A version of this article was published in November 2012 as part of Morningstar's special report on RDR.
Morningstar has been helping investors manage their own money since 1984, but we also fully understand the value of seeking professional advice and the peace of mind that can bring.
Why Seek Financial Advice?
A financial professional can help you save on inheritance tax, protect your income in the event of illness or death, plan for further education costs, prepare for a comfortable retirement, assess the impact of a change in your circumstances, and many more scenarios. Whatever your situation, one of the most commonly-quoted benefits of seeking the help of a professional is the peace of mind that comes with knowing your financial future is in the hands of a qualified expert.
A good financial adviser should be able to explain you current situation and outlook in simple terms, help you identify your medium- and long-term goals, guide you through the process of selecting investment products that suit your needs, manage your expectations and help you prepare for different outcomes. They should also regularly review your progress to make sure you're on track to meeting your goals.
The security provided by this level of hand-holding comes at a cost—the fees charged by your adviser, which is one of the reasons some individuals prefer to go it alone—but a good adviser's clients will tell you that being able to sleep at night is worth every penny. Even those who prefer to DIY invest will occasionally feel it's worth paying to have a pair of professional eyes review their portfolio and goals.
How to Find a Financial Adviser
What Do You Need?
If you want to seek financial advice, one of the first questions your need to ask yourself is what you actually need. Is it a one-off review of a specific problem, such as managing inheritance tax? Or do you want a full review of your financial goals, the construction of an investment plan, and ongoing management of your assets? If it's the former, you can narrow your search to those advisers who specialise in an area that addresses your needs.
Hunt Down a Good Reputation
As with seeking out a reliable builder or a suitable solicitor, many choose to search by reputation, seeking out the recommendations of friends, family and colleagues. There are also several online services and directories that can help you find a professional whose skills meet your needs.
One useful website to help you find a financial adviser is VouchedFor.co.uk. This site lists advisers from across the nation, allows you to search for advisers in your neighbourhood, and encourages clients to rate their advisers. Another two sites that will help you find financial advisers near you are unbiased.co.uk and FindAnAdviser.org. The Institute of Financial Planning also has a page where you can search for certified financial planners. (These planners have achieved a level 6 qualification, which is over and above the level 4 qualification that all advisers are required to hold from January 2013 onwards.)
Once you've drawn up a shortlist of potential advisers, call each in turn to determine how much money you'll need to become their client and to confirm their services and specialties.
Your First Meeting
An initial meeting with your potential adviser should be free of charge and you should prepare for the consultation by drawing up a list of questions and concerns, as well as the issues that you want them to address.
Make sure you review the adviser's credentials and experience. Almost as important is ensuring you share the same investment philosophy. Employing a financial adviser often turns into a long-term relationship, so irrelevant of the type of professional you're relying on for investment suggestions—which funds and stock to buy—be sure your thinking is aligned.
Ask advisers to walk you through their investment process, and the types of products they typically recommend to people in your situation. Do they use funds (unit trusts and investment trusts), exchange-traded funds (ETFs), individual stocks or insurance-based products such as annuities? Ask a prospective broker or adviser to discuss how frequently they trade, as well as to explain thoroughly what would make them sell a stock or fund. You might even want to request a copy of a typical financial plan.
Understand Their Costs
Don't leave an adviser's office until you completely understand how the adviser is compensated. All financial advisers—whether they offer independent or restricted advice—charge fees that must be transparent and agreed with the client in advance. With commission-based advice largely outlawed, fees now come in the form of an hourly rate, a set charge to address a specific need, or a percentage of assets per year to manage your money on an ongoing basis.
If you're looking for one-off advice or you need a specific problem addressed, you may find that the hourly rate works out to be more cost effective. If you need more ongoing hand-holding—you want your adviser to be available to answer your questions and calm your fears any day of the week—the percentage-of-assets fee model may make more sense for you.
Once you understand the structure of an adviser's compensation, get those details in writing.
Share the Knowledge…And the Load
Finally, make sure you're not the only one who understands your family's finances. Your partner should be able to share the burden and to pick up where you left off in the event something happens to you. All too often a bereaved partner is left struggling to decipher their finances at a time when additional stresses are unmanageable. A good adviser will make sure you're both in charge.
To learn more about the 2013 rules that overhauled the investment advice industry, watch this video.
