If you’re looking to invest, buy a financial product or plan for the longer term, whether or not you need financial advice will depend on a number of factors such as what product you are looking for, how complicated your finances and personal circumstances are and your short and long-term goals.
- What services do financial advisers offer?
- Types of financial adviser
- What are the benefits of getting advice?
- So when do you need financial advice?
- Find a financial adviser
- What services do financial advisers offer?
Professional financial advisers carry out a ‘fact find’ where they ask you detailed questions about your circumstances, your goals and how you feel about taking risks with your money. Then they recommend financial products that are suitable and affordable for you.
Types of financial adviser
Financial advisers offer services ranging from general financial planning and investment advice, to more specialist advice, such as the suitability of a particular product such as a pension.
In the case of investment products, some advisers are ‘independent’ – meaning they offer advice on the full range of investment products from the market, while others offer a ‘restricted’ service meaning that the range of products or providers they will look at is limited.
What are the benefits of getting advice?
If you buy based on financial advice and a recommendation, you should get a product that meets your needs and is suitable for your particular circumstances.
Depending on the type of adviser you use, you may also have access to a wider range of choices than you’d be able to assess realistically on your own. You also have more protection if things go wrong if you buy based on advice – see below.
The difference between advice and ‘non-advised’ sales
Many banks, building societies and specialist brokers will talk you through your different options and leave it up to you to decide which product to take. In this case you are buying based on ‘information’ and have fewer rights to claim compensation if the product turns out to be unsuitable.
By contrast, if you end up with an unsuitable product after getting advice and a recommendation you could have a case for ‘mis-selling’ – though this doesn’t protect you against making losses if the market goes up or down.
What do you pay for financial advice?
The rules on fees for financial advice changed from 31 December 2012. If you are looking for general financial planning advice or for advice on buying particular investments you will pay a fee. Advisers must be clear upfront about what their fees are and agree with you in advance how you will pay them.
Before these changes, many financial advisers didn’t charge, but instead received a commission which was deducted from the customer’s initial or ongoing investment payments.
The changes were introduced to help make the cost of financial advice clearer and so that you can be sure the advice you receive will not be influenced by how much the adviser could earn from the investment.
Mortgages and most insurance products are not affected. However, some mortgage brokers may still charge upfront fees for advice, while others receive a flat rate introducer’s fee from the product provider. Receiving mortgage advice directly through your lender is usually free.
Is it cheaper to buy without advice?
You won’t have to pay an advice charge if you go direct. But you should weigh up the cost saving against potentially buying an unsuitable product or one which gives poor returns.
Advice can help you buy a better product than one you choose yourself. An adviser will also have the expertise and knowledge to find better options, as some products are only available if you go through an adviser.
So when do you need financial advice?
The answer partly depends on the product and partly on other factors.
Cash savings products
If you’re looking to put money into savings accounts, cash ISAs or fixed rate savings bonds it’s easy to DIY using comparison sites and tables. Because of the low risk you don’t need to get financial advice and you can buy directly from providers very easily.
If you’re thinking of investing in shares, unit trusts and other investments, you can go DIY but it will be more risky because these products are harder to understand than savings. There’s also a risk that you might lose money or buy a product that’s not suitable for you because you don’t understand it. So you really need to do your homework.
Ask yourself these questions:
- Do you have the time to do the research?
- Do you have much experience, knowledge or skills when it comes to investing?
- Can you afford to lose any money?
- If things go wrong, are you comfortable taking responsibility for any bad investing decisions?
If the answer to any of these is ‘No’ then seeking financial advice may be your best option. When trying to decide, also bear in mind the cost of fees against the financial and emotional cost of getting it wrong if you buy without advice.
Insurance or mortgages
Some insurance products and mortgages can be purchased using price comparison websites, or bought directly from suppliers.
However, there are also plenty of specialist brokers who will talk you through a range of options and may be able to get you a better deal. It’s up to you whether you buy with or without advice.
If your employer offers a workplace pension they may also offer you access to advice or provide guidance about joining their scheme. You should take up this offer if available.
If you’re looking to invest in a personal pension, to boost your existing pension or to merge different pots from existing pensions it’s usually best to get advice unless you really understand how these products work.
Pensions are long-term investments so you need to be sure you understand the types of fund you’re investing in, the risks and the suitability for your particular situation.
Find a financial adviser
If you think that financial advice is for you, read our guide below to understand more about independent versus restricted advisers and to link to organizations that will help you find an adviser in your area.