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9 Dec 2019

Could taking financial advice make you £47,000 better off?

Discover the key costs and considerations when choosing an IFA

Taking financial advice on your pensions and investments could leave you nearly £50,000 better off in the space of a decade.

That's according to a new report by Royal London, which claims that 'non-affluent' investors can enjoy a significant uplift in wealth by using a financial adviser.

Here, we take a look at the pros and cons of financial advice, including how to find the best adviser and how much you might need to pay.

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£47,000 wealth uplift for advised savers

Royal London says people who received advice on their pensions and investments between 2001 and 2006 received a £47,000 'wealth boost' over the following decade.

This figure consists of £31,000 in additional pension wealth and £16,000 in other financial wealth (such as shares, Isas and bank accounts).

Royal London says that while financial advice is often touted as the preserve of the super rich, it can actually offer greater benefit to those 'just getting by'.

Its 'Revisiting the value of financial advice' report found that a 'non affluent' group of investors enjoyed a 24% pension boost and 35% increase in financial wealth, compared with 11% and 24% in the affluent group.

This growth, it claims, can partly be explained by advised customers being more likely to invest in riskier assets that offer greater returns.

Financial advice: the basics

Financial advisers can provide guidance on all manner of financial topics, such as pensions, investments, tax, mortgages and equity release and care planning.

While you can use comparison websites for more basic tasks such as choosing a savings account, more complex issues such as pension planning and investing can benefit from expert advice.

When you choose an adviser, you'll usually start with an introductory meeting where you'll explain your ultimate aims. After this, the adviser will conduct a 'fact find' and look closely at your finances, before providing a full financial plan including any product recommendations.

Financial advisers are regulated by the Financial Conduct Authority (FCA) and must adhere to a strict set of codes. You can check the FCA register to ensure an adviser is properly authorised.

IFAs and 'restricted' advisers

Financial advice comes from two different sources, independent financial advisers (IFAs) and restricted advisers.

IFAs are obliged to look at the whole market and consider fund charges when making recommendations.

Restricted advisers, meanwhile, don't have to assess the whole market and are allowed to receive pay linked to the amount you invest in their recommended funds, which can be a riskier proposition.

It's worth being aware that the term 'restricted adviser' is also sometimes used to describe an adviser that works on one specialist area (such as equity release).

The cost of financial advice

Financial advisers generally charge in three ways: flat fees, hourly fees or as a proportion of the money you're investing.

When Which? surveyed 108 financial advisers in August, we used the following three scenarios to get average quotes:

ScenarioAverage quote
I'm approaching retirement with £100,000 in savings, £150,000 pension and £100,000 in an investment Isa, and I want advice on drawing an income in retirement.£2,540
I'm 50 with comfortable savings and no mortgages, and would like to invest a £100,000 inheritance.£1,980
I'm 10 years into my career with £60,000 in savings and £40,000 in an investment Isa. I'd like to start saving for my child's university education.£1,060

Bear in mind that the costs of financial advice add up. Simply investing a £50,000 portfolio for five years would cost £3,300, compared with £4,175 with financial planning, according to quotes from VouchedFor in May this year.

A new generation of 'robo-advisers' such as Nutmeg and OpenMoney offer cheaper variants of financial advice, using both mobile apps and advisers over the phone.

Don't forget it's possible to get free and impartial advice on preparing for retirement from the Pensions Advisory Service.

Which? investigates: St James's Place

Financial advice can have plenty of benefits, but it can also go wrong - as we found in our undercover investigation into the UK's biggest adviser, St James's Place, back in 2017.

We arranged 12 undercover meetings and found that some of SJP's advisers broke FCA rules by failing to detail their upfront fees and ongoing charges.

We also found that several advisers failed to inform customers that they were 'restricted' advisers rather than whole-of-market independent financial advisers.

A separate Which? investigation in November 2017 found that some financial advisers using the comparison website unbiased.co.uk were publishing false credentials.

With this in mind, it's vital to do your research and ensure you're definitely getting the service you're paying for before handing over any cash.

Tips for choosing a financial adviser

To get to grips with the basics of financial advice, check out our guides on finding a financial adviser, the cost of financial advice and your pension advice options.

The Financial Conduct Authority and Money Advice Service also provide guides on the basics of finding a financial adviser.

  1. Consider the type and level of advice you need:decide whether you need specialist advice in one area or are instead seeking a comprehensive financial plan.
  2. Check the adviser's qualifications:check the FCA register and look out for additional industry-specific qualifications, such as being a Certified or Chartered Financial Planner.
  3. Negotiate on fees:don't always accept the first quote. Get to grips with the type of fees you should be paying and be prepared to negotiate.
  4. Ensure you trust your adviser: it's vital to ensure you're getting a personalised service from an adviser you trust, so ensure you do your research and hold introductory meetings with different advisers until you find a suitable match.
  5. Ask for recommendations in writing:ensure your adviser gives you a hard copy of their recommendations and ask for explanations of anything you don't understand.