designed to cater to younger, tech-savvy investors who want help to grow their money but cannot afford the fees of traditional IFAs.
These services are mostly digital, so you access them via websites or smartphone apps. They typically blend investment management services with financial advice.
You might sometimes hear people call these types of digital services ‘robo-advisers’.
This is a slightly confusing term, as in some cases what you receive is not actually regulated advice, but suggestions about where to invest your money.
Be aware that some of these services may not really be providing you with ‘advice’, but with guidance or suggestions. This may sound like a small difference, but it’s very important.
In the UK, for somebody to call themselves a ‘financial adviser’ they have to pass certain exams and get qualifications that are recognised by the Financial Conduct Authority (FCA), the UK’s main financial services regulator.
Some of these services will typically ask you a series of questions about your financial goals, as well as the level of risk you’re willing to take on when investing.
They’ll then use this information to recommend one of a handful of funds, or ‘managed portfolios’ that they have created which may suit your needs.
The ‘robo’ part of the ‘robo-adviser’ description refers to the fact that in some cases these services use algorithms (automated processes) to recommend investments based on your responses.
The amount of advice you’ll get from these services will vary, as each of these companies offers something slightly different. So, you may want to take some time to explore what each of them could offer you.
The key thing to remember is that nobody cares more about your money than you do. You need to feel comfortable with any decision you make about getting financial advice.
If you do not understand how an investment or savings product works, that’s because it has not been explained clearly to you. You should never feel pressured into buying a financial product that you do not understand.
Before taking the plunge and getting advice from a regulated adviser, it might be a good idea to have an informal conversation with them. Think of this as an interview. You’ll want to see whether an adviser feels like the right fit for your needs.
Finally, if all of this sounds daunting, do not panic. There are plenty of places you can go to find free impartial information to answer basic questions around saving for the future.
These include the Money Advice Service, a government-run organisation that provides advice, guides, online tools and calculators to help you manage your finances. You can also receive support over the phone.
The Pensions Advisory Service, is another government-run body which provides help and information to members of the public on pensions and retirement savings.
Help stretch your budget a little further by making the most of your savings.