Yogesh Chandarana makes the case for using a financial adviser
PLANNING for a major life event is good practice for investors. And whether buying a house, preparing for retirement, or mitigating against inheritance tax, getting appropriate financial advice is often essential. Although new FSA rules (the Retail Distribution Review (RDR)) are intended to empower investors to take control of their finances, they do not turn them into instant financial planning experts.
Under RDR, there are various ways you can be charged for advice. Advisers can take a percentage of assets under management, or charge hourly fees, ranging up to £200. Advisers can no longer charge commission on sales.
But according to a survey by Fidelity, only 14 per cent of UK adults are prepared to pay for advice, believing that it is either too expensive, or that advisers cannot add value. But there is a case for seeking appropriate assistance.
For example, when buying a house, advisers can help prepare a mortgage application by giving you guidance on how to appear suitable to lenders (like improving your credit score). And in retirement planning, advisers can help to consolidate your holdings into a tax efficient self-invested personal pension.
This advice also has a tangible value. Unbiased recently found that it can boost the value of your investments by over £40,000 on average, compared to those who don’t seek advice.
Importantly, not all advisers cover all the market, meaning they cannot give advice about all types of investments. And it might be appropriate to seek specific types of advice for some areas of wealth planning – like a solicitor for inheritance tax and wills. So the key is to find the appropriate adviser for you.
MARRYING DIFFERENT STRATEGIES
Advisers can help with holistic wealth planning – investors rarely plan for just one financial event. Colin Low of Kingsfleet Wealth says “it is about reconciling different objectives” and that “advisers will plan appropriate asset allocations to achieve them”. This may prove to be difficult for less sophisticated investors acting alone.
For example, in saving for a child’s school fees, you will want more certainty and less risk to capital, so cash may be a more appropriate investment. But pension planning is a long-term battle, and riskier assets may be more appropriate initially. These different needs mean that investors will require different weightings in various asset classes, and advisers can help to structure this.
But the real value of advice lies in regular reviews, where advisers ensure your portfolio is still working towards your long-term objectives. Although there are charges associated , Minesh Patel of EA Financial Solutions says reviews are useful for monitoring the costs you are paying for investments, like fund fees, and making sure products are still appropriate. Patel cites the current “great rotation” from bonds into equities, as well as taking advantage of tax exemptions: “tax planning is unique to each individual. It’s unlikely that you will take full advantage of the exemptions without advice.” These reviews are also useful for planning for unexpected circumstances like redundancy, or divorce, which are often overlooked by DIY investors.
Only 18 per cent of Brits currently take financial advice. But with Unbiased finding that long-term assistance can double the size of your pension pot, the cost involved in accessing advice may well be worth it.