Financial Advice

Have you got to the point where you would prefer to pay for professional help? Or do you have a friend or family member who isn’t interested in managing their finances themselves, or has more complicated needs than just saving for retirement in 20+ years?

The following is a list of considerations and possible avenues, rather than a list of requirements. The ‘best’ option on paper may not be right for all manner of reasons – you may just not get along.

Why do people take financial advice?

If you’ve followed the flowchart, read our wiki, and watched and read some of our Recommended Resources, you might wonder why people bother paying for financial advice at all, given it’s possible to manage everything yourself and additional fees can have a big impact on your investments’ performance.

There are lots of possibilities, but here are a few:

They aren’t confident to do things themselves
They don’t have the time or inclination to do so
They have more complex needs than “save for something a long time in the future” (e.g. pension withdrawal planning, inheritance tax planning)
They need specific expertise
They want ‘financial planning’

The key point is that people who take financial advice tend to make better decisions than those that don’t. Paying for financial advice may not be right for you, and that’s fine, but be careful not to judge others for their choices.

What exactly is financial advice?

Financial advice has a specific definition in the UK, thanks to legislation and regulation. This is in contrast to financial ‘guidance’, which is unregulated.

Citizen’s Advice explains the difference: guidance provides you with information about the various options available to you, but should not recommend any particular option over another. Financial advice, however, informs you which specific product would best suit your needs.

For example, if you have a lump sum you want to save, someone giving guidance would tell you what your saving options are in broad terms. They won’t tell you about specific products offered by named companies or what option might suit you best. A financial adviser would look at specific savings accounts, investments and ISAs offered by various companies and recommend a specific one that best suits your personal circumstances.

Guidance services are not regulated by the Financial Conduct Authority (FCA). This means if things go wrong with your financial choice, you may not be able to complain to the Financial Ombudsman Service or Financial Services Compensation Scheme.

The key concept is that advisers take on responsibility for their recommendations, and if these recommendations didn’t properly take account of the customer’s needs, or were incorrect or misleading, there would be a clear route for the customer to complain and receive compensation.

What financial advice can’t do

Beat the market

Don’t seek out a financial adviser because you think they will have access to “better” funds, portfolios, or outcomes than an investor could get directly.

The most important red flag, when seeking advice, is an adviser claiming that they will help you beat stock market returns.

This wiki, and many other online resources, as well as a growing number of financial advisers, advocate for low-cost passive investing. By contrast, a fair proportion of advisers still utilise ‘active investment’ funds. Whilst this isn’t necessarily a red flag itself, the reasons for doing so matter.

If an adviser tells you their fee is worth paying because they will help you outperform markets, especially if accompanied by a convincing-seeming sales presentation full of graphs and charts provided by active fund managers, you should probably politely thank them for the coffee and move on.

How much money do you need to see an adviser?

In general, advice provided by human beings is a luxury service. It tends to be aimed at people with investable assets of at least £50,000, with a much-maligned “advice gap” for people with less.

There is a new generation of financial planners/advisers experimenting with different fee models less interested in how much you have invested, with the subscription model being an often-discussed option, but this still tends to be in the region of £100+ per month.

If paying for financial advice doesn’t make sense in your circumstances, it’s worth spending the time with our flowchart and recommended resources to learn more about managing your own finances.

Types of adviser

A note on the fees in each section below – they refer specifically to the amounts charged for the service of providing financial advice. There are other costs of investing, such as platform/broker fees and investment fund fees which would be paid in addition.

Robo-Adviser

A catch-all term for technology-led investment platforms that provide you with advice on what to invest in in an automated way, based on information you provide them about your circumstances and preferences (e.g. Wealthify, Nutmeg).

These technology platforms are different to online investment brokers, because they are taking responsibility for the suitability of your investments on an ongoing basis. If you bought an unsuitable investment with an online investment broker, it would be on an execution only basis – you would be responsible, and have no right to complain about it. In contrast, if you felt that the investments recommended by a robo-adviser were unsuitable, you would have a right to complain about them.

Fees: tend not to charge an upfront fee, and instead charge a percentage of your invested funds each year. Wealth required: any money available to invest.

Transactional adviser/broker

The best example is a mortgage broker. A good mortgage broker will make the process of applying for a mortgage easier and less stressful. They may help with paperwork, give advice about how much deposit to place, what type of mortgage best suits your needs, and will liaise with the lender on your behalf.

Another example: ensuring your family’s financial needs are met in the case of your death or a severe illness. Whilst you can buy life insurance from online insurance brokers, a good transactional adviser can ensure the products are appropriate and properly set up.

Fees: may charge you a direct fee, and may also receive a fee or commission from a mortgage lender or life insurance provider. Wealth required: N/A, typically insurance or mortgage related.

“Traditional” financial adviser/wealth manager

Traditional financial advisers (often referred to as “IFAs”) tend to have developed their businesses out from transactional advice. Their target market is generally “mass affluent” clients with investable assets of more than £100,000.

These firms may be small and ‘independent’, or part of larger networks where they are ‘restricted’ to only selecting products from the panel their network allows (notable examples being St James’s Place, Tenet, Openwork).

Fees: generally charge fees as a percentage of invested assets, with fixed or minimum initial fees, and ongoing fees. A typical structure might be an initial fee of 2% of invested assets subject to a minimum fee of £2,000, and an ongoing fee of 0.75% of invested assets. Wealth required: usually >£50,000 in investable assets.

