Are Financial Advisors Worth the Fee?
Okay so you passed your school maths exams with flying colours and you’re determined to be CEO of your own finances. But, there are many money situations where you may still need help from a financial advisor. As your wealth grows you’ll start spreading your money around (think saving accounts, pensions, mortgages, buying shares). Choosing the best places to put your hard-earned cash and managing the taxes that come with it can get complicated and this is where an advisor comes in handy.
Erm, so what exactly does a financial advisor do?
Basically, they do what it says on the tin – they advise you on what to do with your finances by recommending certain investments based on your current finances and future plans.
Are there different types of advisors?
Yep. An Independent Financial Advisor (IFA) is someone who is trained and regulated to provide advice on many different financial products and isn’t restricted to a specific investment or provider.
Why is this good?
It means they won’t be biased towards certain investments and they should only suggest the products they believe to be the best fit for your financial circumstances.
Is it a good idea to always have an advisor on speed dial?
Not necessarily. If you’re after a savings account you likely don’t need advice. Bank accounts are low risk and a good one is easy to find, we have a guide for that.
Okay, so when DO I need an advisor?
You’ll likely first encounter an IFA when setting up a pension, whether it’s through your work or independently. Help with decisions, such as how much you should contribute and what pension fund to choose, can help you plan for retirement. But before meeting an advisor read up on pensions using MOXI’s Guides. This will make your time with them far more productive (and likely impress them with your knowledge too)!
If you’re ready to invest but not keen on DIY, you could use an IFA. The advisor will assess your money situation and your appetite for risk then make recommendations that fit the bill. Again, it’s wise to swot up before your meeting. We have a Beginners Guide to Investing to help with that.
If you’re a high-earner or have numerous investments, you’re likely in a tax nightmare. Tax rules are complex (not to mention dull…) and to make things even more complicated the government seems to change them all the time too. If you’re not into being on a first name basis with Fred the Financial Advisor, consider some one-off advice on tax planning which could save you a huge amount of money over the long run.
How much does this advice cost?
Fees vary, A LOT. We caught-up with a few in the MOXI network and asked what they charge to set up a pension and choose a suitable fund. You could pay a one-off fee from £500 - £1000. This sounds like a lot but it’s normally collected in stages from your first year’s contributions. Some IFA’s charge an on-going fee as a percentage of your total pension pot ranging from 0.5% to 1.0% (that’s £50 to £100 a year for each £10,000 you have in the pot). Ask your IFA if you can choose from one-off or ongoing charges and weigh them up.
A heads up: The ongoing fee paid over many years is where costs mount-up, especially because your pot gets larger over time. If your IFA asks for an ongoing fee you should expect ongoing advice. If you only need help at the start to choose a fund then negotiate paying a one-off fee.
How can I get the most from my advisor?
Advisors offer first meetings for free and you should not feel obliged to use them if their fees are too high or you simply didn’t feel comfortable with them. This meeting is your opportunity to find out what they can do for you and how much they charge. Ask about one-off fees as well as ongoing fees and any other hidden costs that may crop-up in the future. Take note: Some advisors charge more when your investment pot passes a certain size.
Advisors are there to help you make the right decision to increase your wealth. They’ll argue that their fees are covered by the better opportunities and planning they can offer you. This may be true but you need shop around to make sure you’re comfortable with their claims. Meet at least three advisors before settling for one.
You can also look them up on the FCA register to check they're legit.
About that…are Financial Advisors qualified and regulated?
You bet. The Financial Conduct Authority (FCA) are there to keep an eye on them and they have to be qualified. Qualifications are graded from level 1 to 8 and to be certified as an Independent Financial Advisor you have to achieve level 4 or above. A qualification of level 5 or above indicates advanced studies and level 8 is equivalent to a PHD. So it’s certainly worth asking your IFA what level of qualification she or he has! You can then scan the FCA register to check that they are who they say they are.
What are Robo-Advisors?
These are a new generation of ‘advisor’ that replaces warm bodies (aka humans) with computer-generated investment suggestions based on a set of online questions. Many new, tech-savvy companies such as Nutmeg offer this type of high-tech help. Using their tool to chose a pension fund, you can tweak retirement age, monthly contributions and the risk level to see the potential size of your retirement pot and a choice of relevant funds. The only pitfalls of Nutmeg are that they don’t offer a large selection of funds and their fee as a pension provider is on the higher end of the scale. But they don’t charge you for their “robo” advice and they try to keep fund management fees low so we still think it’s a cracking service.