Value of advice

Is financial advice worth it?

If you have never visited a financial adviser before, paying someone money to advise you on what to do with your cash might seem counter-intuitive. After all, modern technology makes it perfectly possible to manage your own investments and pensions without paying anyone a penny.

However, just as you might live to regret a decision to plumb in your own bathroom using a YouTube video and some parts you’ve bought from the internet, you could well end up missing out if you don’t ask an expert about how to make the most of your money. A recent study calculated that those who used a financial adviser around the turn of the century ended up £47,000 better off a decade later 1 than those in similar situations who did not - a figure that spectacularly dwarfs the average cost of financial advice, which varies, but is an average of £150 an hour when charged hourly according to the Government’s Money Advice Service 2.

Why advice makes you wealthy

How can financial advice make such a difference? The study mentioned above, from the International Longevity Centre thinktank (ILC) and insurance provider Royal London, concluded that the increase in wealth for those who had an adviser was partly due to an increased likelihood of investing in assets that carry a greater degree of risk, such as stocks and shares. Over long time periods, statistical studies show that these assets almost always outperform cash that is left in a bank account 3, even though you must take on some risk in order to invest your money rather than saving it. With interest rates at record lows, understanding the value of investment is more important than ever, since money in the bank generally loses value every year rather than gaining it, because of the ravaging power of inflation.

While it is perfectly possible to invest by yourself, a financial adviser can help you to do so comfortably. As well as helping you to understand your own tolerance for investment risk, they can ensure that you put together a well-diversified portfolio that matches that risk tolerance but also aims to give you the investment growth you need. DIY investors often panic and sell stocks and shares at the market is dipping, or buy shares in a company just before it falls in value, whereas a financial adviser can help you to hold your nerve and reassure you that your money is still working towards your long-term goals when the market is volatile.

It’s more than just stocks and shares

On top of encouraging savers to consider higher-growth options and ensuring an appropriate portfolio of investments, financial advisers can help you to plan and save for retirement making the most of the valuable tax advantages available. The ILC and Royal London study showed that clients who received ongoing financial advice had greater pension wealth than those who only received advice at the outset.  This may partly be due to the fact that those people who have large pension pots are more likely to be engaged with them and therefore to use an adviser on an ongoing basis.

Pensions are not the only tax breaks that advisers can help you with. Thanks to the requirement for continual professional development to keep their qualifications up to date, IFAs can also help you to navigate the minefield of other tax allowances, benefits and pitfalls that can make the difference between a comfortable nest egg in later life and slim pickings for retirement. If you are hoping to pass money down to other family members, or save for a specific goal such as school fees, an adviser’s specialist knowledge can also prove invaluable when it comes to avoiding unnecessary tax bills.

With all of this taken care of, advised savers and investors benefit hugely from the reassurance that they are more financially secure. They know that their money is working hard for their futures, without concerns over whether they are timing the stock market correctly, understanding complex tax rules and making correct provision for later life.

Advice is for the many, not the few

Some people think that financial advice is only for the ultra-wealthy, but in fact the ILC and Royal London study showed that advisers added even more value to those with smaller amounts of assets than they did to those with more in the bank. Those classed as ‘affluent’ in the survey were likely to be 24% better off with advice, while for those classed as ‘just getting by’ financially, the figure was 35%. Financial advice, given by highly skilled, highly trained and strictly regulated financial professionals, is likely to improve outcomes for everyone - so it is definitely something everyone should consider 

Financial advice: Know before you go

Before you visit a financial adviser, it’s worth knowing what to expect. Under rules known as RDR (the Retail Distribution Review), advisers are expected to operate under very strict rules, and have to be transparent about what they charge, the qualifications that they hold, and the products they offer.

You should expect to be told

  • How much you’ll pay for advice and whether this is charged as a percentage of investments or as an hourly fee or a set fee for a piece of work.
  • Your adviser’s qualifications.
  • Whether the adviser offers independent advice (can advise on everything) or is restricted (can only advise on certain products or types of products).
  • That your adviser’s firm is regulated by government regulator the FCA (Financial Conduct Authority).This means that you could be entitled to compensation if the firm fails. You can check this online if you’re worried.

The information in this article is for generic purposes only and is not intended to suggest a suitable investment strategy. All investments carry a degree of risk which means that you could receive back less than your initial investment amount. You should seek financial advice before proceeding with any course of action.

To find out how financial advice could benefit your financial future, speak to one of our independent financial advisers. A first meeting is free and there’s no obligation to continue.