How to choose a financial adviser

There are two main types of advice provider. One is ‘restricted’ which means the provider has access to a limited number of products or solutions. The other is ‘whole of market’, usually referred to as ‘independent’ where the adviser has access to all of the providers and solutions available.

Who are advice providers

There are many different types of advice providers but the main ones are:

Banks and building societies
Stockbrokers/discretionary fund managers
Firms of restricted advisers
Firms of Independent Financial Advisers (IFAs).

What are the main differences between these providers?

Banks and building societies

Most banks and building societies offer some kind of financial advice, but many are restricted and so their services are limited. You might find some offering independent advice but this has become quite rare.

Whilst some tend to deal with any customer, others have a 'wealth' division specifically aimed solely at wealthy or very wealthy individuals. In many cases that service is usually via a 'discretionary fund manager' arrangement, similar to those offered by traditional stockbrokers (see below).

Stockbrokers/discretionary fund managers

Stockbrokers and discretionary fund managers, often referred to in the trade as DFMs, mainly tend to offer a discretionary managed portfolio. This is where the chosen manager makes changes to the portfolio of investments without needing to check with the client first (although some still offer an advisory service where they do). Once the level of risk clients are willing to take has been assessed, the chosen fund manager will put together a portfolio for them. These portfolios tend to cover a broad spread of mostly UK and international stock market assets, often a combination of individual shares (also known as equities), bonds and funds.

Although these providers give expert fund management, most do not have in-house financial advisers, so cannot offer specific pension or other strategic financial advice themselves. They often work with external IFAs (such as ourselves) to provide that service to their clients.

Firms of restricted advisers

Restricted advisers make recommendations from a restricted number of providers or products (as the name suggests!) They can be extremely limited in what they can offer – some have just one provider or solution. Others are able to choose from a broad spread but can be excluded from certain types of investment and products.

Firms of independent financial advisers (IFAs)

Independent financial advisers have access to the whole market. With no holds or restrictions on services, they can change the underlying investment solutions according to conditions, performance, charges and service.

This means IFAs can mix solutions. For example, clients with larger portfolios can choose to spread their investments across a number of funds and products to share the risk. They can also choose different solutions where there is more than one objective. As they operate independently, the IFA can recommend the funds or fund managers that they consider best in each category, rather than being limited to having the same one covering all bases.

How do I know if an adviser is independent or restricted?

This should be clear from their literature and marketing. However the best way to find out if you’re unsure is simply to ask – all advisers must confirm their position when asked.

Why should I use a restricted adviser?

Many IFAs and restricted advisers have a minimum portfolio size requirement before taking on a new client. People with smaller regular investment amounts or lump sums, may find it difficult to access good quality financial advice in a cost efficient way. For those individuals, it can be sensible to choose a mass-market restricted adviser with a simple product range at a low cost.

However, some IFAs have investment solutions that cater for smaller clients with simple solutions at a lower cost, so it’s worth having a look around.

When am I likely to need a financial adviser?

There are a number of reasons why taking financial advice is likely to be beneficial. These include planning for retirement, choosing the options at retirement, setting up life and other insurances, taking out a mortgage and for developing a financial strategy generally.

Examples of each are given below:

Financial strategy

It is important to consider a long term strategy to help individuals to plan for their financial futures, including retirement. A financial adviser can help determine when you are likely to be able to retire, how much income you will need and how much you should to save to achieve that goal. An adviser can help to choose how much to invest into pension plans, compared to other routes such as paying off mortgages and saving into other tax efficient areas such as Individual Savings Accounts (ISAs).Read more: Your guide to different types of savings accounts

Pension planning

It is important to consider and plan for the income tax relief offered when making pension contributions. This is a complex area where there are some particularly attractive opportunities, especially for those in the higher income brackets. For example, there are some individuals who can achieve an effective income tax relief rate of 60% whilst higher and additional rate taxpayers can achieve income tax relief at the 40% and 45% rate respectively.

The adviser can ensure that the underlying investment funds selected within the pension are appropriate for the client’s risk tolerance and the period of time that the underlying investments are likely to remain in place. Many individuals join company pension schemes and accept the ‘default’ fund offered without understanding the risk they are taking and the other options that are available to them.

At retirement advice

There are a number of options open to individuals when they decide to take their pension benefits. As well as buying an annuity (the conversion of the pension fund value into an income for life), there is now the opportunity to take a flexible income which allows access to whatever level of the funds is required at any time once the minimum age (currently 55) is reached. It is sensible to plan withdrawals carefully to avoid unnecessary tax charges and to take advantage of lower tax rates. For some, it may be sensible to take the ‘income’ needed from other sources to leave the tax free benefits of the pension in place. Getting advice is very important, to ensure the option chosen is most suitable for your circumstances.

Should I consolidate my pensions?

This will depend on your personal circumstances and the types of pension you have. Over the years you may collect a number of different pensions, particularly when changing jobs. It is worthwhile to review your pensions and, in some cases, consolidate them into a more suitable one, possibly with lower charges, more flexibilities and funds more appropriate to your risk tolerance. Getting the right pension advice will ensure the right course of action is followed.

Life insurance and other protections

While it is a difficult subject to think about, it is worth considering life insurance for you and your loved ones if the worst would happen and you pass away, suffer a “critical illness” such as a heart attack or cancer, or have an accident or illness that keeps you off work. Advisers can help you choose the right product types, providers, levels of cover and policy terms to suit your needs and budget.

