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.
If you’ve been working from home over the last year or two, there’s a good chance you’ve been able to save more money than usual.
Without commuting costs and social restrictions limiting what we have been able to do in our spare time, many young professionals have built up a decent nest egg whilst they have been stuck at home.
But what should you do with this money?
Maybe you’ve been thinking about investing 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 wealthy people put their money away in complex, jargon-filled financial products. However that shouldn’t be the case and financial advice can also be very helpful for people of more moderate means.
A good independent financial adviser (IFA) won’t focus on selling you products, rather they will help you make the most of your money and put a plan in place to help you achieve your goals.
During your initial conversations - covering your current circumstances, financial goals and attitude to risk - your IFA will spot areas in your personal finances where improvements can be made.
They will take into account your:
An IFA can also help you make your finances more tax efficient - for example making sure you do not pay any more tax than is necessary.
The financial advice industry is regulated by the Financial Conduct Authority (FCA). So, before you agree to speak to any IFA you can check that they are allowed to advise you by checking the FCA register.
If your regulated IFA gives you bad advice, you can claim compensation from the Financial Ombudsman.
It’s important to note that not all advisers are wholly independent.
Restricted advisers will only be able to give you advice on a limited number of savings and investment products, or on a specific list of companies. This is different to IFAs who have access to the whole market.
While the scope of their advice is limited, restricted advisers should still be regulated, registered with the FCA and offer objective advice.
A good starting point is often to ask friends and family if they can recommend an adviser for you - especially if you are seeking advice on a similar matter.
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, however, remember to check them out on the FCA register first to ensure they are properly regulated.
Alternatively you can try 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. You may also be able to get an indication of what areas they specialise in - for example retirement planning, women’s financial advice, or investment.
However, while recommendations and qualifications can be a great starting point you also need to be confident dealing with them. Many advisers offer a free consultation and this can be a good way of checking that you are comfortable dealing with them and that you trust them to give you advice. It’s also important that they explain things clearly and that you understand what they are discussing with you.
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.
In an ideal world financial advice should pay for itself - for example by improved returns on your money or tax savings.
However the so-called ‘advice gap’ means there will be people who cannot justify the cost of financial advice. The good news is you may still be able to get some guidance or advice with other, alternative services.
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 ‘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.
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 Helper , 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 on pensions and retirement savings.