Financial planner

Financial planners are generally more focused on clients’ situation and goals than on the products that may be suited to them. The service will usually involve the production and regular updates of a financial plan using specialist software.

At the end of a financial planning process your long-term goals and objectives should be both clarified and quantified, and financial models should have been built to determine your chances of success and plot a route forward.

It can be hard to distinguish between financial planners and financial advisers. While “financial adviser” is a protected term, financial planner isn’t, and so the label is often misused.

Fees: many different fee models, ranging from percentage fees, to fixed fees, to hourly charging, to subscription fees. Wealth required: typically >£200,000 in invested/investable assets. For planners focused on young professionals, often no wealth minimums but aimed at those with earnings of >£100,000/year.

How to find an adviser

There are lots of routes to finding a financial adviser, and nearly as many opinions as to what is important.

Find some names to research

You may be able to get recommendations from friends, family or colleagues to start your list. Many guides/subreddit threads also suggest using websites like unbiased.co.uk or vouchedfor.co.uk to find possible advisers. Whilst these websites can be useful to research potential advisers, they are not as independent as they first appear – they are “lead generation services” for advisers.

Where should I look first?

All advisers must have a “Statement of Professional Standing” to be licensed in the UK, from one of the three professional bodies for advisers:

The Personal Finance Society (thepfs.org)
CISI Wayfinder
The London Institute of Banking and Finance

We recommend that you use the professional body search engines as your starting point, and refer to other “lead generation” sites like Unbiased and Vouchedfor as additional sources of information.

Find further information with Unbiased and VouchedFor

Unbiased pushes you towards its matching services, which promises to find the best adviser for you, but in reality this sends your enquiry to all paying advisers within a certain radius of your postcode and the first to pay an additional fee will receive exclusive rights to contact you. If you do use unbiased, make sure to use their directory rather than their matching service.

Vouchedfor offer a little more by way of vetting and checking, and don’t charge advisers extra for appearing at the top of search results. Their differentiator is that customers leave reviews for their advisers. The main issue with this system is that advisers choose who they ask for a review, so reviews are overwhelmingly positive as a result.

Check their FCA registration

All financial advisers must be registered with the Financial Conduct Authority. Never pay for financial advice from somebody who isn’t. The FCA maintain a public register that should be checked before you agree to work with an adviser, and at least annually thereafter.

Check their qualifications

All authorised and regulated financial advisers must have an “appropriate NQF level 4 qualification”. There are higher levels of qualification that should be prioritised:

“Chartered Financial Planner” status (NQF Level 6, awarded by CII/PFS) – the highest level of general-purpose financial advice qualification achievable in the UK. Around 20,000 individuals hold Chartered status.
CFP™ or “Certified Financial Planner” status (NQF level 7, awarded by CISI) – specifically focused on the practice of financial planning. Around 900 individuals hold the CFP status.

There are also specialist accreditations that may be helpful for particular needs:

Resolution-accredited financial professional (in the case of divorce)
STEP-Affiliate financial advisers (trust specialists)
Society of Later Life Advisers (focused on later-life matters)

None of these accreditations or qualifications necessarily guarantees a higher level of advice, but they take meaningful time, effort and investment to obtain, so generally attract a more professionally-minded adviser.

A note on corporate accreditations

The above qualifications all refer to individuals. Confusingly, it is also possible for a financial advice business to have corporate accreditations.

The most common is “Chartered Financial Planners” awarded by CII/PFS. Around 800 businesses hold this accreditation, and whilst the firm has to adhere to a specific set of rules and standards, there is no guarantee that the individual is as well-qualified.

The other major accreditation is “Accredited financial planning firm”, awarded by CISI. Only around 60 businesses have this accreditation, and the requirements are stricter and more financial planning-focused than the Chartered accreditation. Again though, this doesn’t guarantee that the individual you work with is suitably qualified.

Finally, there is the “Pension Transfer Gold Standard” accreditation, which is an “honour-based” opt-in for businesses who believe they meet the standards when it comes to defined benefit pension transfers (a high-risk area with some high-profile systemic failures).

This will, again, not guarantee the firm is any good, but if you or somebody you know requires advice in this area, do not go anywhere near a firm that doesn’t subscribe to the standard.

Make sure they’re working for you

A few areas to watch out for:

If the adviser works as part of a ‘network’, or a large national business, they may be limited in what services they can offer. This isn’t necessarily a dealbreaker, but they should be upfront and transparent about these limitations.
Their fees should be clear and they should be happy to discuss them.
They should be open about any potential conflicts of interest.
Their focus should be on your long-term aims, objectives, goals and needs. Be wary if they are quick to talk about products and solutions.
Any ongoing service should be clearly defined with regular meeting intervals at least annually.
A clearly defined fee for any initial financial planning and reporting work is often a good sign. This should allow you to separate the planning from the product-based advice (for example, going away and putting any planning into motion yourself if you are so inclined).

Find out what other people think about them

Most financial advisers (good and bad ones) will find most of their customers by referral from existing customers. If somebody recommends an adviser they like, ask them some questions about what the service looks like, what they feel they get from it, and so on.

Make sure you will be able to work with them

You have to get along with your adviser! Most advisers will offer a free meeting (face-to-face or remote), so take advantage of it.

Make sure that there are no barriers to leaving them

It should be a major red flag if there are any minimum timescales required, or long notice periods.

Create a shortlist of at least two possibilities

Try to speak to at least two potential advisers so that you can compare and contrast their services and fees. Don’t pick an adviser after speaking only to them, even if they seem fantastic.