Financial advisors play a really valuable role in helping you to understand your financial position, create a financial plan and then to make the best of what you have. They are heavily regulated and have to stay uptodate with latest tax and pensions rules which most of us don’t have the time nor inclination for.
However, choosing an advisor that’s right for you, is not always straightforward. Getting personal recommendations is usually the best way to start. But it is worth remembering that just because an advisor has worked really well for your friend or family, that may be because they had different goals to you and because their financial circumstances are very different. It’s your life, your money, so the onus is on you to do the research.
Here are some tips to help you. It’s not a complete list by any means so if there’s something specific you need help with, drop me a line [link to contact form]:
- Your goals
- Be clear about what you want to achieve from appointing an IFA. If you don’t know, shop around, talk to a few candidates and use the process to educate yourself.
- If you’re not clear, don’t put yourself under pressure. It’s like asking a builder in without a clear plan for the work you want done – a recipe for failure.
- Do you just want to invest a sum of money or do you actually need a financial plan? IFAs are supposed to take your whole financial situation into account when they advise on investing, but in my experience, the degree to which they actually do this varies enormously.
- Fees and charges: these are often not entirely clear, and comparisons across different IFAs can be complicated
- If there’s no upfront fee but the IFA will take a percentage of funds invested, think through all the different scenarios. For many people this works really well because they effectively get initial plan and advice “for free”.
- Often there is a time frame within which you’re expected to invest and if you don’t then a set fee kicks in. Is this what you want? Will you feel under pressure to invest even if you’re not ready to?
- Each IFA’s fee percentages will apply to different investment thresholds and thereafter they’ll have an ongoing annual fee. To compare IFAs, it’s not enough to compare the percentages themselves. You’ll need to work out the actual sum of money you’ll pay based on your particular pot of money.
- What level of “hand-holding” will you get or indeed – do you need? Do you understand what it involves? Self-investment platforms have grown in recent years. So do you want to handle the investing side yourself? If you’re not confident, it might be better to let professionals do it for you.
- Doing a plan once is great but it needs to be regularly reviewed. Is this included in their ongoing service or not?
- Is VAT included?
- What happens if the relationship doesn’t work out? Ask what the charges are for exiting from your arrangement with them under different scenarios – once the initial work is done, after a couple of years of being invested, and after say 5 years. Some IFAs invest in their own in-house funds and charge hefty fees to exit.
- Type of organization
- Is this a one-person band or is there an organization behind them? What resources do they have? Are they regulated?
- If your point of contact were to fall under the proverbial bus, what would happen then? Who would take over your affairs?
- Personal rapport:
- Do they answer the question you’ve asked? Do they answer the question they think you should have asked, or that they are used to being asked by others?
- Do they “get” you? Do they understand what you want to achieve? Or are they merely putting you through a sales process, selling you the solution/products/strategy that’s trending or in vogue at the moment?
- Do they have a listening style or do they “talk down” to you?
- Do they overcomplicate things rather than speaking in plain, everyday English? Do they oversimplify when you instinctively feel that there’s more to it than they’re letting on?
The financial advisory industry provides a great service and they’re mostly good people. The problem is that they focus on the merits of their own service and it’s very difficult to compare the market. So the onus is on you to take the lead and do your research. Remember that you are the customer!