Answer: A good independent financial adviser (IFA) can take the stress out of life’s more complicated financial decisions and set you up for the future. But if you haven’t sought advice before, a lack of transparency can make it difficult to get started. I’ll talk you through the truth about IFAs – the costs, the value they offer and how to get the best advice for your money.
First a brief definition: an independent financial adviser is one that looks at the whole of the market when deciding which product(s) best suit your needs. Restricted advisers on the other hand can only recommend certain products or providers. All advisers must be approved by the Financial Conduct Authority and meet the same requirements to make sure they’re providing suitable advice.
Advisers aren’t required to display costs on their websites, and most won’t give an indication of costs until they’ve met you, to ensure their quote is accurate based on your financial situation. But this can encourage people to go with the first IFA they meet.
Only 12 per cent of people who’ve taken advice told us they got more than one quote before choosing an adviser. We recommend getting three.
When looking for an IFA, a comparison site is the best place to start. Unbiased and Vouched For are the biggest. Use their filters to narrow down a shortlist based on areas of expertise and customer reviews, then set up meetings with at least three. If you don’t need to meet your adviser in person, looking beyond your local area could save you money. For instance, Vouched For data reveals average financial planning costs in South East England to be higher than in the North.
Once you’ve met IFAs, you’re better placed to compare costs – including those that aren’t immediately visible.
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Among these are fund charges, platform charges and exit fees. Based on the ongoing charges figure (OCF) – the standard way to compare fund costs – the typical annual cost for an actively managed fund ranges between 0.75 per cent to 1.25 per cent, tracker funds from 0.25 per cent to 0.85 per cent and investment trusts from 0.8 per cent to 1.8 per cent, according to the Money Advice Service.
Ask IFAs to disclose all fees upfront and, if they favor more expensive funds, to explain why. On top of fund fees you may find discretionary fund management charges. Some advisers outsource their investment decisions to a discretionary fund manager, who’ll build and manage a bespoke portfolio for you. However, this service adds an extra layer of costs compared with IFAs who offer in-house portfolios, so ask yourself whether you need it.
Many people have found themselves priced out of financial advice. According to the FCA, the average advised customer has more than £150,000 of assets.
You can use Vouched For or Unbiased to filter advisers according to your investment pot size. If you can’t afford the remaining options, you could pay an IFA a fixed fee to get one-off advice, rather than pay for an ongoing service.
Which? Money subscribers have another option: to call the Which? Money Helpline. With more than 100 years of experience in financial services between them, our team of experts can provide information on a range of personal finance topics, including investment options but also insurance, care costs, tax, savings and seeking reimbursement after a scam.
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