The right financial advice can take you a long way. If you’re planning to invest, buy a financial product, or finding ways to manage your finances more effectively and plan for the longer term, investing in good financial advice at the right moment will help you reap benefits in the long run.
A financial advisor could help you organise your finances more efficiently, understand a specific financial product better, plan your long and short term goals or create a strong investment portfolio. All you need to do is identify your need and find the right type of financial advisor, keeping your financial circumstances in mind.
This article will help you understand the role of a financial advisor and the pros and cons of hiring one.
Who is a financial advisor?
A financial advisor is a licensed professional who provides clients with expertise on holistic financial development and wellbeing for a fee. Financial advisors cover a myriad of services such as investment management, financial planning, mortgage advice, tax planning, etc. More often than not, a financial advisor’s range encompasses everything, from portfolio management to insurance products.
A financial advisor could be working on behalf of a financial firm or as an independent agent. They must pass a series of tests (or level 4’s) to procure their license or conduct business as an advisor. Unlike stockbrokers, who conduct trading activities, financial advisors provide comprehensive guidance and make informed financial decisions on behalf of their clients.
When would one need financial advice?
Financial providers can solve a variety of purposes, so there’s no simple answer to this question. Here’s when investing in a financial advisor could help benefit you in the long run:
- Financial Management: Money spent well is also money saved. Financial advice can help you make the best of a product or service. Your financial advisor’s expertise is indispensable in cases when:
- You require assistance in making financial decisions that’ll have a long-term impact.
- You want to ensure that your financials (tax or household) are in place.
- You require assistance in dealing with complicated financial issues that require a more in-depth understanding of concepts.
- Savings Products and Services: Term deposits, savings accounts, ISAs and fixed-rate savings bonds commonly constitute savings products. A financial advisor may be able to guide you better when you’re planning to invest your life’s savings into one of these products.
- Investment Management: Investments may help you grow your money, but you need to have an appetite for risk to invest money. A financial advisor could help you invest in the right opportunity at the right time to cut your losses to the minimum. If you’re unsure of hiring a financial advisor, ask yourself:
- Can you endure any losses that might come with investing?
- Can you spare time to research the market every day?
- Do you have adequate experience, knowledge and skills to invest money by yourself?
- Do you have time to review your finances and ensure stability regularly?
These questions will help you assess the need for a financial advisor. Even though financial advisors come at a cost, but won’t you much rather spend money on the right advice than lose it due to the lack of knowledge? It would be best to consider all consequences to make an informed decision.
- Insurance and Mortgage: A financial advisor can help you find the right financial products that align with your circumstances. Some mortgage and insurance providers provide you with comparison platforms to ease the process. But, you could always benefit from expert financial advice.
- Pension Planning: Many employers who offer pension schemes also provide access to financial advisors who could guide you about enrolling yourself in the scheme. If you’re planning a personal pension plan to supplement your existing pension or unify pension savings from different pots, a financial advisor could be of great help. Since pensions investments are usually long term, a financial advisor could help you understand:
- The right type of funds to invest in
- The risks associated with the investment
- How well a plan aligns with your current financial circumstances
How much does a financial advisor charge?
Most financial advisors offer a free initial meeting to clients to give them an overview of their role and make them feel comfortable about sharing details about their finances. Rather than giving you advice particular to your situation, they give you a brief account of how they work and what they charge for it.
The fee that your financial advisor charges depend on various factors. Some of these are listed below:
- Hourly Rate: This fee can range from £75 to £350, through the average fee charged by financial advisors in the UK is £150 an hour.
- Predefined fee for a specific project: This could cost you around a few hundred or a few thousand pounds, depending on the nature and complexity of the job. For instance, the advice for transferring a pension will incur you a greater cost than arranging an ISA)
- Monthly charge: A monthly charge can be a flat fee or a portion of the amount you want to invest. For instance, you could pay 1% of the amount that you’ve set aside for investing to your financial advisor for their services.
- Ongoing fees: If a financial advisor provides you with ongoing service, you may be able to pay them an ongoing fee unless you’re settling an initial charge over time through a regular payment product.
How to find the right financial advisor?
- Identify the area of concern: Review your financials and figure out your specific need. For instance, someone who needs help with retirement planning could seek advice from a financial advisor specialising in pensions. While people looking for comprehensive financial assistance can hire an advisor who offers a package.
- Check the qualification/license: It is important to check the legitimacy of your financial advisor. Financial advisors are required to complete a series of tests to practice as an advisor. Ensure that they hold the necessary skills and qualifications before signing them.
- Try negotiating the fee: You can always try to explain your financial constraints to your advisor so that they offer you the most reasonable rates and payment plans.
- Keep written documents: Hard copies make for excellent proof in case there’s a slip-up. It would be best to get the advisor’s recommendations in writing. Additionally, inculcate the habit of asking questions to your advisor if you don’t understand something.
- Ensure that the service is personalised: Your advisor should not give you generic advice – a ‘one size fits all approach doesn’t always work when dealing with money. They need to study the intricacies of your situation and provide you with tailor-made solutions particular to your circumstances.
- Make sure you feel comfortable: It is important to understand that the level of comfort you share with your advisor can influence your financial wellbeing. You’re entrusting this person with an invaluable asset – your savings. So, it is important to assess your faith in your financial advisor.
- Conduct thorough fact-checking: Knowing what you need to discuss will help you bring your meeting to fruition. Clarity will save a lot of time on your first meeting. You could ask your advisor to send you the form a day or two before your meeting.
Things to consider before hiring a financial advisor
- Your financial advisor should be a qualified and licensed professional.
- It would be best to work with an advisor who has proven experience in the area.
- Understand the fee structure and negotiate for a suitable payment plan.
- Work with an advisor who follows the Fiduciary standard.
- Find an advisor who you can trust with your money management project.
Not all of us have the knowledge or the time to learn about efficient financial management strategies. While having inherent knowledge about financial management will give you an edge, sometimes it is better to seek professional help.
If you’re looking for precise recommendations to achieve your financial goals, a financial advisor could help you in your journey. Check the legitimacy of your financial advisor on the FCA’s Financial Services Register.