Seeking financial advice can be a daunting prospect. Many people are under the impression that financial advice is too expensive, or simply ‘not for someone like me’.
But you don’t have to be a millionaire investor for it to be worth your time and money – and the lifetime value that you get can vastly outweigh the initial cost.
You don’t necessarily need a specific problem in order for an expert to give you a helping hand, instead financial planning could make sure you are on track to make the right choices, grow your wealth and enjoy a richer future.
Even for those well-versed in the world of money, there are times when seeking professional help is wise. Situations such as turning your pension pot into retirement income, or minimising inheritance tax are likely to cause a few headaches and for this kind of one-off scenario financial advice can pay off.
Our guide explains what you need to know about financial advice and financial planning
Not just for the wealthy: Seeking financial advice can help you make an informed decision when investing in a pension plan
What is financial advice?
Financial advisers are qualified specialists who can help you manage your money, give personalised advice and choose the best financial products for your individual needs.
The terms financial advice and financial planning are often used interchangeably – and there is an area of overlap between the two – but the general distinction is that financial advice deals with one-off situations, whereas financial planning is an ongoing medium to long-term relationship.
Financial advice is seen as dealing with a specific issue, such as investing your pension for retirement income, organising life insurance, or arranging investments.
Whereas, financial planning involves creating a plan around your life to reach certain goals and is a process that continues along the route for many years.
Financial advice comes in two forms: independent and restricted.
Independent advisers, known as IFAs, offer advice covering a full range of products and financial topics, and will not be biased to a particular set of products.
Restricted advisers, on the other hand, only provide limited advice on specific areas, and may only financial products from the firm they work for or that they have a particular tie to. A restricted adviser still has a binding obligation to act in your best interests and any restrictions and tie-ups should be made clear.
An important thing to note is that financial advice, unlike some other forms of financial guidance, is regulated by the Financial Conduct Authority.
To be qualified, a financial adviser must have reached level four or above of the national Qualifications and Credit Framework.
On top of this, advisers must sign up to a code of ethics under the Statement of Professional Standing. This includes the adviser completing a minimum of 35 hours of continued professional development each year.
A Statement of Professional Standing can only be issued by a body that has been accredited by the FCA.
To check if an adviser has an accreditation, you can consult the FCA’s register, which lists advisers and firms by name, and can be sorted by location.
If you are considering financial advice, it might also be worth checking the name of your potential adviser or firm against the FCA’s warning list, which indicates unauthorised firms that do not have FCA permission to offer advice.
While they will take into account a full look at your finances, what a financial adviser won’t do is look at your broader lifetime financial plans beyond what they are advising on, this is where a financial planner comes in.
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What is financial planning?
The key difference between financial planning and financial advice, is that planning looks to address your longer term financial needs, as opposed to offering specific help when you something to do.
Like financial advisers, financial planners are required to be FCA registered.
Unlike financial advisers though, a financial planner will help to create a personalised plan, based on your goals, income, wealth and the major milestones you are likely to face and ambitions you have.
This means that if your needs are ongoing rather than a more one-off issue, such as investing a lump sum in an Isa, arranging protection insurance, or sorting your pension, then financial planning may offer you a way of getting advice that can last and work with you over time.
Financial planners can offer help with tax efficiency, investing for your future or your children, retirement and pension planning, and creating an estate plan that ensures your loved ones won’t be stung by a huge inheritance tax bill.
Planners can also create a full plan that encompasses all aspects of your financial life, taking into account how one part may affect another.
Financial planning should fit in with your life goals and ambitions and a good financial planner will investigate your finances, ask where you want to be in the future and create a plan to get you there.
So, for example, you might want to step back from full-time employment in your mid-50s and use your time to travel and work on your own terms.
A financial planner can create a roadmap for you to get there, such as clearing your mortgage, investing to build an Isa pot to draw on to fund your lifestyle, and making sure you have enough in your pension for your retirement years.
Blueprint: A financial planner will help to build a picture that incorporates your long-term financial goals
Should I pick financial advice or planning?
Your circumstances will dictate whether a financial planner or adviser is the right person to approach.
Financial advisers will generally help you to solve a specific problem, and recommend a product that suits your needs, this could be in the form of a pension plan or life insurance policy.
An adviser will recommend the product that they consider solves the problem. A financial planner, on the other hand, will recommend what fits best with your wider life, both financially and in regard to your goals and aspirations.
Your relationship with an adviser is likely to be a transactional one, based on occasions when you need help. Whereas, with a financial planner you will likely meet them on a yearly basis to review where you are at and update the plan that they have created if need be.
This financial plan considers both short-term and long-term goals, as well as your family members, career and retirement goals and where you are hoping to end up.
How much does it cost?
Whether you seek financial advice or planning is also likely to depend on your financial position.
Advice doesn’t come cheap, with it likely to set you back between £500 and £5,000 depending on what you need to do, according to financial adviser directory Unbiased.
Financial planning can often involve a cost based on the amount that you have to invest or the value of what you need to do, along with an ongoing annual charge.
A good financial adviser or planner will always lay out all the costs clearly before you incur any. If you don’t understand something or are unsure, ask. If they cannot explain it in a satisfactory way, walk away.
An initial meeting is likely to be free, allowing you to discuss what you need advice on, find out how much you can expect to pay and get a feel for the adviser themselves.
What you will end up paying can vary from adviser to adviser, and is dependent on the method they use to calculate the charge.
Some, for example, may charge a fixed fee for specific services, whereas others will take a percentage of the value of an asset they are managing. This is generally between one per cent and two per cent, but can vary depending on the size of the asset.
For simpler tasks, such as moving investments, advisers may charge an hourly rate, with £150 per hour being the average figure in the UK.
Regardless, a preliminary meeting will allow you to discuss these charges with the adviser, who can inform you how much you will likely be charged.
Of course, the idea of financial advice is that it will leave you richer in the long run, so even if you don’t have a huge sum to work with, it still might be worth your while down the line.
A classic example of this is turning a pension pot into an income for the rest of your life. Financial advice may seem an expensive upfront cost but the benefit could be a higher and more secure income every year for the rest of your life.
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