Mortgages and equity release

The mortgage market is itself extremely broad and it is important to choose a mortgage to suit the individual. In some cases, a fixed rate mortgage may give the certainty required. An adviser can help choose the provider with the most attractive terms for the type selected. Some mortgage advisers also offer equity release advice, to enable older individuals to release value from their properties which can help towards their retirement income needs.

Do I have to use a financial adviser?

There is no requirement to use a financial adviser. There are plenty of individuals who manage their own investments and undertake their own research regarding insurances and pensions. Whilst this can work well for some people, using an expert adviser is a better option for most. Read our article of five things to consider when choosing a IFA.

Where do I find a financial adviser?

Many people find their financial adviser through recommendations from their friends and contacts, or from a trusted professional source such as their solicitor or accountant. These professionals tend to come across a number of IFAs over a period of time, so should be in a good position to put individuals in touch with a suitable adviser who they feel would work well with the particular client.

What questions would I ask an adviser?

Many advisers, including us, allow potential clients to have a free initial meeting to discuss their requirements and help decide whether that adviser is likely to be suitable. It may be sensible to have a meeting with two or more advisers to understand the differences between them and to help make a more informed choice.

Some of the questions that could be asked include:

Are you an independent or restricted adviser?
What services do you offer?
How do you charge for your services?
Can you confirm that you are authorised by the Regulator, the Financial Conduct Authority (FCA).
What are your qualifications?

What can I do if I have a complaint against a financial adviser?

You can make either a written or verbal complaint against an adviser. Once this is received, advisers must follow a strict set of rules to resolve the issue. For example, an acknowledgment of the complaint must be issued quickly and an independent person within the firm must investigate the complaint. A full response must be made within a reasonable timescale. If you are dissatisfied with the response and proposed resolution, you can take the complaint to the Financial Ombudsman Service (FOS). The FOS can give a fully independent assessment of the position and, if that complaint is upheld, they may require the adviser to compensate the individual accordingly.

With so many firms to pick from, how do I choose an IFA?

You would expect most IFAs to work in a similar way and while this is largely the case, there are some important differences to look out for.

It has become increasingly popular for many IFAs to manage their own 'model portfolios'. This could mean they employ one or more individuals to choose funds from all of those available. The manager of the model can change the underlying funds within the model. when they deem it necessary.

However, some IFAs, like ourselves, do not offer their own model portfolios. Instead, in our case, we choose from all of the funds and models available in the market. This allows us choose the one(s) that we consider will work best for our clients in terms of expected performance, service and charges. We can blend those solutions together and change solutions for the client if one or more fails to perform in line with expectations

Do all IFAs offer all products to their clients?

Not necessarily. Some IFAs have decided that certain investments are not suitable for their clients; often these are tax efficient investments such as Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS). These investments attract income tax relief but are very high risk. We do offer these solutions to suitable clients willing and able to afford to take those risks.

How much does a financial adviser cost and how do they charge you?

The cost of a financial adviser varies, depending on how they charge for their services. The most common options are:

Percentage based fees

Many IFAs charge fees as percentages, based on the initial investment amount and the ongoing fund value. Typically, the initial charge is made of up to 3% of the amount invested plus the ongoing charge, often up to 1% per annum of the investment value (known as an ‘ongoing adviser charge or OAC).The OAC is in addition to the underlying investment fund management charges, which can also be as much as 1% per annum. This gives a total annual charge in the region of 2% per annum of the fund value in many cases.

For example, on a £500,000 investment portfolio, the initial charge on the above basis could be as much as £15,000 and the OAC would be around £5,000 in the first year. IFAs using this charging model are therefore remunerated best by having the greatest level of funds under management.

Fixed fees

Some IFAs charge a fixed fee for their services. Many, including us, are happy to agree a fixed fee for a review or setting up of a portfolio. This fee is largely based on the expectation of how much time will be spent on the work. Usually the client will have the option of having the fee deducted from the underlying product or paying the fee directly. In many cases, the fee is free of VAT.

Hourly charges

It is unusual for IFAs to charge for their services based on the amount of hours spent on a case. However some advisers, including us, do offer that option. It can be particularly useful for clients who have significant investment portfolios, as the hourly rate basis can be cheaper than the percentage route discussed above.

How does Alan Boswell Group charge for financial advice?

We like to tailor our charges to fit in with the requirements of our clients. As long as our fees are covered, we are quite happy to allow the client to choose from a number of options.

For initial work, we usually agree a fixed fee based on our estimates of the time likely to be spent. However, we also offer the option of charging on an hourly rate basis.

We can do one off work or offer regular reviews as required. For review based clients who require an ongoing service, we can take an OAC as a percentage, charge a fixed level fee which we consider is likely to roughly equate to the likely time to be spent or send invoices to cover the actual time spent. If OAC is chosen as a percentage, it is usually 0.5% or 0.75% pa, depending on the level of service chosen.

Why should I choose Alan Boswell Group?

The combination of offering truly independent advice, excellent service and an attractive charging structure makes our firm very well positioned in this market. Alongside this, we have a high calibre team, with a wide range of extensive industry experience. They will take the time to understand the needs of our clients and recommend solutions personally tailored to them. The team includes members with many years of experience and training with professional firms such as KPMG, Grant Thornton and Eversheds solicitors.

We receive referrals from many of the top solicitors and accountancy firms in the region and further afield. Indeed, we advise a large number of partners in professional practices personally within this area as well as their clients in Norfolk, London, Cambridge, Ipswich and the Midlands. Please note the following:

The value of tax reliefs depends on your individual circumstances. Tax laws can change.
The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
The information in this article does not represent a personal recommendation.

Please contact your financial adviser with regard to your personal circumstances.